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[Diya Ambavi and Nimit Jain are 5th year B.Com. LL.B (Hons.) students at Institute of Law, Nirma University]
In a year marked by increasing market sophistication and the expansion of digital ecosystems, the Securities and Exchange Board of India (SEBI) has made a pivotal regulatory intervention with the issuance of its Master Circular for Stock Brokers on June 17, 2025. Superseding the earlier circular dated August 9, 2024, this revised circular is not merely an aggregation of past instructions, it is a forward-looking framework that reimagines the contours of brokerage operations in India. The latest circular focuses on enhancing audit mechanisms, enabling cross-border operability, and democratizing access to sovereign debt markets. Together, these reforms suggest a deliberate shift in SEBI’s regulatory stance from enforcement-led compliance to strategic modernization that integrates foresight, accountability, and global competitiveness.
The New Framework for System Audit Supervision
Clause 17 of the 2025 circular introduces a digital-first approach to the supervision of system audits. While the 2024 circular required brokers to conduct annual audits, the updated regulation mandates that exchanges establish dedicated web-based platforms to track every phase of the audit lifecycle. This includes scheduling, real-time status monitoring, report uploads, and compliance resolutions. Auditors must be chosen from an empanelled list and are limited to three audit cycles, followed by a two-year cooling-off period. The audit scope now extends to Order Management Systems (OMS), Risk Management Systems (RMS), artificial intelligence use, cybersecurity, and cloud infrastructure. Geo-tagging and time-stamping of audit visits add an additional layer of integrity.
In contrast to the document-based, backward-looking mechanisms of 2024, the 2025 circular reflects a proactive and digitally monitored audit process aligned with RegTech innovations. It signals a move from reactive compliance monitoring to predictive risk control. These reforms open the door to the integration of future technologies, such as AI-based anomaly detection and blockchain-based audit trails. By enabling exchanges to directly oversee auditor performance and compliance status, SEBI has made compliance not just mandatory, but measurable. These changes provide a structured opportunity for brokers to enhance internal governance while aligning with global standards.
GIFT-IFSC and the Rise of Separate Business Units
Clause 71 establishes a regulatory framework that allows SEBI-registered stock brokers to establish Separate Business Units (SBUs) within the Gujarat International Finance Tec-City (GIFT-IFSC) without seeking additional registration. These SBUs are required to maintain ring-fencing from their domestic operations, including distinct capital structures, separate books of accounts, and isolated IT systems and client databases. Notably, clients operating under the SBU model will not be covered by SEBI’s domestic protections, such as the SEBI Complaints Redress System grievance platform or the Investor Protection Fund.
This strategic allowance serves as a regulatory bridge, enabling Indian firms to tap into global financial markets while preserving the sanctity of domestic regulatory oversight. SEBI’s ring-fencing requirement ensures that globalisation does not come at the cost of systemic vulnerability or jurisdictional ambiguity. The creation of SBUs also offers brokers a flexible architecture to segregate business risks and enter high-growth markets such as derivatives, depository services, and cross-border investment products within a dedicated legal framework. However, the trade-off lies in the withdrawal of direct SEBI protections, making disclosures and risk education crucial for IFSC clients.
Entry into the Sovereign Debt Market via NDS-OM access
Clause 72 introduces a ground breaking policy by allowing SEBI-registered brokers access to the Negotiated Dealing System-Order Matching (NDS-OM) platform, traditionally reserved for banks and primary dealers. This initiative follows the Reserve Bank of India’s (RBI) February 2025 notification liberalizing access to the G-Sec market. Under this clause, brokers must create SBUs that operate independently and comply with RBI regulations, including capital adequacy norms and operational independence.
SEBI retains oversight over the broker’s equity and derivatives activities, while RBI supervises sovereign debt trading. This dual-regulation model introduces operational complexity but offers unprecedented access to retail and institutional clients looking to invest in government securities. While the 2024 circular had no such provision, the 2025 circular reflects a major step toward expanding India’s debt market and fostering financial inclusion. It also represents an important instance of inter-regulatory cooperation, demonstrating SEBI’s alignment with broader macroeconomic goals. Importantly, this step empowers brokers to act as facilitators for retail and high net-worth individuals seeking fixed-income exposure, thus building a parallel avenue for long-term capital flow.
Investor Risk Reduction Access
Clause 92 of the 2025 circular expands on the Investor Risk Reduction Access (IRRA) platform first introduced under clause 88 of the 2024 circular. The platform serves as a safety net for investors in the event of a broker system outage, allowing users to square off existing positions or cancel pending orders. The revised framework introduces an admin terminal for brokers, allowing them to track client activity on the platform. It also introduces OTP-based login verification using either PAN or Unique Client Code, strengthening authentication protocols.
Importantly, IRRA restricts client functionality to actions that mitigate open market risk. The expansion of IRRA from a basic recovery tool in 2024 to a fully governed interface in 2025 reflects SEBI’s emphasis on business continuity, investor security, and technological resilience. It ensures that systemic outages no longer equate to investor paralysis, offering a pragmatic solution to modern infrastructure failures. In providing a risk-reduction layer that remains neutral and interoperable across exchanges, SEBI reinforces its role as a market stabiliser. The framework also encourages brokers to invest in failover strategies and client communication protocols, thereby raising the floor on crisis response.
Clients’ Funds and Bank Guarantee Reforms
Clauses 96 and 97 of the 2025 circular comprehensively reform how brokers manage and deploy client funds. The creation of bank guarantees using client balances is now explicitly prohibited, and brokers may only use proprietary or non-client resources for such instruments. In addition, brokers are required to upstream all clear credit balances to clearing corporations by the end of each trading day. These transfers must occur via designated accounts and must comply with approved investment norms, such as overnight mutual fund schemes or fixed deposits.
The move introduces much needed discipline in fund management and closes gaps that previously allowed for misuse or opaque deployment of client assets. Compared to the 2024 circular, which recommended but did not mandate such practices, the 2025 circular imposes enforceable safeguards. It aligns India’s regulatory framework with international fiduciary standards and enhances the transparency of capital market intermediaries. These reforms also protect clearing corporations and counterparties by ensuring that daily margins are adequately funded and are not subject to internal diversions. This systemic efficiency, in turn, contributes to market stability.
Conclusion
SEBI’s 2025 Master Circular does not simply rewrite the rules but it redefines the regulatory architecture of India’s brokerage industry. Whether through the digitization of audit supervision, the establishment of SBUs in international financial jurisdictions, the expansion into sovereign debt trading, or the safeguarding of client assets, the circular offers a blueprint for a modern and resilient capital market ecosystem. Unlike its 2024 predecessor, the 2025 circular is broader in ambition and deeper in structure.
It reflects SEBI’s evolving identity from a rule enforcer to a strategic enabler of capital market innovation. For brokers, this means access to new markets, but also heightened responsibility in terms of compliance and transparency. SEBI has not just reacted to change, it has anticipated it, and in doing so, positioned India’s financial markets for a more integrated, accountable, and globally competitive future. As regulation increasingly intersects with technology, data, and globalisation, the 2025 circular marks a definitive step toward regulatory maturity.
– Diya Ambavi & Nimit Jain
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