Description

BSE clarifies that stockbrokers, even if registered as research analysts, are not permitted to distribute lending products (home loans, personal loans, etc.) other than those specifically permitted by SEBI such as MTF and T+1+5 funding.

Summary

BSE has issued a clarification regarding the distribution of third-party products by trading members, specifically addressing the distribution of lending products by stockbrokers who are also registered as research analysts. The circular reinforces that stockbrokers must comply with Exchange 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).

Key Points

  • BSE reiterates compliance requirements from Exchange notice No. 20250616-26 dated June 16, 2025
  • Stockbrokers are restricted to offering only SEBI-permitted lending products: Margin Trading Facility (MTF) and T+1+5 funding
  • This restriction applies even if stockbrokers are registered as research analysts
  • Trading members have been observed distributing various types of loans in violation of existing guidelines
  • SEBI FAQ clarification (Ref. No. SEBI/HO/MIRSD/MIRSD-PoD/P/CIR/2025/105 dated July 23, 2025) permits research analysts to distribute banking products at family/group level, but this does not override stockbroker restrictions

Regulatory Changes

This is not a new regulatory change but a clarification of existing rules. The circular addresses potential confusion arising from SEBI’s FAQ on Research Analysts (Point 31(iii)) which states that research analysts/research entities may carry out distribution of banking products not under SEBI’s purview to their clients at family/group level. BSE clarifies that this provision does not exempt stockbrokers from the restrictions imposed under the third-party product distribution framework.

Compliance Requirements

Prohibited Activities: Stockbrokers and trading members are NOT permitted to distribute the following lending products:

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

Permitted Activities: Stockbrokers may only engage in the following SEBI-permitted lending products:

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

Action Required:

  • Members must ensure strict compliance with Exchange notice No. 20250616-26 dated June 16, 2025
  • Members must immediately cease distribution of prohibited lending products if currently engaged in such activities
  • Members must take note of the circular contents and implement necessary compliance measures

Important Dates

  • Notice Date: December 22, 2025 (Notice No. 20251222-13)
  • Reference Circular: Exchange notice No. 20250616-26 dated June 16, 2025
  • SEBI FAQ Reference: SEBI/HO/MIRSD/MIRSD-PoD/P/CIR/2025/105 dated July 23, 2025
  • Effective Date: Immediate compliance required

Impact Assessment

Business Impact:

  • Trading members who are also registered as research analysts and currently distributing various loan products must discontinue these activities immediately
  • Potential revenue loss for stockbrokers engaged in distribution of prohibited lending products
  • Stockbrokers must review their third-party product distribution arrangements and terminate non-compliant relationships

Operational Impact:

  • Trading members need to conduct internal audits of their distribution activities
  • Modification of client offerings and marketing materials may be required
  • Compliance and risk management teams must implement controls to prevent unauthorized distribution

Market Impact:

  • Ensures clear separation between stockbroking activities and general banking product distribution
  • Protects investors by ensuring stockbrokers focus on SEBI-regulated products
  • Reduces potential conflicts of interest and mis-selling risks in the distribution of credit products

Regulatory Impact:

  • Reinforces regulatory boundaries between different financial service providers
  • Clarifies that research analyst registration does not provide exemption from stockbroker restrictions
  • Strengthens investor protection framework by limiting scope of product distribution by stockbrokers

Impact Justification

High importance as it provides critical regulatory clarification restricting stockbrokers from distributing various loan products, affecting business operations of trading members who are also registered as research analysts.