AFTER numerous complaints of rampant misuse, the Securities and Exchange Board of India (Sebi) has proposed that stock brokers must settle the balance funds/securities lying in the trading accounts of clients on the last day of every month.Brokers must also send monthly statements to clients, and in case of a dispute, clients will have to bring it to the notice of brokers within 7 working days, said the proposal.
Under a practice called ‘running account authorisation’, clients give brokers the right to retain funds and securities—to be used to meet settlement/margin obligations for later trades—continually. However, “the funds and securities of the clients lying with thebrokers are prone to several risks”, the regulator said in its discussion paper.
To prevent such occurrences, Sebi has proposed that the running account authorisation be dated and contain a clause that the client can revoke it any time.
“There should be a clause in the authorisation mentioning that actual settlement of funds and securities should be done by both the parties on the last day of every calendar month,” the note said. If the client requests for return of the securities/funds any time during the interim period, the broker will have to transfer it within one working day from the date of receiving the request.
“Some clients may be having outstanding transactions/positions in cash/derivative segment on the running account settlement date. In such cases, the broker may make due adjustment by retaining the requisite securities/funds from the running account towards such obligations of clients and may also retain the funds expected to be required to meet margin obligations for the next 5 working days,” the note said.
‘Don’t create email IDs’
THE regulator has also barred broking firms from creating email ids for clients, on which electronic contract notes (ECNs) are sent. Brokers often create these ids without informing clients, and fail to send the ECNs on the email ids that were given to them. They then carry out unauthorised trades in their clients’ accounts, send the ECNs on the email ids created by them, and later claim that the clients were kept informed of the trades.
“The authorisation for receiving ECNs should be signed by the client only and not by any authorised entity or attorney holder. The authorisation should have a clause mentioning that any change in the email id will be communicated by the client through a physical letter to the broker,” the note said.
