Sebi tightens screws on fraudsters: Sebi to implement mechanisms to detect, curb fraud by stock brokers

Sebi's stern action to detect fraud: Keeping in mind the increasing number of frauds and market abuse by stock brokers, Sebi said on Wednesday that it would institute a formal mechanism to check such a menace. 

The market regulator said that amendments will be made in regard to stock brokers' regulations, which will also have the provision for a whistle-blower policy as well as systems for the surveillance of trading activities and internal controls.

Besides, the amended norms would also provide the obligations of the stock broker and their employees, as well as the provisions for escalation and reporting mechanisms.

The approved amendments will come into effect on October 1, 2023, the Securities and Exchange Board of India (Sebi) said in a release.

The proposal for instituting the mechanism was cleared by the board of Sebi at its meeting in Mumbai on Wednesday.

Also, the regulator's board has in principle approved a proposal to regulate index providers to foster transparency and accountability in the governance and administration of financial benchmarks in the securities market.

In a move aimed at mitigating the credit risk on intermediaries and the risk of potential misuse of clients' funds, Sebi's board has given its nod to introducing a regulatory framework on the upstreaming of clients' funds by stock brokers and non-bank clearing members to clearing corporations.

"Under the approved framework, clients' funds shall be upstreamed by stock brokers/non-bank clearing members to clearing corporations on an end-of-day basis to ensure that client's funds are not retained by stock brokers/non-bank clearing members.

"The funds shall be upstreamed only in the form of cash, a lien on fixed deposit receipts (subject to certain conditions), or the pledge of units of mutual fund overnight schemes," the release said.

According to Sebi, the framework would not apply to bank-clearing members.

"The framework is proposed to be implemented with a glide path comprising two phases. Phase I of the framework is expected to be implemented on July 1, 2023," the release said.

(With inputs from PTI)