Sebi issues fresh guidelines to curb misuse of clients' power of attorney

To curb misuse of PoA given by clients to stock brokers, Sebi came out with fresh guidelines wherein execution of a new document will be made compulsory for transfer of securities towards deliveries

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To curb possible misuse of Power of Attorney (PoA) given by clients to stock brokers, Sebi on Monday came out with fresh guidelines wherein execution of a new document will be made compulsory for transfer of securities towards deliveries and settlements.

The execution of the document -- Demat Debit and Pledge Instruction (DDPI) -- will also be applicable for pledging or repledging of securities.

The fresh guidelines, which will be effective from July 1, also comes against the backdrop of instances of misuse of PoAs.

Under DDPI, clients can explicitly agree to authorise the stock broker and depository participant to access their beneficiary ownership account for the limited purpose of meeting pay-in obligations for settlement of trades executed by them, according to a circular.

The use of DDPI will be limited only for two purposes. One is for the transfer of securities held in the beneficial owner account of the client towards stock exchange related deliveries or settlement obligations arising out of trades executed by such a client.

The second purpose will be for pledging/re-pledging of securities in favour of the Trading Member(TM)/Clearing Member(CM) for the purpose of meeting margin requirements of the client.

With the implementation of the new guidelines, Sebi said PoA will no longer be executed for the two purposes.

"The DDPI shall serve the same purpose of PoA and significantly mitigate the misuse of PoA," Sebi said, adding that the client can use the DDPI or opt to complete the settlement by issuing physical Delivery Instruction Slip (DIS) or electronic Delivery Instruction Slip (eDIS) themselves.

The watchdog said the existing PoAs will continue to remain valid till the time client revokes the same. Thus, the stock broker and depository participant will not directly or indirectly compel the clients to execute the DDPI or deny services to the client if the client refuses to execute the DDPI, it added.

The DDPI needs to be executed only if the client provides his/her explicit consent for the same, including for internet-based trading. It should be adequately stamped and can be digitally signed by the clients.

According to the circular, the PoA will be optional and should not be insisted upon by the stock broker and depository participant for opening of the client account. A clause in this regard will be incorporated under the sub-heading 'Additional Rights And Obligations' of the Rights and Obligations Document.

Sebi said the depositories will have to ensure matching and confirming the transfer of securities with client-wise net delivery obligation arising from the trade executed on the exchange, as provided by the Clearing Corporation to depositories for each settlement date.

This will be for the execution of the DDPI for fulfilling delivery/settlement obligations, prior to executing actual transfer of securities based on details provided by stock broker and depository participant.

Further, the regulator said that securities transferred on the basis of the DDPI provided by the client will be credited only to the client's trading member pool account. The DDPI provided by the client will be registered in the demat account of the client by TM/CM.

Sebi has asked stock exchanges and depositories to ensure that stock broker and depository participant providing DDPI facility has enabled its clients to revoke or cancel the DDPI provided by them.