SEBI Proposes Sweeping Broker Reforms, Brings Algorithmic and Proprietary Trading under Core Rules Post Jane-Street Case

Moneylife Digital Team 13 August 2025

Investor Interest

Market regulator Securities and Exchange Board of India (SEBI) has proposed a sweeping overhaul of stock broker regulations, seeking to formally integrate algorithmic and proprietary trading into its core framework. Currently governed by guidelines and circulars, these activities will now have defined rules under the main regulatory architecture. The move follows recent enforcement action against US-based trading firm Jane Street and aims to strengthen oversight, standardise compliance, and reduce operational and market risks.

The consultation paper, released on 11 August 2025, proposes a series of reforms to simplify and consolidate broker regulations, with public comments invited until 3 September 2025.

One of the headline changes is the inclusion of explicit requirements for brokers engaging in algorithmic and proprietary trades. SEBI has suggested tighter controls on order-to-trade ratios, limits on algorithmic misuse, robust system audits, and enhanced record-keeping to curb potential market manipulation.

To improve governance and accountability, the market regulator has also proposed that every stockbroker must have at least one director resident in India. This requirement is intended to ensure timely compliance with regulatory directives, improve decision-making and strengthen the link between offshore-owned brokerages and Indian market realities.

The regulator also plans to eliminate outdated definitions such as 'small investor' based solely on trade size, replacing them with more relevant classifications tied to investor risk profiles, investment patterns, and systemic relevance. The current definition, SEBI argues, no longer reflects the complexities of modern markets or investor behaviour.

The consultation paper further outlines the consolidation of multiple circulars and fragmented guidelines into a unified rulebook. This will cover licensing, capital adequacy, governance, operational risk management, client protection and disciplinary procedures. SEBI has emphasised that such a principles-based, comprehensive framework will improve regulatory clarity and ease compliance for market intermediaries.

Market stakeholders, including brokers, exchanges, and investor groups, have been urged to submit feedback on the proposals. After analysing public responses, SEBI is expected to finalise the revised framework, with phased implementation beginning in FY25–26.

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