The Securities and Exchange Board of India (SEBI) is preparing to roll out a new set of rules aimed at curbing the misuse of proprietary trading terminals amid growing concerns over margin evasion and regulatory circumvention.
According to sources close to the matter, brokers in India have been renting out prop terminals to professional traders for a fixed fee or revenue share. These arrangements allow traders to bypass client margin requirements by classifying their trades as “proprietary” – effectively piggybacking on the broker’s net worth, while avoiding taxes and regulatory exposure.
How It Works
Under standard practice, prop terminals are meant to be used by the broker for trades involving their own funds. These trades are not subject to the same upfront margin requirements as client trades.
However, in these rental schemes, external traders gain access to these prop setups, sometimes from entirely unregistered locations, and settle P&L privately with the broker.
This setup:
- Enables higher leverage than allowed
- Bypasses taxes and trading restrictions
- Removes the client from the regulated ecosystem
The risk? If something goes wrong, the trader may have no legal documentation or complaint avenue. SEBI views this as a critical issue for investor protection.
SEBI’s Response: Locking Down the Terminals
SEBI plans to introduce a MAC address + static IP binding system for all prop terminals. Every machine will be mapped with a unique 12-digit MAC address and a fixed IP linked to a known exchange-approved location.
Any unauthorized access or change of setup will trigger an automated surveillance alert. Firms found engaging in “terminal rentals” or unapproved remote access will face investigation and likely sanctions.
Industry insiders say the broker standards forum (ISF) has already finalized the structure, and SEBI is expected to publish a consultation paper soon.
Why It Matters for the Prop Space
While this rule is geographically limited to India, the pattern is global. In markets where brokers or props operate under lighter regulation, similar rental or “backdoor funded” setups have emerged.
For serious prop firms and their traders, SEBI’s action sends a clear message:
Legitimacy requires transparency
As competition rises and traders demand faster access to capital, it’s tempting for some firms to blur the lines between challenge models, instant funding, and outright terminal rentals. But this crackdown shows regulators are watching — and the margin loopholes are closing fast.
