The market regulator, Securities and Exchange Board of India (SEBI), is understandably trying to bring about a closure to long drawn out cases, involving fraud or malfeasance. A case in point here is the SEBI board’s recent decision to offer a settlement scheme to brokers implicated in the National Spot Exchange Limited (NSEL) scam. However, the deeper learnings from such episodes should not be overlooked. Closure of cases should be accompanied by corrective steps.

The NSEL scheme allows brokers concerned to arrive at a settlement with SEBI by either paying a monetary penalty based on the volume and value of the paired contracts traded through them or agree to debarment for a period ranging between one to six months based on the orders issued against the broker by SEBI. To begin with, the regulator has done well to recognise that the case against the errant brokers in the NSEL case is not truly closed yet, despite its indictment issued in this regard six years ago. In 2019, six years after the scam, SEBI had held several large commodity brokers including Motilal Oswal Commodities Broker, India Infoline Commodities, Geofin Comtrade and Anand Rathi Commodities guilty of facilitating transactions in illegal paired contracts on the NSEL platform and aiding the promotion and marketing of these contracts among their clients. SEBI had stated in its 2019 order that the reputation, fairness, honesty, integrity and character of the brokers had been compromised and that they were not fit to operate as commodity derivatives brokers, either directly or indirectly. But while the entities mentioned in the order were shut down, the commodity broking activities have over time continued through other companies in the group.

SEBI’s offer gives the stockbrokers an opportunity to close the issue in good faith, and put a stop to their questionable practices. But SEBI should also restrain stockbrokers from nudging their clients to execute more transactions, with the intention of earning brokerage revenue. These could be in the form of informal trading advice given through their employees or urging them to use strategies which give them guaranteed returns as seen in NSEL case and more recently in the algo trading software case. A similar settlement scheme has also been offered recently to stockbrokers who were selling algo-based strategies with guaranteed returns in partnership with unregulated platforms. According to reports, SEBI has been investigating around 110 stockbrokers in this regard. The brokers have been offered ₹1 lakh as the settlement fee for closing the investigation against them.

While pushing for closure of investigations and litigations is all very well, tighter rules are also needed to govern the actions of stockbrokers. They should be persuaded to restrict their activity to execution and settlement of transactions. Communication between stockbrokers and clients should be restricted to their trading activity; any communication which spurs clients to trade should be disallowed.

Published on June 27, 2025