Set up institutional mechanism to tackle fraud, market abuse: Sebi to brokers

The Sebi circular states that the new provisions will come into force in a risk-based, staggered manner to ensure smooth adoption by all stockbrokers.
SEBI
SEBI(File photo | PTI)

MUMBAI: The markets watchdog Sebi has asked stockbrokers to put in place an institutional mechanism by August 1 to help prevent and detect frauds or market abuse so that the system can instill confidence in the securities market.

In a new circular amending the extant master circular, invoking the provisions of Chapter IVA of Sebi (stock brokers) (Amendment) Regulations, 2024, the Securities and Exchange Board (Sebi) on Thursday said the new mechanism should be in place by August 1 for qualified stock brokers.

The Sebi circular states that the new provisions will come into force in a risk-based, staggered manner to ensure smooth adoption by all stockbrokers. Brokerages will get sufficient time, based on their size, to make necessary changes, it added.

The new circular is an update of the master circular issued on May 22, 2024, for stockbrokers, listing a range of issues like registration, supervision and oversight, dealings with their clients, default-related provisions and investor grievance redressal mechanisms. The latest circular asks stockbrokers to establish an institutional mechanism to prevent and detect fraud or market abuse, and invokes the provisions of Chapter IVA of the stock brokers amendment regulations, 2024.

The other directions in the new mechanisms include putting in place a system for surveillance of trading activities and internal controls; listing out obligations of the brokerages and their employees; having systems in place for escalation and reporting mechanisms; and bringing in a whistle-blower policy.

The effective implementation dates for different stockbrokers is based on their client strength: for those with over 50,000 active clients, it's January 1, 2025, for those with 2001-50000 it's April 1, 2025, and for those having up to 2,000 clients, it's April 1, 2026.

For qualified brokers, the effective date for implementation of the circular is August 1 this year because they are already following enhanced obligations and responsibilities such as governance structure and processes and surveillance of client behaviour.

The circular also mandates that stock exchanges are supposed to bring these provisions to the notice of their member-brokers and disseminate the same on their websites. The exchanges are also asked to make changes to their bylaws and regulations for the implementation of these provisions.

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