The Securities and Exchange Board of India has stepped up oversight of dealing room operations at brokerage firms.

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Officials from SEBI and stock exchanges have conducted inspections at multiple brokers in recent months. The inspections have covered both large and mid-sized brokerage firms.

According to a report by The Economic Times, the scrutiny has focused on dealing desks handling institutional investors and high net worth individuals.

There has been no official statement from SEBI, the National Stock Exchange, or the Bombay Stock Exchange on the inspections so far.

Focus On Trade Origination And Audit Trails

Regulators are examining how trades are initiated, transmitted, and executed. Officials are assessing whether each transaction can be traced back to the original client instruction.

The review includes verification of access controls within dealing room systems. Colocation user IDs are being mapped to specific trades.

Regulators are also analysing the software platforms used on trading desks. Brokers have been asked to provide complete audit trails for transactions.

This includes details of the originating instructions for each trade. Instructions transmitted through recorded dealer lines, official emails, and authorised messaging platforms such as Bloomberg and Reuters terminals are being reviewed.

Authorisation And Communication Checks

Officials are verifying whether individuals placing or relaying orders were authorised to use the selected communication channels. Communication timestamps are being checked against the timing of executed trades.

The objective is to ensure alignment between client instructions and trade execution. Regulators are seeking to establish an end-to-end audit trail for large and sensitive trades.

Special attention is being given to trades placed on behalf of high net worth individuals. In some cases, large HNI or family office transactions are processed through institutional desks due to order size or strategy.
Front-Running Concerns

The intensified scrutiny follows the detection of fresh instances of suspected front running. Front running involves misuse of advance knowledge of large pending orders to execute personal trades ahead of client transactions.

SEBI has taken enforcement action in past cases involving such practices. Last year, the regulator alleged front running involving a large U.S.-based fund, where trades were executed ahead of client orders through multiple brokers.

Review Of Historical Data

Regulators have sought historical trade data spanning three to five years. The review includes cash market and derivatives transactions.

The timing of communications linked to orders is a key focus area. Officials are assessing whether information related to trades was leaked prior to execution.

Colocation Access Under Review

Colocation facilities have also come under scrutiny. Brokers have been directed to disclose who holds colocation IDs and who uses them.

Officials are examining whether colocation access credentials are being used only by designated individuals. The review aims to detect any sharing or misuse of authorised access.
Broader Regulatory Context

The expanded inspections reflect SEBI’s effort to strengthen surveillance of dealing room practices. The regulator is seeking to close gaps that may enable front running in high-value trades.

The exercise underscores SEBI’s focus on governance, transparency, and compliance across brokerage operations.