In a move aimed at strengthening investor protection and preventing conflicts of interest in the capital markets, the National Stock Exchange of India (NSE) has issued a stern warning to its members, clarifying that stock brokers are not permitted to distribute or offer any banking loan products. The prohibition applies even to brokers who are also registered as Research Analysts (RAs).
The exchange said brokers cannot engage in the distribution of products such as home loans, vehicle loans, personal loans, education loans, or loans against securities, reiterating that such activities fall outside the regulatory framework governing trading members.
In a circular issued on Monday, the NSE noted that it had observed instances where trading members, who are also registered research analysts, were actively distributing banking loan products. Terming this a clear violation of exchange norms, the NSE directed all members to ensure immediate and strict compliance.
No Lending Beyond SEBI-Approved Framework
Reiterating its regulatory position, the NSE said brokers must adhere to its June 16, 2025 framework on the distribution of third-party products. Under this framework, trading members are allowed to engage only in lending products that have been explicitly approved by the market regulator.
Such permitted activities currently include:
- Margin Trading Facility (MTF)
- T+1+5 funding
Beyond these, no retail or banking loan products—including home, personal, education loans or loans against securities—are allowed to be distributed by brokers in any capacity.
The circular stated unambiguously that “stock brokers are not permitted to engage, as distributors, in any lending products other than those specifically permitted by SEBI from time to time.”
Clarification After SEBI FAQs
The NSE’s clarification comes in the backdrop of FAQs issued in July 2025 by the Securities and Exchange Board of India (SEBI) on research analyst regulations. Those FAQs had stated that research analysts may distribute non-SEBI products, such as banking products, only at a family or group level, and that grievances related to such distribution would fall outside SEBI’s jurisdiction.
However, the NSE made it clear that exchange rules applicable to trading members override any additional registrations they may hold. In other words, even if a broker is registered as a research analyst, they remain bound by the NSE’s broker framework.
“The exchange’s framework prevails for trading members irrespective of any additional registrations,” the circular emphasised, leaving little scope for interpretational ambiguity.
Regulatory Action for Non-Compliance
The NSE has warned that any violation of these norms could attract regulatory action, underscoring the seriousness with which it views the issue. Brokers have been advised to review their business models, marketing practices, and third-party partnerships to ensure that no activity falls outside the permitted regulatory scope.
Market participants say the warning addresses a growing trend where some broker platforms were attempting to monetise their client base by cross-selling loan products alongside investment services. The exchange’s intervention is seen as a decisive step to rein in such practices.
Investor Protection and Conflict of Interest
Experts point out that allowing brokers to simultaneously provide investment advice and distribute loan products can significantly heighten the risk of conflicts of interest and mis-selling. When the same entity advises on investments and promotes borrowing, investor decision-making may be unduly influenced.
A senior market analyst said, “The broker’s role must remain clearly defined. Combining investment advisory with banking loan distribution blurs regulatory boundaries and exposes investors to potential bias and mis-selling.”
A Broader Regulatory Signal
The NSE’s firm stance signals that regulators and market infrastructure institutions are unwilling to tolerate regulatory arbitrage in the capital markets ecosystem. The directive is expected to push brokers back toward a sharper focus on core trading, execution, and permitted financing services, rather than diversifying into unrelated financial products.
