PAN-tastic Relief: SEBI Unwinds the Penalty Knot for Client Code Tweaks

Unknown Apr 02, 2026 400 Views

Regulatory Reboot: In a bid to reduce operational friction, SEBI has suggested permitting market makers of Exchange Traded Funds (ETFs) to change client codes without penalties. This is included in a wider consultation paper that also extends the same relief to a number of institutional and non-i...

Operational Highlights

Market makers can modify client codes during trading between underlying assets and ETF units
The transition must be under the same Permanent Account Number (PAN) in order to be penalty-free
The change will probably introduce more efficient ETF unit creation and redemption processes

Institutional Inclusion:

SEBI's suggestion is for a wide range of institutional clients, such as:

Banks
Domestic Financial Institutions
Insurance companies
Pension funds
Statutory institutions

The institutions would be allowed to change client codes without incurring penalty, provided that the change is between UCCs in the same PAN.

Non-Institutional Flexibility:

Certain non-institutional customers will benefit as well, such as:
Portfolio Management Services (PMSs)
Non-Resident Indians (NRIs)
Individuals, HUFs, and body corporates through custodians
Proprietorship firms having multiple UCCs against the same PAN

Ease of Doing Business Perspective:

The decision is in line with SEBI's persistent attempts to reduce costs of compliance and enhance market efficiency
Stock exchanges had already requested such relaxation, based on no change in ownership of trades when PAN is constant
The step leverages the exemptions which are already available for Foreign Portfolio Investors and mutual fund schemes

Next Steps:

SEBI invited public comments on the proposal till July 11, 2025
If it were implemented, the revision would cut the administrative drag on ETF market makers and big investors substantially.

References: Moneycontrol, SEBI Consultation Paper, TaxGuru India

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