SEBI makes it harder for brokers to misuse clients’ money

In order to bring about greater transparency in broker-client dealing and curb the misuse of clients' money by brokers, the Securities and Exchange Board of India has tightened key clauses in the client-broker agreement.

The market regulator has listed out mandatory and non-mandatory requirements to be followed during the client registration procedure. The regulator has made it mandatory for the actual settlement of funds or securities in a running account by the broker once in a calendar quarter or month, depending upon the preference of the client.

According to new norms specified on Thursday, it is now mandatory to execute a member client agreement or a tripartite agreement in case a sub-broker is involved in a SEBI-prescribed format along with know your customer (KYC) form and risk disclosure document (RDD).

The KYC form will have to compulsorily capture the identity and the address of the introducer instead of his MAPIN or unique identification number (UID). The move is intended to check widespread malpractices and ensure that only genuine investors get access to the Indian capital market.

''The client shall indicate the stock exchange as well as the market segment where he intends his trades to be executed. He shall do so in the KYC form in his own hand and sign against these,'' the SEBI circular said. Brokers will have to ensure compliance with the new norms latest by 31 March2010, it said.

The stockbrokers are further required to maintain documents dealing with the policies and procedures for the right to sell clients' securities or close a client's position without issuing notice to the client on account of non-payment of dues, which shall be limited to the extent of settlement or margin obligation.