New Delhi: The government has eased compliance for stock and commodity market brokers by providing clarity on investments that do not involve client money.

The Department of Economic Affairs (DEA), ministry of finance has amended Rule 8 of the Securities Contracts (Regulation) Rules, 1957 to clarify that any investments made by a member (broker) shall not be treated as business activity, unless such investments involve client funds or securities or result in a financial liability for the broker, according to a notification on Monday.

Rule 8 of the Securities Contracts (Regulation) Rules, 1957 (SCRR) restricts brokers from engaging, as a principal or employee, in any business other than securities or commodity derivatives. However, according to the rule, they may act as brokers or agents in other businesses, provided such roles do not entail personal financial liability.

“This (change) opens the room for brokers to easily utilise their own funds for a variety of purposes, to buy assets, etc., which was a time-consuming affair earlier,” said Rajesh Palviya, SVP, Axis Securities. 

“One of the reasons for the government easing the rules is the stringent norms for client margin funding, among others,” said Palviya. “Under this, the broker has to collect an upfront 20% margin from clients who wish to trade stocks on an intraday basis. As room for misutilisation of client funds is already tightened, there was a thinking this rule too should be eased.”

The industry had concerns over the interpretation of Rule 8, which prescribes eligibility criteria for membership in stock exchanges.

“After taking note of the concerns raised by various stakeholders over certain provisions in the said Rules, the DEA had released a Consultation Paper in September 2024, inviting stakeholder comments,” the ministry said in its statement.

“Given the growth in the scale and interconnectedness of the financial sector and the evolution of nature of business of brokers with time, the DEA felt it necessary to review the appropriateness of safeguards embedded in the Rules so that the intent of the Rules is served without constraining activities of the stakeholders,” it added.

The amendment, issued through a gazette notification, follows stakeholder consultations and aligns with the government’s broader drive to simplify financial sector regulations.

“The amendment has been carried out after due consideration of feedback from the stakeholders and is part of the broader emphasis of the Government to provide regulatory clarity and enhance ease of doing business in the financial sector," the finance ministry statement said. “It will ensure that market intermediaries continue to support the development of India's capital markets in a transparent and well-regulated manner.”

By updating the rule, the government aims to reduce compliance burdens and facilitate the smooth functioning of market intermediaries, while maintaining transparency and investor protection.

The reform is seen as part of India’s ongoing efforts to modernize its capital market ecosystem and attract greater participation.