SEBI Stock Brokers

SEBI Mandates Stock Brokers to Combat Fraud & Market Abuse

SEBI, the regulatory body for markets, has directed stockbrokers to establish an institutional framework by August 1st, 2024, to prevent and identify fraud or market manipulation and enhance trust in the securities market.

In a recent circular revising the current master circular, SEBI also announced that the new system should be implemented by the respective date discussed above for eligible stock brokers, in accordance with Chapter-IV A of SEBI (stock brokers) (Amendment) Regulations, 2024.

The recently required surveillance systems and internal controls will be customized according to the broker’s size, showing Sebi’s personalized compliance strategy. Brokers with more than 50,000 active Unique Client Codes (UCCs) must adhere to these requirements by January 1, 2025.

Chapter IVA: Cutting-Edge Broker Mechanisms 2024

Stock brokers need to adopt the innovative mechanisms and responsibilities detailed in Chapter IVA of the Broker Regulations 2024 to modernize compliance and operations and combat fraud. These innovative guidelines enhance industry norms, increase openness, and safeguard stakeholders’ interests.

These mechanisms include:

1. Establishing measures for surveillance trading activities and internal regulations.
2. Enumerating the responsibilities of the brokerage and its staff members.
3. Establishing procedures for escalating issues and reporting methods.
4. A policy for whistle-blowers must be in place.

SEBI has instructed stock exchanges to share the latest regulations and ensure brokers know their new responsibilities for effective communication and enforcement. The exchanges must also revise their bye-laws and work with the ISF to release joint notifications on effective dates, ensuring a consistent approach throughout the industry.

The implementation dates vary depending on the number of active clients each stockbroker has: January 1, 2025, for brokers with more than 50,000 clients, April 1, 2025, for brokers with 2001-50,000 clients, and April 1, 2026, for brokers with up to 2,000 clients.

Qualified Stock Brokers (QSBs), who already adhere to strict rules like governance structure and monitoring client behaviour, will need to comply with the circular starting from August 01, 2024, regardless of the number of UCCs they have.

Implementation Date and Exchange Directives

Qualified stock brokers to combat fraud who are already adhering to updated obligations and responsibilities, such as governance structure and client behaviour monitoring, will see the circular implemented on 1^st August 2024 this year. The circular also requires stock exchanges to inform member brokers about these provisions and make them available on their websites. The exchanges are also required to revise their bylaws and regulations to enact these provisions.

Based on the effective date for the implementation of the different stock, brokers have also been prescribed under the table below such as:

Number of Active UCCs of Stockbroker	Applicability of Operational or working modalities & also guidance note
>50,000	From 1st January, 2025
2,001 to 50,000	1st April, 2025
Up to 2,000	1st April, 2026

         * As of the final day of the month before the circular’s date of issuance.

This notice is being issued per the authority granted by Section-11(1) of Chapter-IV of the Securities and Exchange Board of India Act, 1992, along with Regulation- 30 of Chapter-VII of SEBI (Stock Brokers) Regulations, 1992 and Regulation-51 of Chapter-IX of Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) Regulations, 2018, to safeguard investors’ interests in securities and to oversee the securities market’s growth and regulation.

Conclusion

In conclusion, SEBI’s directive for stock brokers to address fraud and market abuse shows its dedication to upholding market integrity and investor trust. SEBI aims to protect stakeholders’ interests and create a fair and transparent trading environment in India’s financial markets by implementing strict regulations and encouraging compliance.

The rules require adopting surveillance systems, internal controls, and whistle-blower policies to guarantee improved market integrity and investor protection.