Bourses get more time for mechanism to monitor brokers

Stock exchanges have now got time till July 2017 to put in place the requisite mechanism for monitoring of clients' funds handled by stock brokers, with markets regulator Sebi extending the deadline in this regard.
In September, the markets regulator had asked the bourses to comply with these regulations within three months -- a deadline which is ending this month.
This mechanism is not applicable for stock brokers who are carrying out only proprietary trading or only trading for institutional clients.
"Based on the alerts generated, stock exchanges shall, inter-alia, seek clarifications, carry out inspections and initiate appropriate actions to protect the clients' funds from being misused. Stock exchanges shall also maintain records of such clarifications sought and details of such inspections," Sebi said in a circular.

Besides, the regulator has asked exchanges to upload clients' fund balance and securities balance by the stock brokers by July 2017. Also, bank details for initiating electronic fund transfers would have to be obtained from new clients and would be updated for existing clients by that time.
Sebi said that new rules made in the existing system of internal audit for stock brokers and depository participants in terms of "formulation of objective sample criteria" will become effective" from April 1.

Under the rules, "stock exchanges shall, in consultation with each other, develop for each theme/area of the internal audit, a pre-defined objective sample criteria, which shall mention not only the sample size but also the method used for arriving at the sample size".

With respect to verification of compliance with KYC norms, instead of the current practice of selecting a minimum number of KYCs, the sample selected may be a certain percentage of the top clients in each client category (corporate, partnership, individual, trust, others) based on total turnover on the stock exchange and whose account has been opened during the audit period.
"For each theme/area of audit, internal audit report shall clearly specify the sample size verified, number of instances where adverse observations have been made as also the details of the adverse observations," it added.