Putting in place enhanced supervision framework for stock brokers, Sebi on Monday issued a detailed set of guidelines for monitoring of their financial strength as well as detecting any misutilisation of clients’ funds.
Besides, stock brokers would now have to follow a uniform nomenclature for "naming/tagging of bank and demat accounts" and for reporting of such accounts to stock exchanges and depositories.
Guidelines have been issued for "monitoring of clients funds lying with the stock broker by the stock exchanges, through a sophisticated alerting and reconciliation mechanism, to detect any misutilisation of clients fund."
Exchanges have been asked to have the mechanism within three months for monitoring clients’ funds lying with the stock broker to generate alerts on any misuse.
These guidelines have been issued following recommendations made by Sebi set up panel on ‘Enhanced Supervision of Stock Brokers’. Representatives from stock exchanges, depositories and brokers were part of the committee.
Among others, changes have been made in the existing system of internal audit for stock brokers and depository participants in terms of various aspects including "appointment, rotation of internal auditors and formulation of objective sample criteria".
According to Sebi, there would be measures to monitor the financial strength of stock brokers by the exchanges "so as to detect any signs of deteriorating financial health of stock brokers and serve as an early warning system to take preemptive and remedial measures".
In case of non-compliance with any requirement, uniform penal action would be taken against stock brokers and depository participants by exchanges and depositories.