Introduction: The Securities and Exchange Board of India (SEBI) has recently issued a circular, SEBI/HO/MIRSD/MIRSD-PoD-1 /P/CIR/2024/03, dated January 12, 2024, addressing concerns raised by stakeholders regarding the efficiency of monitoring mechanisms. The circular focuses on simplifying reporting for stock brokers, aiming at fostering ease of doing business.
Detailed Analysis:
1. Investor Collateral Protection: The circular emphasizes SEBI’s commitment to safeguarding investors’ collateral with stock brokers. Notably, clauses 15 and 42 of the SEBI master circular play a crucial role in preventing misutilization of clients’ funds and collateral.
2. Stakeholder Involvement: SEBI received representations from various stakeholders, highlighting inefficiencies arising from duplicated monitoring mechanisms. In response, SEBI advised industry associations to collaborate with Market Infrastructure Institutions (MIIs) through the Broker’s Industry Standards Forum (ISF).
3. Recommendations and Modifications: The ISF proposed discontinuation of certain reports to streamline reporting processes. SEBI has considered these recommendations and implemented changes to specific clauses of the master circular:
a. Clause 15.5.2 stands deleted.
b. Clause 15.5.3 is modified, emphasizing the ‘G’ principle for monitoring clients’ funds with stock brokers and clearing corporations.
c. Tables 5, 6, and 7 are deleted, marking a shift towards more efficient reporting.
4. Immediate Implementation: The circular is effective immediately. Stock exchanges are directed to disseminate the circular to stock brokers, issue operational guidelines and a Standard Operating Procedure (SOP) within 15 days, amend relevant bye-laws, rules, and regulations, and communicate the implementation status to SEBI through monthly development reports.
5. Regulatory Authority: This circular is issued under the authority vested in SEBI by Section 11(1) of the Securities and Exchange Board of India Act, 1992, and respective regulations. Its objective is to protect investors’ interests, regulate securities markets, and foster their development.
Conclusion: SEBI’s latest circular marks a significant step towards enhancing the ease of doing business in the stock market. The modifications in reporting aim to streamline processes, reduce inefficiencies, and ensure the protection of investors’ interests. Stock brokers and exchanges are urged to promptly adopt the changes outlined in the circular, reflecting SEBI’s commitment to maintaining the integrity and efficiency of the securities market.
***
Securities and Exchange Board of India
Draft Circular No. SEBI/HO/MIRSD/MIRSD-PoD-1 /P/CIR/2024/03 Dated: January 12, 2024
To,
All recognized Stock Exchanges and Clearing Corporations
Dear Sir/Madam,
Ease of doing business- Changes in reporting
1. SEBI has taken various measures to safeguard investors’ collateral lying with the stock brokers. Clause 15 of SEBI master circular on stock brokers (“master circular”) dated May 17, 2023 safeguards against misutilisation of clients’ funds. Clause 42 safeguards against the use of one clients’ collateral for another. Stock Exchanges and Clearing Corporations draw various reports from the stock brokers for this
2. SEBI received representations from various stakeholders citing inefficiencies due to duplication of monitoring mechanisms and difficulties in uploading data to In order to address the issue, SEBI advised the industry associations to consult with MIIs under the aegis of Broker’s Industry Standards Forum (ISF) and submit a proposal to SEBI. The ISF has recommended that some of the reports can be discontinued.
3. These recommendations have been considered by SEBI and as the changes in reports shall continue to allow the stock exchanges and clearing corporations to retain the supervision over client collateral, in order to bring in efficiencies in reporting and a step towards ease of doing business, certain reports are being discontinued. Based on the above decision the following clauses of the master circular stand modified:-
3.1. Clause 15.5.2 stands deleted.
3.2. Clause 15.5.3 stands modified whereby G principle is reiterated as follows:
15.5.3 Stock exchanges shall put in place a mechanism for monitoring of clients’ funds (‘G’ principle) lying with the stock brokers on the principle enumerated below:
G Principle: The total available funds i.e. cash and cash equivalent with the stock broker and with the clearing corporation/clearing member should always be equal to or greater than clients’ funds as per the ledger balance.
3.3. Table 5, 6 and Table 7 stands deleted.
4. The provisions of this circular shall come into force with immediate effect.
5. The stock exchanges are directed to:
a. bring the provisions of this circular to the notice of stock brokers, and also disseminate the same on their websites;
b. jointly issue the following within 15 days from the date of issuance of this circular
i. operational guidelines in consultation with relevant stakeholders; and
ii. an SOP for monitoring the implementation of provisions of this circular
c. make amendments to the relevant bye-laws, rules and regulations for the implementation of the above provisions; and
d. communicate to SEBI, the status of the implementation of the provisions of this circular in their monthly development report.
6. This circular is issued in exercise of powers conferred under Section 11(1) of the Securities and Exchange Board of India Act, 1992 read with Regulation 30 of SEBI (Stock Brokers) Regulations, 1992 and Regulation 51 of Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) Regulations, 2018, to protect the interests of investors in securities and to promote the development of, and to regulate the securities markets.
Yours faithfully,
Aradhana Verma
General Manager
Tel.No: 022 26449633
aradhanad@sebi.gov.in
