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NISM-Series-VII: Securities Operations and Risk Management · Introduction to Securities Broking Operations

Regulatory Framework for Stock Brokers in India

Updated 11 October 2026 · Fact-checked

Stock brokers in India are regulated through the SEBI Act 1992, the Securities Contracts (Regulation) Act 1956 and rules and regulations made under them. A broker needs SEBI registration, exchange membership, and must meet eligibility, capital and conduct norms. To solve questions, identify which law or authority the question points to.

Understand Regulatory Framework for Brokers

Start with the idea that a broker deals in other people's money and securities. The law therefore controls who can become a broker, what the broker must do, and what happens if rules are broken.

There are two main laws. The Securities Contracts (Regulation) Act, 1956 (SCRA) regulates the trading of securities, the recognition and working of stock exchanges and the contracts in securities. The SEBI Act, 1992 set up SEBI as the regulator, with the duty to protect investors, develop the securities market and regulate it.

SEBI makes regulations under these Acts. The key one for this topic is the SEBI (Stock Brokers) Regulations, 1992. It deals with registration of brokers, eligibility criteria, general obligations, a code of conduct, and the action SEBI can take for violations. The SCRA also works through exchange rules, bye-laws and regulations, so a broker answers to both SEBI and the stock exchange where it is a member.

The usual path is: first become a member of a recognised stock exchange, then obtain a certificate of registration from SEBI. Registration is not permanent in a free sense. The broker must pay fees, stay eligible and keep following the code of conduct. SEBI can suspend or cancel registration after due process.

Sub-brokers: earlier, sub-brokers were registered with SEBI as agents of brokers. SEBI has since discontinued the sub-broker category, and these intermediaries are now expected to operate as authorised persons under the exchange framework. Read the question carefully: older workbook wording may still refer to sub-brokers.

Key formulas to remember

SEBI Act, 1992
SEBI Act 1992 → establishes SEBI and gives it powers to regulate the securities market
Think of it as the law that creates and empowers the regulator.
SCRA, 1956
SCRA 1956 → regulates securities contracts, recognition of stock exchanges and trading in securities
Think of it as the law about exchanges and securities contracts.
Stock Brokers Regulations
SEBI (Stock Brokers) Regulations, 1992 → registration, eligibility, obligations, code of conduct, action for default
This is the main regulation for brokers. It is made by SEBI under the SEBI Act.
Route to becoming a broker
Membership of a recognised stock exchange + SEBI certificate of registration
Both are needed. Exchange membership alone does not allow dealing as a registered broker.
Eligibility theme
Applicant must be a fit and proper person, with required net worth and infrastructure, and not previously disqualified
Know the themes. Do not quote exact numeric limits unless the workbook states them and you remember them.

How to solve Regulatory Framework for Brokers questions

Use this method for any question on broker regulation.

  1. 1Read the question stem and mark the key word: registration, eligibility, obligation, code of conduct, penalty, or exchange rule.
  2. 2Identify the source: SEBI Act for the regulator's powers, SCRA for exchanges and contracts, Stock Brokers Regulations for broker-level rules.
  3. 3Decide who acts: SEBI registers and disciplines; the exchange admits members and enforces its bye-laws.
  4. 4Check whether the question is about a stock broker, sub-broker or authorised person, and note the era of wording.
  5. 5Eliminate options that give the wrong authority or reverse the order of steps.
  6. 6Watch for absolute words such as 'only' or 'never'. Regulations usually have conditions.
  7. 7Pick the option that fits the Act or regulation named, and check it against the stem once more.

Quickest way: Match law to purpose

When to use it: Use this when you have under a minute and the options name different laws or authorities.

  1. SEBI Act → SEBI itself and its powers.
  2. SCRA → stock exchanges and securities contracts.
  3. Stock Brokers Regulations → broker registration and conduct.
  4. Exchange bye-laws → membership and day-to-day trading rules.
  5. Choose the option whose authority matches the purpose in the stem.

Common mistakes in Regulatory Framework for Brokers

  • Mixing up the SCRA and the SEBI Act.

    Both are about the securities market and both are old-sounding Acts.

    Fix: Remember: SEBI Act is about the regulator; SCRA is about exchanges and securities contracts.

  • Thinking exchange membership alone is enough to act as a broker.

    Students focus on the exchange as the place where trading happens.

    Fix: A broker needs both exchange membership and SEBI registration.

  • Believing the exchange registers brokers.

    The exchange admits members, so it feels like the registering body.

    Fix: SEBI grants the certificate of registration. The exchange grants membership.

  • Treating sub-brokers as a current SEBI-registered category.

    Older study material and question banks still use the term.

    Fix: Know that the sub-broker category has been discontinued and replaced by authorised persons. Answer according to the wording the question uses.

  • Quoting exact capital or fee numbers from memory.

    Students try to memorise figures that vary by exchange and segment.

    Fix: Learn the principles first. Quote a number only if you are sure the workbook gives it.

Worked examples

Example 1

Which of the following is the primary law that established SEBI as the securities market regulator? (a) SCRA, 1956 (b) SEBI Act, 1992 (c) Companies Act, 2013 (d) Depositories Act, 1996

Show the solution
  1. The question asks which law established SEBI.
  2. SCRA 1956 deals with exchanges and securities contracts, so it is not the answer.
  3. The Companies Act deals with companies and the Depositories Act deals with depositories.
  4. The SEBI Act, 1992 gave SEBI its statutory form and powers.

Answer: (b) SEBI Act, 1992

Example 2

A firm wants to operate as a stock broker. Which statement is correct? (a) Only SEBI registration is needed (b) Only exchange membership is needed (c) It needs membership of a recognised stock exchange and SEBI registration (d) It needs neither if it deals only for clients

Show the solution
  1. Dealing in securities on behalf of clients is a regulated activity.
  2. The route has two parts: membership of a recognised exchange and a SEBI certificate of registration.
  3. Options (a) and (b) each drop one requirement.
  4. Option (d) is wrong because acting for clients is exactly what brings a broker under regulation.

Answer: (c) It needs membership of a recognised stock exchange and SEBI registration

Exam tips

  • Expect questions that ask which law or body does what. Learn the one-line purpose of each.
  • Questions on the Stock Brokers Regulations often test the broad themes of registration, eligibility and code of conduct, not fine detail.
  • Be careful with 'sub-broker' wording. Read all options before deciding.
  • NISM-Series-VII carries negative marking of 25% of the marks of a question, so skip an option you cannot justify rather than guess blindly.
  • Revise this topic with the stock exchange and regulator topics, since many questions link brokers to exchange rules.

Practice questions from Introduction to Securities Broking Operations

Regulatory Framework for Brokers in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Regulatory Framework for Brokers: frequently asked questions

Which authority registers stock brokers in India?

SEBI grants the certificate of registration under the SEBI (Stock Brokers) Regulations, 1992. The broker must also be a member of a recognised stock exchange. The exchange grants membership, while SEBI grants registration.

What is the difference between SCRA and the SEBI Act?

The SCRA, 1956 regulates securities contracts and recognised stock exchanges. The SEBI Act, 1992 created SEBI and gave it powers to protect investors and regulate the market. Together they form the base of broker regulation.

Are sub-brokers still registered with SEBI?

No. SEBI discontinued the sub-broker category, and such intermediaries now work as authorised persons under the exchange framework. Some older material still uses the term, so read the question wording carefully.

Can SEBI cancel a broker's registration?

Yes. Under the Stock Brokers Regulations SEBI can take action such as suspension or cancellation of registration for violations, following the prescribed procedure. The broker must be given a chance to be heard.