Exchanges designate 15 stock brokers as QSBs with enhanced obligations

Additional responsibilities are in areas of financial stability, audit, related-party transaction, cyber security, risk management; enhanced monitoring of these QSBs to start on July 1

As directed by the Securities and Exchange Board of India (Sebi), the stock exchanges on Friday issued a list of 15 stock brokers being designated as Qualified Stock Brokers (QSB) which will be subject to enhanced obligations and responsibilities.

The list includes Zerodha, Angel One, 5paisa Capital, HDFC Securities, ICICI Securities, IIFL Securities, Jainam Broking, Kotak Securities, Motilal Oswal Financial Services, NextBillion Technology, Nuvama Wealth and Investment, Sharekhan, Anand Rathi Share and Stock Brokers, RKSV Securities, and Globe Capital Market

“These QSBs shall be required to meet enhanced obligations and discharge additional responsibilities. Enhanced monitoring of QSBs shall be carried out by all exchanges with effect from July 01, 2023,” said the stock exchanges in a joint statement.

Through a circular issued on February 6, the market regulator issued parameters for designating a stock broker as QSB. The circular covers big broking outfits that are systemically important. The regulator had approved the decision in its last board meeting held in December.

On account of factors like their size, trading volumes and amount of clients’ funds handled by them, these stock brokers occupy a significant position in the securities market. A need was felt to  further strengthen the compliance and monitoring requirements due to the concentration of dealings in the hands of such stock brokers.

According to the increased obligations, these QSBs will have additional responsibilities on disclosures on financial stability, audit, related-party transaction, cyber security, risk management among others.

In its circular issued last month, Sebi had stated that the QSBs will also be required to carry out surveillance of client behaviour by analysing their patterns of trading and detection of unusual activity.

These analytics will have to be reported to the exchanges to prevent fraudulent activities. Following the circular, the market regulator floated a consultation paper the next day on defining the responsibilities of the senior management of the broking firms for ensuring trade surveillance.

The paper has also recommended establishing a whistleblower policy and channels for raising concerns about suspected unfair practices or regulatory violations at the stock broking level.

These surveillance and control systems will be used to detect, prevent or report fraud or market abuse by clients, promoters, employees or even analogous persons.