The Securities and Exchange Board of India (SEBI) has introduced stringent new rules to address and prevent market abuse. These regulations, effective from June 27, 2025, mandate stockbrokers to implement robust systems aimed at detecting and mitigating fraudulent activities, including price manipulation, insider trading, unauthorized trading, and other unfair practices like mule accounts. The reforms hold brokers and their senior management directly accountable for market integrity, introducing mechanisms to enhance transparency and fairness in trading activities.
Key Provisions in SEBI’s New Framework
1. Mandatory Systems to Detect Market Abuse
- Brokers must establish surveillance and control systems to identify:
- Misleading trading patterns.
- Price manipulation and pump-and-dump schemes.
- Insider trading and front-running.
- Mis-selling and unauthorized trading.
- Broking firms are responsible for preventing the facilitation of mule accounts, which are often used for fraudulent activities.
2. Accountability of Senior Management
- Senior management of brokerage firms will now be held accountable for implementing and maintaining these systems.
- Firms are required to set up escalation and reporting mechanisms to address any deviations from internal controls or risk management policies.
- Deviations must be reported to Boards of Directors or equivalent bodies, ensuring oversight and corrective actions.
3. Whistleblower Policy Implementation
- Brokers are mandated to introduce a confidential whistleblower policy that:
- Allows employees and stakeholders to report suspected fraud or unethical practices.
- Provides protection to whistleblowers from retaliation.
- Encourages transparency within broking firms.
4. Tightening Rules on Mule Accounts
- Transactions through mule accounts are now explicitly included under Prohibition of Fraudulent and Unfair Trade Practices (PFUTP) norms.
- Brokers must actively prevent manipulative and fraudulent activities conducted through such accounts.
Reporting and Compliance Requirements
- Any deviation in internal controls, risk management, or surveillance policies must:
- Be reported to appropriate internal committees or boards.
- Be included in periodic reports submitted to stock exchanges.
These measures ensure regular oversight of compliance and prompt corrective actions in case of any lapses.
For more details and structured learning, please explore our Fraud Risk Management Course.