Stock Exchanges Seek Curbs on Off-Market Share Transfers by Broker Directors and Related Entities

Stock exchanges have proposed tighter controls on off-market transfers of securities between a broker’s proprietary demat account and accounts belonging to its directors, partners or associate entities, after raising concerns over how some of these transactions are being used. 

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The matter was recently discussed before a committee of the Securities and Exchange Board of India (SEBI), according to people familiar with the discussions. 

At issue is the movement of securities across several accounts. Exchanges have flagged that such transfers can become difficult to trace when securities pass through multiple entities before being pledged for funding or used towards a broker’s proprietary trading obligations. 

No restriction has been introduced so far. The discussions are aimed at finding a way to strengthen checks on the possible misuse of client securities without interfering with legitimate transactions carried out by brokers, promoters and directors. 

April-June data draws scrutiny 

SEBI has had an Early Warning Mechanism in place since 2018 to track the movement of client securities, particularly large transfers into brokers’ proprietary accounts. 

As part of this framework, depositories provide exchanges with monthly information on off-market debits and credits involving brokers’ proprietary accounts. 

A review of data for April to June 2026 brought related-party transfers into focus. According to the report, a sizeable portion of the off-market transactions monitored during these months involved proprietary broker accounts and accounts linked to directors, partners or associate entities. 

In June, these transactions represented roughly a quarter of the value of all off-market activity monitored during the month. The proportion was reported to have been even higher in April. 

When exchanges sought details from brokers, some of the securities involved were found to have been pledged with banks and non-banking financial companies to raise funds. Others had been used towards proprietary trading obligations, according to the report. 

Multiple transfers make tracking difficult 

The concern for exchanges is not simply that securities are moving between related accounts. Their focus is on cases where several layers of transfers make it harder to establish where the securities eventually went and how they were used. 

Such arrangements could potentially allow securities belonging to multiple clients to be pooled or moved through personal and associate accounts before being deployed for a broker’s own purposes. 

Exchanges have indicated that checking every individual off-market transaction becomes difficult when securities travel through several accounts. At the same time, they remain responsible for identifying warning signs and safeguarding against diversion of client assets. 

Depositories oppose blanket restrictions 

Depositories have taken a different position on the proposed restrictions. 

Off-market transfers are currently processed on the basis of valid instructions from account holders, including OTP confirmation. Under the existing system, a transaction cannot simply be blocked because the two accounts involved are related. 

Any move to impose such restrictions would therefore require explicit regulatory backing, such as a circular, direction or statutory provision, before corresponding changes could be made to depository bye-laws and operating procedures. 

Broking firms have also opposed a broad restriction. Their concern is that directors and promoters should continue to be able to pledge securities they own to raise funds for the business or meet financial obligations. 

SEBI committee seeks further discussions 

The debate leaves regulators with two separate considerations: protecting client securities from possible diversion while preserving genuine off-market transactions used for pledging, funding and other legitimate purposes. 

SEBI’s committee has asked stock exchanges and depositories to continue discussions and work towards a solution that can address both sides of the issue. 

For now, the proposal remains under discussion. Any change that ultimately restricts such transfers would require a framework capable of distinguishing potentially problematic movement of securities from legitimate transactions between brokers and their related parties.