SEBI has issued clarifications on the order regarding execution of power of attorney (PoA) by the client in favour of the stockbroker or stockbroker-cum-depository participant passed on April 23. The regulator stated that no broker could deny services to a client, if the client does not sign the POA. This is exempt for Internet based trading.

SEBI said that transfer of securities towards settlement obligations also falls under this ambit in addition to margin/delivery obligations.

Market players are positive that this move would prevent misuse of POA.

Mr Prakash Diwan, Head –Institutional Equity, Networth Stock Broking said: “The tendency of brokers to misuse by overleveraging in F&O trades and sending e contract notes which many clients rarely saw was fine when things were OK. But when things went wrong, clients did not find time to protest against any particular transaction done on his behalf by a broker within the stipulated 24 hours and this caused a lot of heart burn. What ever the regulation, the only solution to this is proper compliance of KYC norms. This would ensure better comfort levels in client broker relationships. The market cannot take another scam pertaining to the retail investor, with markets near all time highs and a host of good PSU IPOs/FPOs in line.”

Redemptions would also be included within the scope of PoA.

For updating demat and bank account details a fresh PoA is not required. Instead, SEBI has allowed written communication to be used as annexure to an existing power of attorney.

Copies of these communications can be attached to the power of attorney for verification. Request for revocation of PoA is not allowed for trades that have occurred prior to the request. Brokers have been advised to ensure that the power of attorney revocation request should be dated and timed so that a proper audit trail can be maintained.

Clients with credit balances are miffed at misuse. Mr Kishor Ostwal, CMD, CNI Research, said “Investors started feeling the heat when brokers misused the POA to use credit balances in clients’ accounts to access stocks and sell them to honour their obligation under a margin call, thanks to a significant correction. There are more than 1,000 such cases pending before the exchanges and SEBI and it is a welcome move by SEBI given the fact that a margin call gives only a half-an-hour leeway to replenish one’s margin account.”

Finally, the PoA cannot be misused to facilitate off-market trades between parties other than the ones mentioned in the PoA.

_________________________________________________________________

CIR/MRD/DMS/28/2010   , August 31, 2010

Sub: Execution of Power of Attorney (PoA) by the Client in favour of the Stock Broker/ Stock Broker and Depository Participant – Clarifications

  1. SEBI vide circular no. CIR/MRD/DMS/13/2010 dated April 23, 2010 issued guidelines regarding execution of Power of Attorney (PoA) by the client in favor of Stock Broker / Stock Broker and Depository Participant.
  2. SEBI has received representation from Market Participants seeking guidance and clarifications on process to be followed for implementation of the provisions of the circular.
  3. Based on the examination of the issues highlighted in the representations and so as to facilitate the implementation of the provisions of the aforesaid Circular, attached clarifications are issued for immediate implementation.
  4. All other clauses/ provisions of the aforesaid PoA circular, except those mentioned in the annexure, shall remain unchanged.

Yours faithfully,

MANOJ KUMAR
General Manager
+91-22-26449260
manojk@sebi.gov.in

Encl: Clarification to Guidelines for execution of Power of Attorney by Clients favouring Stock Brokers / Stock Broker and Depository Participants (2 Pages)

Clarification to Guidelines for execution of Power of Attorney by Clients favouring Stock Brokers / Stock Broker and Depository Participants

Sl No Clauses/ Provisions          of the          PoA
Circular
Clarifications
1 Standardizing the norms for PoA must not be construed as making the PoA a condition precedent or mandatory for availing broking or depository participant services. PoA is merely an option available to the         client for instructing his broker        or depository participant to facilitate the delivery of shares and   pay- in/pay-out of funds etc. No stock broker or depository participant shall deny services to the client if the client refuses to execute a PoA in their favour. Only    internet based trading  exempted.
2 The   Stock Brokers       shall take necessary     steps to implement        this circular latest by May 31, 2010 for the new clients and  ensure          to take necessary steps latest by September 01, 2010  to revoke those authorizations given      by the existing clients     to       the          stock brokers/ stock broker and depository participants through PoA that are inconsistent with the present guidelines. Stock Broker/ DP may revoke those authorizations that are inconsistent with         the  present guidelines         by communicating  the  inconsistent clauses to the existing clients. In the event, the deleted clauses are not accepted by the client, Stock Broker/ DP may be required to either obtain fresh PoA or close the account. In case of any addition to the existing PoA, Stock Broker / DP shall be required to obtain a new PoA from clients.
3 PoA executed in favour of a Stock Broker by the client should be limited to the following:

“(i) Transfer of securities held in the beneficial owner account(s) of the client(s) towards stock exchange related margin / delivery obligations arising out of trades executed by the Client(s) on the stock exchange through the same Stock Broker.”

Margin / Delivery obligations shall also include settlement obligations, if any.
4 PoA executed in favour of a Stock Broker by the client should be limited to the following:

“(iii) To apply for various products like     Mutual   Funds,    Public  Issues (shares   as well    as debentures), rights,     offer        of       shares, tendering shares in open offers etc. pursuant to the instructions of the Client(s). However, a proper audit trail should be maintained by the Stock Broker to  prove      that         the  necessary application/act   was    made       /done pursuant     to   receipt    of   instruction from Client.”

Redemptions are also included in PoA pursuant to client’s instructions.
5 PoA executed in favour of a Stock Broker and Depository Participant by the client should provide the list of clients’ & brokers’ Bank accounts & demat accounts where funds and securities can be moved. Such bank & demat accounts should be accounts of related party only. The list of clients’ & brokers’ Bank accounts & demat accounts may be updated / amended by proper communication without executing a new PoA every time.      Copies of such   communications   may         be preserved as annexure to the PoA.
6 PoA executed in favour of a Stock Broker and Depository Participant by the client should be revocable at any time, without notice. PoA executed in favour of a Stock Broker   /  Stock       Broker and Depository Participant by the client should be revocable at any time. However, such revocation shall not be applicable for any outstanding settlement obligation arising out of the   trades carried  out     prior    to receiving request for revocation of PoA.   Further, the PoA revocation requests should be dated and time stamped  by  the  brokers for ensuring proper audit trail.
7 The POA shall not facilitate the stock broker to do the following:

“12. Transfer of  securities  for off market trades”

The PoA  Shall not facilitate off-market trades between parties other than the related  parties as mentioned in the PoA.

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