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The government has proposed an amendment to the Securities Contracts Regulation Act (SCRA) to give brokers more flexibility in using their surplus cash.
Currently, Rule 8 of the SCRA prohibits brokers from engaging in any business other than securities or commodity derivatives. However, the term "other business" is not clearly defined, leading to confusion and restrictions on brokers' ability to make investments.
The Department of Economic Affairs (DEA) has released a consultation paper seeking feedback on the proposed amendment.
The paper suggests allowing brokers to carry out reasonable investment and business activities while ensuring client funds are protected. The government believes that prohibiting brokers from making investments, including in group companies, may place unreasonable restrictions on their ability to use their retained earnings.
The proposed amendment clarifies that broker investments will not be considered "business" unless they involve client funds, client securities, or create financial liabilities. This change seeks to balance market integrity with commercial flexibility for brokers.
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The consultation paper also seeks feedback on specific issues, such as whether investment of proprietary funds in excess of net worth in other companies, including group companies, should be treated as "business", and whether broking officials should be allowed to be on the board of other group companies.
"The proposed amendment aims to strike a balance between maintaining market integrity and granting brokers commercial flexibility. By explicitly permitting investments that do not impact client funds or create liabilities, the amendment addresses concerns that the current rule imposes overly restrictive limitations on brokers' ability to make legitimate investments. Simultaneously, it reinforces the protection of client assets by ensuring that any high-risk or financially burdensome activities are subject to stringent regulation," said Anjali Malhotra, partner-regulatory at Nangia Andersen India.
The government has sought feedback until October 10 on the consultation paper. If implemented, the amendment could provide brokers with more flexibility to manage their investments and use their surplus cash more efficiently, while maintaining protections for client funds.
Bringing clarity
> SCRA currently prohibits brokers from engaging in any business other than securities or commodity derivatives
> Vague definition of ‘other business’ leading to restrictions on brokers’ ability to make investments
> Proposed changes in SCRA allow brokers to carry out reasonable investment and business activities
> Broker investments will not be considered ‘business’ unless they involve client funds, client securities, or create financial liabilities
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