Introduction: The Securities and Exchange Board of India (SEBI) has recently issued a significant circular, SEBI/HO/MIRSD/MIRSD-PoD-1/P/CIR/2023/180, dated November 13, 2023. This circular introduces crucial changes to the broker-client relationship, focusing on Most Important Terms and Conditions (MITC). In this article, we will delve into the key aspects, implications, and the timeline for compliance.
1. Uniform Documents Mandate: SEBI, in line with clause 20 of the “Master Circular on stock brokers” dated May 17, 2023, prescribes several uniform documents for formalizing the broker-client relationship. These include the account opening form, rights and obligations, risk disclosure documents, guidance note, policies and procedures, and tariff sheet. Brokers are required to provide these documents to clients free of charge.
2. Streamlining Complex Documents: Recognizing the potential overwhelm due to the voluminous nature of these documents, SEBI aims to enhance client understanding by introducing a standard MITC. This move is designed to ensure clients focus on critical aspects of their relationship with brokers.
3. Implementation Standards by Brokers’ Industry Standards Forum (ISF): The circular mandates that the Brokers’ ISF, under the aegis of stock exchanges, will publish the form, nature of communication, documentation, and detailed standards for MITC by January 01, 2024. However, if the ISF faces challenges in publishing, SEBI retains the discretion to establish the standards.
4. Amendments to Master Circular: To formalize the MITC, the master circular sees an addition of clause 20.1.6 and an amendment to 20.4. Clients will now be required to acknowledge MITC as part of the broker-client relationship.
5. Compliance Dates: New clients are expected to comply with the MITC from April 01, 2024. For existing clients, MITC information must be conveyed by June 01, 2024, through email or other suitable modes of communication.
6. Stock Exchanges’ Role: SEBI directs stock exchanges to disseminate the circular to stock brokers, make necessary amendments to bye-laws, rules, and regulations, publish implementation standards on their websites, and report the status of implementation in monthly development reports to SEBI.
Conclusion: SEBI’s circular on MITC marks a pivotal step towards enhancing transparency and understanding in the broker-client relationship. Investors and stock brokers alike need to stay abreast of these changes, ensuring compliance with the prescribed standards. The provided timeline emphasizes a phased approach, allowing both new and existing clients to adapt to the revised terms. As the industry moves towards a more streamlined and informed future, adherence to these regulatory updates becomes paramount for fostering a robust securities market.
Securities and Exchange Board of India
CIRCULAR
SEBI/HO/MIRSD/MIRSD-PoD-1/P/CIR/2023/180
November 13, 2023
To,
Stock Brokers through recognized Stock Exchanges
Dear Sir/Madam,
Subject: Most Important Terms and Conditions (MITC)
1. SEBI has prescribed the following uniform documents for formalizing the broker-client relationship, as per clause 20 of “Master Circular on stock brokers” dated May 17, 2023:
i. Account opening form
ii. Rights and obligations
iii. Risk disclosure documents
iv. Guidance note
v. Policies and procedures
vi. Tariff sheet
A copy of these documents is required to be provided by the broker to the clients free of charge.
2. Typically, these documents are voluminous and investors may lose focus on critical aspects of the relationship with the broker.
3. In order to bring into focus the critical aspects of the broker-client relationship and for ease of understanding of the clients, it has been decided that brokers shall inform a standard Most Important Terms and Conditions (MITC) which shall be acknowledged by the client.
4. The form, nature of communication, documentation and detailed standards for implementation of MITC shall be published on or before January 01, 2024, by the Brokers’ Industry Standards Forum (ISF), under the aegis of stock exchanges, in consultation with SEBI.
5. In the event that the ISF is unable to publish the same, as above, in whole or in part, then SEBI, may, at its discretion, publish standards in respect of the same.
6. In view of the above, additional clause 20.1.6 may be incorporated in the master circular and 20.4 of the master circular stands amended as under.
“20.1.6. Most Important Terms and Conditions”
“20.4 ….in the future. The client would also be required to give acknowledgement of Most Important Terms and Conditions (MITC)”
7. For onboarding of new clients, the date of the implementation and compliance by the market participants shall be April 01, 2024.
8. For existing clients, the MITC shall be informed to clients via email or any other suitable mode of communication (which can be preserved) by June 01, 2024.
9. 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. make amendments to the relevant bye-laws, rules and regulations for the implementation of the above provisions;
c. publish the implementation standards on their websites; and
d. communicate to SEBI, the status of the implementation of the provisions of this circular in their monthly development report.
10. 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
