Brokers feel the heat of new Sebi diktat


According to a Livemint report, stock exchanges and brokers are collectively protesting against a recent Securities and Exchange Board of India (Sebi) diktat, requiring brokers to keep evidence of every instruction given by their clients with regard to trades in equities and equity derivatives.

Business Standard provides an explanation to the new diktat, the reason behind its introduction and why brokers are feeling the heat:

On September 26, Sebi issued a circular, directing brokers to maintain records of clients placing orders with them. The markets regulator said the evidence, thus collected, may act as a physical record of trade dealings of the client.

According to the Sebi circular, telephone recordings, e-mails sent from a registered mail address, the log for internet transactions, records of mobile messages or any other such “legally verifiable record” can be treated as evidence.

Objective of the move

The objective is to curb the so-called “unauthorised trades”, which is a buy or sell order placed by a broker on behalf of a client without the latter’s directive or authorisation. In the circular, Sebi said it has received several complaints of “unauthorized trades” from investors. “Sebi, in the past, has taken several steps to tackle the menace. In spite of measures taken, a considerable proportion of investor complaints is of the nature of unauthorised trades,” states the circular.

Why such trades are ambiguous?

Typically, brokers and clients have informal arrangements wherein the former is allowed access to trade on behalf of the latter. To do so, the broker is allowed access to the client’s trading accounts and funds. Brokers say if a trade ends in losses, clients dispute such trades. On the other side, brokers are often seen creating unnecessarily high trades just to shore up their revenues.

Why are brokers feeling the heat?

The new diktat is set to increase the compliance cost for brokers, as they will have to invest in new technologies. Brokers will need to record and maintain a database of all client calls to provide evidence to the exchanges and Sebi, in case a trade gets disputed. Broker’s industry body the Association of National Exchanges Members of India (ANMI) and stock exchanges have, in a letter to Sebi, shared their concerns over the new diktat. It is practically impossible to have telephone recordings at every dealer’s terminal with sufficient accuracy of voice identification and then retrieve such records thereafter, they claim.