SEBI Finalises Proposal to Curb Misuse of Proprietary Trading Terminals

The Securities and Exchange Board of India (SEBI) has finalised a policy aimed at preventing the misuse of proprietary trading terminals—platforms brokers use for self-trading. According to news reports, the regulatory framework has been broadly finalised and shared with stakeholders. Exchanges will be directed to implement the policy after seeking input from brokers, who will be given a reasonable timeframe to comply.

MAC and Static IP Mapping for Better Oversight

The news reports also added that the exchanges will be required to track trading terminals by mapping their MAC ID (Media Access Control address) and Static IP address. This measure will help ascertain the exact location of terminals and detect any unauthorised movement. If a terminal is relocated, the exchange system will flag the change and trigger a query, thereby preventing misuse.

A MAC address is a unique, hardware-based 12-digit identifier assigned to a device’s network interface, facilitating communication within a local network. A Static IP address, on the other hand, is a fixed, unchanging 32-bit number assigned by an Internet Service Provider (ISP) for internet connectivity. While SEBI also explored geo-tagging as a tracking method, brokers pushed back, citing high costs and execution challenges.

Brokers Misusing Proprietary Terminals to Bypass Margin Rules

SEBI’s crackdown comes after inspections revealed that certain brokers were renting out proprietary trading terminals for a commission, effectively enabling traders to avoid paying margin money. Since brokers’ own funds with exchanges covered trades, margin requirements were bypassed—an unintended loophole that gained popularity after SEBI tightened margin norms.

In some cases, regulatory officials found trading terminals registered in Mumbai but physically operated from other states. Additionally, when brokers submit trades to exchanges, they must classify them as client trades (CLI) or proprietary trades (PRO). However, some brokers misused proprietary terminals by falsely labelling client trades as proprietary to evade margin rules.

SEBI has repeatedly cautioned brokers against such violations and emphasised the need for tighter oversight of their authorised persons. The finalised proposal, once implemented, is expected to bring more transparency and regulatory compliance in proprietary trading operations.

Conclusion 

SEBI’s new policy aims to enhance transparency and prevent misuse of proprietary trading terminals by enforcing MAC and Static IP tracking. By addressing loopholes that allowed brokers to bypass margin rules, the regulations will strengthen market integrity.

While brokers have raised concerns over implementation costs, the measures are expected to curb unauthorised trading practices and ensure stricter compliance, ultimately fostering a fairer and more secure trading environment in India’s financial markets.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. This does not constitute a personal recommendation/investment advice. It does not aim to influence any individual or entity to make investment decisions. Recipients should conduct their own research and assessments to form an independent opinion about investment decisions.