Sebi proposes to tighten variable net worth regulations for brokers

The Securities and Exchange Board of India (Sebi) proposed revising the variable net worth requirements for stock brokers to better align capital requirements with operational risks and protect investor interests, according to a consultation paper released on Friday.

 

Sebi proposed that brokers maintain variable net worth based on both the average credit balance of client funds and the number of active clients.

  Variable net worth to include 10% of the average credit balance of clients over the previous six months.

  Additional net worth requirements of 5 million rupees ($53,051.81) for brokers with more than 10,000 direct active clients, with another 5 million rupees for every additional 50,000 clients.

 

  Additional capital requirements for clients served through authorised persons rise in slabs from 0.5 million rupees to 5 million rupees as client numbers increase.

  Proposal follows introduction of an upstreaming framework requiring brokers to transfer client funds to clearing corporations instead of holding them, reducing balances earlier used to calculate variable net worth. 

SEBI has invited public comments on the consultation paper until May 15.