Mumbai, July 4, 2017

The market regulator has stepped up supervision of stockbrokers to check fund diversion

Securities and Exchange Board of India (Sebi) has stepped up supervision of stockbrokers to check fund diversion.

The regulator on Monday outlined the criteria for annual inspection of stockbrokers and members of clearing corporations. The move is part of Sebi’s efforts to move towards a risk-based model of supervision of all stockbrokers.

According to Sebi, the top 25 stockbrokers in terms of investor complaints and arbitration cases filed by investors would face inspection, irrespective of whether they have been inspected earlier or not. Those with adverse observations in the internal audit reports on high-risk issues such as wrong reporting of margins, transfer of trades, pledging of client securities and dealing with unregistered intermediaries would also be inspected.

“Clearing activity undertaken by stockbrokers for other stockbrokers shall be inspected by clearing corporations. Other activities of stockbrokers shall be inspected by stock exchanges. If stock exchanges and clearing corporations so desire, they can conduct joint inspections of stockbrokers,” Sebi said in a circular on Monday.
 
Inspection of stockbrokers can be done on a random basis. Those not falling understated criteria would be examined at least once in three years, Sebi said.

These apart, the regulator has asked exchanges to frame an internal policy for selection of stockbrokers for inspection based on inputs/alerts from risk-based supervision. Besides, subsidiaries of regional stock exchanges would also have to face inspection every year.

[The Business Standard]