The Securities and Exchange Board of India (Sebi) has warned stock brokers against forcing clients to give a power of attorney (PoA) in their favour for operating client accounts.

Sebi said stock brokers could not use a PoA to transfer shares for off-market transactions or execute trades on behalf of the client without his consent.

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The brokers have been told to take steps to revoke the authorisations that are not consistent with the guidelines by September 1. The brokers shall take steps to implement the circular by May 31 for new clients, said Sebi.

PoAs are executed in favour of brokers and depository participants to authorise the former to operate clients’ demat and bank accounts to facilitate delivery of shares and pay-in/pay-out of funds.

These are mostly taken from clients who want to avail of internet-based trading services. But, there have been instances of stock brokers seeking authorisations from clients to offer non-internet based services.

In some cases, the PoA even allows a broker to open and close accounts on behalf of the client and to trade on the client’s account without the consent of the client, says the Sebi circular.

Sebi said the PoA should be limited to transfer of securities in the beneficial owner’s account towards stock exchange-related margin requirements, pledging of shares in favour of the stock broker for the limited purpose of meeting the margin requirements of the client for trades executed through the same broker and to apply for products such as mutual funds, IPOs and rights issues, but only after instructions from the client.

The circular says a PoA shall not facilitate transfer of funds from the client’s bank account for trades executed through another broker or merging of balances (dues) under various accounts to nullify debit in any other account.

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