SEBI amends client broker agreement

SEBI vide circular MIRSD/SE/Cir-19/2009 dated December 3, 2009 has come out with a new set of compliances for stock brokers to instill greater transparency and discipline in the dealings between the clients and the stock brokers.

Background

Clients contact a broker or a sub broker registered with SEBI for carrying out their transactions pertaining to the capital market. A broker is a member of a recognized stock exchange, who is permitted to do trades on the screen-based trading system of different stock exchanges. He is also enrolled as a member with the concerned exchange and is registered with SEBI.

Clients sign the ‘Member - Client agreement’ with the broker for the purpose of engaging that broker to execute trades on behalf of the clients from time to time. In case they are dealing through a sub-broker then the client will have to sign a ‘Broker - Sub broker - Client Tripartite Agreement’. These agreements contain clauses defining the rights and responsibility of Client vis-à-vis broker/ sub broker.

New compliances

• Stock brokers should maintain a book containing all the mandatory and non-mandatory documents required for registering a client. The folder/book should have an index page listing all the documents contained in it and indicating briefly significance of each document. Once the agreement is signed, a copy of the same shall be made available to the client.
• This book should mandatorily contain the member-client agreement, know your client (KYC) form and the risk disclosure document.
• The client should indicate in the agreement, the stock exchange as well as the market segment where he intends his trades to be executed.
• The existing KYC form should to suitably modified to capture the identity and the address of the introducer instead of his MAPIN/UID.
• Broker should also have documentary evidence of financial details provided by the clients who opt to deal in the derivative segment.
• Broker should mandatorily have documents containing policies and procedures for dealing with issues like refusal of orders for penny stocks, setting up client’s exposure limits, applicable brokerage rate, imposition of penalty/delayed payment charges by either party, the right to sell clients’ securities or close clients’ positions without giving notice to the client on account of non-payment of client’s dues etc.
• On running account authorisation, the regulator said the settlement of funds and securities should be done within 24 hours of the payout, unless otherwise specifically agreed to by the client. The authorisation should be renewed at least once a year and should be dated.

More compliances and a copy of the circular is available here.