Capital market regulator SEBI has tightened key clauses in the client-broker agreement, as part of its attempts to curb the misuse of client money by brokers. In a circular on Thursday, SEBI said stock brokers should maintain a book containing all the mandatory and non-mandatory documents required for registering a client.To make the agreement more investor-friendly and less cumbersome, brokers should mandatorily maintain the member-client agreement, know your client (KYC) form and the risk disclosure document, the regulator said.

“The client shall indicate the stock exchange as well as the market segment where he intends his trades to be executed. He shall do so in the KYC form in his own hand and sign against these,” the SEBI circular said. Brokers will have to ensure compliance with the new norms latest by March 31, 2010, it said. The recent steps to tighten the client-broker agreements follow several complaints from clients alleging misuse of client’s funds by brokers.

The market regulator said brokers will also have to maintain documentary evidence of financial details provided by clients opting to deal in the derivative segment. Besides, capturing details of action taken against a client by SEBI or other authorities during the past three years.

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 shall be renewed at least once a year and shall be dated. It shall be signed by the client only and not by any authorised person on his behalf or any holder of the Power of Attorney,” SEBI said.

However, for clients having outstanding obligations on the settlement date, the broker can retain the requisite securities and funds towards such obligations and can also retain funds required to meet margin obligations for the next five trading days, the circular said

“The actual settlement of funds and securities shall be done by the broker, at least once in a calendar quarter or month, depending on the preference of the client. The client shall bring any dispute arising from the settlement of account or settlement so made to the notice of the broker preferably within seven working days from the date of receipt of funds/securities or statement,” the regulator said.

SEBI has also barred inter-client adjustments for the purpose of settlement of the ‘running account’. However, these conditions are not applicable to institutional clients settling trades through custodians.

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Category : SEBI (2929)
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Tags : power of attorney (12) SEBI (574)

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