Description

NSE clarifies that stock brokers, even if registered as research analysts, cannot engage in distribution of lending products like home loans, vehicle loans, personal loans, etc., except those specifically permitted by SEBI such as MTF and T+1+5 funding.

Summary

NSE has issued a clarification regarding distribution of third-party products by trading members. The circular addresses a regulatory gap where trading members registered as research analysts were distributing banking products including various types of loans. NSE clarifies that stock brokers, regardless of their registration as research analysts, must comply with the framework established in circular NSE/INSP/68566 dated June 16, 2025, which prohibits engagement in lending products except those specifically permitted by SEBI (MTF and T+1+5 funding).

Key Points

  • Stock brokers registered as research analysts must comply with the same third-party product distribution guidelines as other brokers
  • Brokers are not permitted to distribute lending products such as Home Loan, Vehicle Loan, Personal Loan, Education Loan, and LAS (Loan Against Securities)
  • Only SEBI-permitted lending products like MTF (Margin Trading Facility) and T+1+5 funding are allowed
  • This clarification addresses confusion arising from SEBI’s FAQ on Research Analysts (SEBI/HO/MIRSD/MIRSD-PoD/P/CIR/2025/105 dated July 23, 2025) which allowed RAs to distribute banking products at family/group level
  • The restriction applies specifically to stock brokers acting as distributors, regardless of additional registrations

Regulatory Changes

This circular does not introduce new regulations but provides critical clarification on existing rules from circular NSE/INSP/68566 dated June 16, 2025. It clarifies that the exception provided to research analysts in SEBI’s FAQ (allowing distribution of banking products at family/group level) does not apply to stock brokers who are also registered as research analysts. The primary regulatory identity as a stock broker takes precedence, requiring compliance with stricter distribution guidelines.

Compliance Requirements

  • All trading members must cease distribution of unauthorized lending products immediately
  • Trading members registered as research analysts cannot use their RA registration to circumvent stock broker distribution restrictions
  • Members must ensure they only engage in distribution of SEBI-permitted lending products: MTF and T+1+5 funding
  • Prohibited products include: Home Loans, Vehicle Loans, Personal Loans, Education Loans, and Loan Against Securities (LAS)
  • Members must refer to Exchange Circular NSE/INSP/68566 dated June 16, 2025 for complete framework on third-party product distribution
  • Members should review and terminate any existing arrangements for distribution of prohibited lending products

Important Dates

  • December 22, 2025: Circular issued, members expected to ensure immediate compliance
  • Reference Date - June 16, 2025: Original circular NSE/INSP/68566 establishing the framework
  • Reference Date - July 23, 2025: SEBI FAQ circular SEBI/HO/MIRSD/MIRSD-PoD/P/CIR/2025/105 on Research Analysts

Impact Assessment

Operational Impact: Trading members currently distributing banking products/loans must immediately discontinue these activities, potentially affecting revenue streams from distribution commissions. Firms will need to review and terminate existing distribution agreements with banks and financial institutions for prohibited products.

Compliance Impact: High compliance risk for trading members who have been distributing lending products under the assumption that their research analyst registration provided exemption. Immediate action required to avoid regulatory penalties.

Market Impact: Limited direct market impact but strengthens regulatory boundaries between different financial service activities. Reinforces SEBI’s intent to keep stock broking activities focused on securities markets and prevent mission creep into general financial product distribution.

Business Impact: Trading members may face revenue loss from discontinued distribution activities. However, this ensures clearer segregation of activities and reduces potential conflicts of interest between broking and lending product distribution.

Impact Justification

Critical compliance clarification that restricts brokers from distributing most lending products, closing a potential regulatory loophole for brokers registered as research analysts. Non-compliance could lead to regulatory action.