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Brokers get Sebi relaxation on access to investor accounts

Brokers get Sebi relaxation on access to investor accounts
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First Published: Mon, May 16 2011. 02 55 PM IST
Updated: Mon, May 16 2011. 02 55 PM IST
New Delhi: The Securities and Exchange Board of India (Sebi) has allowed brokers an uninterrupted access to their clients’ accounts by seeking one time authorization, reversing its earlier direction of such a requirement every year.
Sebi has agreed to drop the requirement of stock brokers seeking ‘running account authorization’ from their clients at least once a year -- which was made mandatory in December 2009 -- after repeated requests from brokerages in this regard.
In a circular issued on 3 December 2009, Sebi had changed various regulations concerning dealings between stock brokers and investors and one of the requirements mandated at that time was a fresh ‘running account authorization’ every year to access the funds and securities of the clients.
These rules were first scheduled to be implemented by 31 March 2010, but the deadline was extended to 30 June of that year on brokers’ requests.
However, the brokers continued to seek relaxation in these rules and Sebi has now given them further reprieve.
In a circular issued last week to chiefs of various bourses, Sebi informed them about the latest amendments to its earlier directions in this regard.
The exchanges have subsequently informed their member brokers about the new Sebi direction.
As per new Sebi circular, it has “received representations from market participants expressing difficulties in implementation of the requirements pertaining to renewal of Running Account Authorization once in a year”.
Sebi said it has therefore decided to drop the clause pertaining to renewal of authorization every year.
At the time of opening the trading accounts, brokers ask the investors to give them ‘Running Account Authorization’, which makes the funds readily available for future buy orders.
Generally, investors also tend to keep some cash, whether fresh or those from sale of shares, in their trading accounts for instant access to funds needed for future buy orders.
However, there have been cases when the brokers use these funds for market dealings without the client’s knowledge and then return the funds back into accounts whenever the customer needs it.
Besides, brokers generally used to take 2-3 days to transfer back the funds to the clients from their trading accounts.
It was in this backdrop that Sebi in 2009 made it mandatory for brokers to return such funds within 24 hours, or get a ‘running account authorization’.
Accordingly, the brokers were asked to give their clients an option to either take back the unutilized funds at the end of every month or quarter, as desired by them, or provide a ‘running account authorization.’
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First Published: Mon, May 16 2011. 02 55 PM IST
More Topics: Sebi | Brokers | Brokerages | Investors | Shares |