In-person verification of clients mandatory for brokers: NSE

Leading stock exchange NSE has asked its member brokers to ensure 'in-person' verification of all their clients -- a move seen as part of efforts to thwart any shadow-investing by unscrupulous elements in the market. 

Besides, the brokers would also have to keep a proper record of all the collaterals provided by their clients to ensure a proper audit trail in times of any investigations, National Stock Exchange (NSE) said in a circular to its members.

National Stock Exchange has made necessary amendments to its Trading Regulations for both capital market and derivatives segments to bring into effect these requirements.

Through another amendment, NSE has also asked all its member brokers to get their books audited in every six months by an independent entity. 

Currently, all the brokers are required to prepare their annual accounts for each financial year, and furnish the same to the exchange within six months. The new norms are said to be aimed at checking violations by brokers as also unscrupulous investors.

The brokers would also need to "get the complete internal audit done on an half-yearly basis by an independent qualified Chartered Accountant, Company Secretary or Cost and Management Accountant, who is in practice and does not have any conflict of interest".

The audit report would also need to be reported a time frame and format as prescribed by the exchange, the circular said.

Besides, the brokers would also need to maintain records of collateral furnished by their clients to ensure proper audit trail of use of the client's collateral and other related dealings.     

NSE has also tightened the steps taken by brokers while signing up new clients.

Currently, the brokers are required to "take reasonable steps to assess the background, genuineness, financial soundness of such person and his investment objectives by obtaining from the new client/constituent a Constituent Registration Form in a such format as may be prescribed by the Exchange from time to time."

Now, prior to registering any clients, the brokers would be "to identify his Constituents and to ensure 'in-person' verification of the Constituents as per guidelines as may be prescribed by the Exchange from time to time." 

Also, any Power of Attorney executed by the client in favour of the broker, authorising operation of client's bank and demat accounts, would be subjected to terms and conditions prescribed by the Exchange from time to time. 

The brokers have also asked the brokers to give, free of charge, a copy of all the documents executed by their clients and get the clients' acknowledgement on receipt of the same.