The International Financial Services Centres Authority (IFSCA) has released a consultation paper inviting public comments on its proposed Master Circular for Broker Dealers and Clearing Members. This Master Circular will consolidate all prior circulars of both Securities and Exchange Board of India (SEBI) (issued before October 1, 2020) and IFSCA applicable to broker-dealers and clearing members operating in GIFT IFSC. The circular is designed as a single supervisory and compliance framework, aligned with the IFSCA (Capital Market Intermediaries) Regulations, 2025 (CMI Regulations).
IFSCA has invited comments until 20 December 2025.
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Registration Architecture: Full Migration to the Single Window IT System (SWITS)
A major reform in the Master Circular is the exclusive use of SWITS for applications relating to:
- Registration as a Broker Dealer or Clearing Member under the CMI Regulations
• SEZ approvals, including the Letter of Approval under the SEZ Act, 2005
• NOCs from RBI, SEBI, IRDAI
• GST registration, with integrated workflows for Indian entities
IFSCA emphasises a harmonised, cross-regulator submission process, where applicants complete a Common Application Form and make all fee payments online through SWITS.
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Supervision, Risk Oversight & Enforcement Expectations
The Master Circular lays down a strengthened, risk-based supervisory model for stock exchanges and clearing corporations.
2.1 Annual & Event-Based Inspections
Exchanges and clearing corporations must adopt inspection policies addressing operational, prudential and conduct-related risks. Inspections must include compliance with IFSCA regulations, circulars, grievance redressal efficacy and client-level protections. Outcomes must be actioned within six months.
2.2 Net Worth Compliance
The circular reaffirms that any breach of net worth requirements results in an immediate prohibition on undertaking any business activity until the shortfall is rectified.
2.3 Early Warning System for Diversion of Client Securities
An important systemic safeguard: IFSCA mandates coordinated monitoring by exchanges, depositories and clearing corporations to detect early signs of diversion of client securities. Thresholds will be jointly defined by market infrastructure institutions.
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Client-Level Controls & Conduct Requirements
The Master Circular codifies key protections:
3.1 Unique Client Code (UCC)
Mandatory for all clients, ensuring auditability and transparency.
3.2 Segregation of Client Funds
Broker dealers must maintain strict segregation:
• Client funds in a separate account
• Member’s proprietary funds in a separate account
Client funds cannot be used for proprietary trading or margins of other clients.
3.3 Contract Notes & Collateral Use
Contract notes must be issued within 24 hours. Client collateral can only be used to meet that client’s obligations, accompanied by strict record-keeping and audit trails.
3.4 Proprietary Trading Disclosures
Brokers must disclose upfront at onboarding whether they engage in proprietary trading alongside client transactions.
3.5 Authorized Persons Framework
Market access through Authorised Persons is now expanded:
• APs in foreign jurisdictions for global client access
• APs in India for resident investors using the LRS route (detailed framework in Annexure 5)
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Technology Governance, Algorithmic Trading & System Resilience
Technology-related provisions form one of the most comprehensive parts of the Master Circular, signalling IFSCA’s intention to enforce high technical reliability standards comparable to major international markets.
4.1 Software Testing & Approval Framework
Software used for trading and risk management, IBT, DMA, SOR, APIs, AT, must undergo:
• Functional & technical testing
• Mandatory mock trading participation
• User Acceptance Testing (UAT)
• Certification by system auditors
• Approval from stock exchanges before deployment
Failure to participate in mock sessions or testing may result in suspension of proprietary trading rights for at least one trading day.
4.2 Technical Glitch Framework
A highly detailed “technical glitch” mechanism requires:
• Immediate reporting within 1 hour
• Preliminary Incident Report by T+1
• Root Cause Analysis within 14 days
Exchanges must maintain public disclosure of glitches and RCAs, enhancing transparency akin to global best practices.
4.3 Capacity Planning
Brokers must maintain system capacity at 1.5x the peak load, with real-time alerts at 70% utilisation.
4.4 Business Continuity & Disaster Recovery (BCP-DR)
Specified brokers must operate DR sites with:
• Geographic separation of at least 250 km
• Full redundancy
• Mandatory DR drills/live trading days
• ISO certification in relevant IT areas
Operations from DR sites located outside GIFT-IFSC but within India will be deemed to have been carried out in the IFSC.
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Outsourcing, Cybersecurity & AI/ML Reporting
5.1 Outsourcing Framework
Brokers must implement an internal outsourcing policy before operations commence, applicable to all activities outsourced outside the IFSC.
5.2 Cybersecurity
Compliance with the Guidelines on Cyber Security and Cyber Resilience dated March 10, 2025 is mandatory, following the principle of proportionality.
5.3 AI/ML Systems
Brokers using AI/ML systems must report their usage as per exchange-defined formats.
The proposed Master Circular is a significant regulatory consolidation, aligning IFSC market infrastructure participants with rigorous global standards. The circular can be accessed here.
Disclaimer: The information published in the above newsletter is collected from various sources in electronic medium and analyzed by the firm. The reader is advised to consult the attorney qualified in their jurisdiction, before acting on any information contained in this newsletter. India Juris excepts no liability what so ever in this regard.
