Description

BSE clarifies that stockbrokers, even if registered as research analysts, cannot distribute lending products (home loans, vehicle loans, personal loans, etc.) except those specifically permitted by SEBI like MTF and T+1+5 funding.

Summary

BSE has issued an important clarification regarding the distribution of third-party products by trading members. The exchange clarifies that stockbrokers, even if they are registered as research analysts, must comply with BSE notice No. 20250616-26 dated June 16, 2025, and are prohibited from engaging in distribution of lending products such as home loans, vehicle loans, personal loans, education loans, and loan against securities (LAS), except for those specifically permitted by SEBI (MTF and T+1+5 funding). This clarification addresses confusion arising from SEBI’s FAQ on Research Analysts that allowed distribution of banking products at family/group level.

Key Points

  • Stockbrokers registered as research analysts must comply with BSE’s third-party product distribution framework
  • Trading members cannot distribute lending products (home loans, vehicle loans, personal loans, education loans, LAS, etc.) other than SEBI-permitted products
  • Only MTF (Margin Trading Facility) and T+1+5 funding are currently permitted lending products for brokers
  • SEBI’s FAQ for Research Analysts (Circular SEBI/HO/MIRSD/MIRSD-PoD/P/CIR/2025/105 dated July 23, 2025) does not override BSE’s distribution framework for stockbrokers
  • BSE has observed stockbrokers registered as research analysts distributing various types of banking loan products in violation of guidelines

Regulatory Changes

This circular does not introduce new regulations but provides critical clarification on the applicability of existing rules. It reinforces that:

  • BSE Notice No. 20250616-26 dated June 16, 2025 on “Distribution of Third-Party Products by Trading Members” applies to all stockbrokers regardless of their research analyst registration
  • The SEBI FAQ clarification (Point 31(iii)) that allows research analysts/entities to distribute banking products at family/group level does not create an exemption for stockbrokers from BSE’s distribution framework
  • Clause (m) of the June 16, 2025 notice remains fully applicable: “Brokers shall engage only in the lending products which are permitted by SEBI from time to time, such as MTF and T+1+5 funding”

Compliance Requirements

Immediate Actions Required:

  1. Stockbrokers registered as research analysts must immediately cease distribution of unauthorized lending products including:

    • Home loans
    • Vehicle loans
    • Personal loans
    • Education loans
    • Loan Against Securities (LAS)
    • Any other lending products not specifically permitted by SEBI

  2. Permitted Activities: Stockbrokers may only engage in distribution of lending products specifically permitted by SEBI:

    • Margin Trading Facility (MTF)
    • T+1+5 funding

  3. Framework Compliance: All trading members must ensure strict compliance with BSE notice No. 20250616-26 dated June 16, 2025 regarding distribution of third-party products

  4. Review and Audit: Members should review their current third-party product distribution arrangements and ensure alignment with permitted activities

Important Dates

  • December 22, 2025: Circular issued (Notice No. 20251222-13)
  • June 16, 2025: Original BSE notice on distribution of third-party products (Notice No. 20250616-26)
  • July 23, 2025: SEBI FAQ on Research Analysts issued (Circular SEBI/HO/MIRSD/MIRSD-PoD/P/CIR/2025/105)
  • Effective immediately: Compliance required with immediate effect

Impact Assessment

High Impact on:

  • Stockbrokers with dual registration: Stockbrokers who are also registered as research analysts and have been distributing banking loan products will need to immediately discontinue these activities
  • Revenue streams: Brokers earning commission/fees from distribution of home loans, vehicle loans, personal loans, and other lending products will lose this revenue source
  • Client relationships: Brokers offering comprehensive financial services including loan products will need to restructure their service offerings

Operational Impact:

  • Immediate cessation of ongoing loan product distribution arrangements
  • Potential contractual obligations with banking partners may need to be terminated or renegotiated
  • Client communication required to inform about discontinuation of loan product distribution services
  • Compliance and risk management processes need to be updated to prevent inadvertent violations

Regulatory Risk:

  • Non-compliance may result in disciplinary action by BSE
  • Members found distributing unauthorized lending products face potential penalties
  • Enhanced regulatory scrutiny on third-party product distribution activities

Market-wide Impact:

  • Standardizes the regulatory approach across stockbrokers regardless of other registrations
  • Removes ambiguity created by SEBI’s Research Analyst FAQ
  • Reinforces SEBI’s and exchange’s control over permissible business activities of stockbrokers
  • May impact the broader loan distribution ecosystem if stockbrokers were significant distributors

Impact Justification

Critical compliance clarification affecting all stockbrokers registered as research analysts who distribute lending products, requiring immediate cessation of unauthorized lending product distribution