Sebi stiffens rule on unauthorised trades

Brokers hail the move but share concerns over increased time and cost of compliance

To curb 'unauthorised trades,' the Securities and Exchange Board of India (Sebi) has directed brokers to maintain evidence of clients placing orders with them.

Such trades are defined as buy or sell orders placed by a broker on behalf of a client without the latter's directive or authorisation. The markets regulator said the evidence may be a physical record from the client, a telephone recording, e-mail from a registered mail address, a log for internet transactions, record of mobile messages or any other "legally verifiable record".

"When a dispute arises, the burden of proof will be on the broker to produce the above records for the disputed trades," goes a Sebi circular.

Many clients allow their brokers access to their accounts and let them trade on their behalf. This leads to a lot of ambiguous trades. Sebi says it receives several complaints from investors regarding unauthorised trade.

"Sebi in the past has taken several steps to tackle the menace...in spite of measures taken, a considerable proportion of investor complaints is of the nature of unauthorised trades," goes the circular.

Brokers say they are not always at fault. "Often clients allow us to operate their accounts. However, if they incur losses, they try to dispute the trade and file a complaint with Sebi. The latest directive will help both the broking community and investors. However, the time and cost of compliance will increase," said an official with a domestic brokerage.

In the current framework, brokers in commodity derivative markets are required to keep evidence of a client placing an order. There is no such requirement in the equity, equity derivative and currency derivative segments.

Sebi says this latest directive will "further strengthen regulatory provisions against unauthorised trades and harmonise the requirements across markets".

POSSIBLE EVIDENCE

• A physical record signed by client

• A telephonic recording

• E-mail authorizing the trade a registered address

• Log for internet transactions

• Record of mobile messages

• Any other “legally verifiable record”