Stock Exchange Membership Norms – Govt Eases Investment Rules

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  • Last Updated on 21 May, 2025

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SCRR Rule 8 amendment

Notification No. G.S.R. 318(E), Dated 19.05.2025

1. Regulatory Snapshot

The Ministry of Finance has issued Notification No. G.S.R. 318(E) dated 19 May 2025, amending Rule 8 (f) of the Securities Contracts (Regulation) Rules, 1957 (SCRR). The change clarifies when a broker’s own investments are deemed “business” for stock-exchange membership eligibility. The amendment took effect on its publication in the Official Gazette—19 May 2025.

2. What Rule 8 (f) Said Before the Amendment

  • A prospective member “shall not be engaged in any business other than that of dealing in securities or commodity derivatives,” except as a broker/agent without personal financial liability.
  • Because the term “any business” was undefined, even a broker’s proprietary investments risked being treated as disqualifying activity.

3. The New Proviso—Key Text

“Provided further that investments made by a member shall, at all times, not be construed as business except when such investments involve client funds or client securities, or relate to arrangements which are in the nature of creating a financial liability on the broker.”

4. Regulatory Intent & Rationale

  • Ease of doing business – Removes unintended bar on brokers deploying idle capital for treasury activities.
  • Investor protection – Still ring-fences any activity that touches client assets or encumbers the broker, which could lead to systemic risk.
  • Clarity for exchanges & SEBI – Provides an objective test to assess future membership applications and surveillance cases.

5. Practical Impact on Brokers

  1. Broader investment avenues – Brokers may now invest proprietary funds in start-ups, AIFs, real estate, etc., without breaching Rule 8(f).
  2. Zero tolerance for client-linked deals – Any investment structure funded—even partly—by client monies remains forbidden unless squarely within securities broking.
  3. Lower compliance friction – Stock exchanges need not seek granular disclosures on every proprietary trade; focus shifts to client-asset safeguards.

6. Effective Date

The amendment is already in force from 19 May 2025; no transitional period is provided. Brokers currently under membership scrutiny may request exchanges to apply the clarified test prospectively.

Click Here To Read The Full Notification

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Author: Taxmann

Taxmann Publications has a dedicated in-house Research & Editorial Team. This team consists of a team of Chartered Accountants, Company Secretaries, and Lawyers. This team works under the guidance and supervision of editor-in-chief Mr Rakesh Bhargava.

The Research and Editorial Team is responsible for developing reliable and accurate content for the readers. The team follows the six-sigma approach to achieve the benchmark of zero error in its publications and research platforms. The team ensures that the following publication guidelines are thoroughly followed while developing the content:

  • The statutory material is obtained only from the authorized and reliable sources
  • All the latest developments in the judicial and legislative fields are covered
  • Prepare the analytical write-ups on current, controversial, and important issues to help the readers to understand the concept and its implications
  • Every content published by Taxmann is complete, accurate and lucid
  • All evidence-based statements are supported with proper reference to Section, Circular No., Notification No. or citations
  • The golden rules of grammar, style and consistency are thoroughly followed
  • Font and size that's easy to read and remain consistent across all imprint and digital publications are applied