Introduction: The Securities and Exchange Board of India (SEBI) has issued Circular No. SEBI/HO/MIRSD/POD-1/P/CIR/2024/4 on January 12, 2024, addressing the need for enhanced security in the stock broking industry. This circular introduces a significant step towards investor protection by proposing a framework for the voluntary freezing/blocking of trading accounts in response to suspicious activities.
Detailed Analysis:
1. Transition to Online Trading: The stock broking industry in India has evolved from traditional call and trade methods to an online mode. However, it has been observed that the majority of Trading Members lack the facility to freeze/block accounts when investors notice suspicious activities.
2. Addressing Investor Concerns: Investors often raise concerns about suspicious activities in their trading accounts. Recognizing the urgency of the situation, SEBI emphasizes the need for a facility that mirrors the blocking of ATM and Credit Cards.
3. Parallels with Demat Accounts: Notably, a similar facility for voluntary blocking/freezing already exists for demat accounts. The circular proposes extending this feature to trading accounts, aligning with SEBI’s commitment to investor welfare.
4. Collaboration with Brokers’ Industry Standards Forum (ISF): SEBI, in consultation with ISF, aims to lay down a comprehensive framework by April 01, 2024. The framework will cover guidelines for clients’ voluntary freezing/blocking requests, acknowledgments, processing time, actions by Trading Members, re-enabling processes, and client intimation.
5. Implementation Timeline: Stock Exchanges are instructed to ensure the implementation of guidelines by Trading Members from July 01, 2024. A compliance report, due by August 31, 2024, must be submitted to SEBI to enforce the new system effectively.
6. Stock Exchanges’ Responsibilities: Stock Exchanges are directed to undertake necessary steps and system changes for implementation, amend relevant bye-laws, rules, and regulations, and disseminate the circular’s provisions to Trading Members.
Conclusion: SEBI’s proactive approach to investor security is evident in the introduction of the voluntary freezing/blocking framework for trading accounts. This initiative aligns with SEBI’s mission to protect investor interests and foster the development of regulated securities markets. Investors can anticipate a safer and more secure trading environment as the proposed guidelines come into effect, emphasizing the commitment of SEBI towards enhancing ease of doing business and promoting investor confidence.
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Securities and Exchange Board of India
Circulars No. SEBI/HO/MIRSD/POD-1 /P/CIR/2024/4 | Dated: January 12, 2024
To
All Recognized Stock Exchanges
All Registered Trading Members through Stock Exchanges
Dear Sir / Madam,
Sub: Ease of Doing Investments by Investors- Facility of voluntary freezing/blocking of Trading Accounts by Clients
1. Stock broking industry in India has moved from a call and trade type of scenario to online mode, wherein the investors use the login ids and passwords provided to them by the Trading Members. It has been observed that at times, suspicious activities are noticed by investors, but the facility of freezing/blocking of accounts is not available with majority of Trading Members.
2. Many a times, investors raise issues of suspicious activities in their trading accounts and thus, there is an urgent need to address the situation of having a facility for blocking of trading accounts as it is available for blocking of ATM Cards and Credit Cards.
3. Similar facility of voluntary blocking/ freezing of demat accounts is already available for investors and this facility is now proposed to be offered to the investors for their trading accounts also.
4. In this respect, pursuant to consultation with the Brokers’ Industry Standards Forum (ISF) and to enhance ease of doing business and ease of investment, it has been decided that the framework for Trading Members to provide the facility of voluntary freezing/blocking the online access of the trading account to their clients on account of suspicious activities shall be laid down on or before April 01, 2024, by the ISF, under the aegis of stock exchanges, in consultation with SEBI and the same shall, inter-alia, contain necessary guidelines with respect to the following:
4.1. Detailed policy for voluntary freezing/ blocking the online access of the trading account of the client including the following:
- modes through which a client can request/communicate to the Trading Member for voluntarily blocking the trading accounts;
- issuing of acknowledgement to the clients on receipt of message;
- time period within which the request shall be processed and the trading account shall be frozen/blocked.
4.2. Action to be taken by the Trading Member pursuant to the receipt of request for freezing/blocking of the trading account;
4.3. Process for re-enabling the client for trading/transfers;
4.4. Intimation to be provided by the trading member to the clients w.r.t. introduction of the facility to block the trading accounts.
5. Further, the Stock Exchanges shall ensure that the guidelines so issued under the aforesaid Framework are implemented by Trading Members with effect from July 01, 2024. Stock Exchanges shall also put in place an appropriate reporting requirement by Trading Members to enforce the above system. A compliance report to this effect shall be submitted to SEBI by Stock Exchanges latest by August 31, 2024.
6. Stock Exchanges are advised to:
6.1 . take necessary steps and put in place necessary systems for implementation of above.
6.2. make necessary amendments to the relevant bye-laws, rules and regulations for the implementation of the above.
6.3. bring the provisions of this circular to the notice of Trading Members and also to disseminate the same on their website.
7. 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, 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
