Sebi is cautious about front running cases and unauthorised trade without client information, which is not in favour of investors.
Amid the raging pandemic, the broker association has sought relaxations in maintaining call recordings of orders or instructions received from clients while working from designated alternative places.
This is one of the several relaxations that brokers have sought from the market regulator, the Securities and Exchange Board of India (Sebi).
The (ANMI) wrote a letter to Sebi and managing directors of exchanges on April 19. In this letter, ANMI has sought 16 relaxations due to severe COVID-19 conditions.
Moneycontrol has reviewed this letter.
ANMI has sought relaxation in maintaining call recordings of orders or instructions from clients.
A source close to the development told Moneycontrol: “The regulator is ready to accept most of their demands stated in the letter. However, maintaining call records of orders or instructions from clients is an essential part of the transaction, on which the regulator may not be comfortable”.
The regulator has, in the past, expressed some reservations about such working, in the interest of investors.
Anil Choudhary, Partner, FinSec Law Advisors told Moneycontrol: “Proof of order confirmation, either by way of email or call recordings, is an essential safeguard for retail investors from any unauthorized trade conducted through their accounts. We have seen in the past how certain brokers have carried out aggressive derivative trade without the consent of their clients, resulting in huge losses to investors. Therefore, in my view, there shall be no relaxation on this rule, especially when it is so easy and inexpensive to maintain data of the call records/emails of trade orders placed by clients to their brokers.”
During COVID-19, Sebi had permitted work-from-home from April 16, 2020, to January 31, 2021. However, it has not extended the circular timeline for working from home.
Another source close to the development told Moneycontrol: “Sebi is cautious about front running cases and unauthorised trade without client information, which is not in favour of investors. It is empathetic on call recordings because it will help save retail investors’ money. If they do not record the call and conduct trade, then the client may well question the nature of such a trade. Such a situation may lead to increased unauthorised trade, which is not in favour of small investors”.
A market expert told Moneycontrol: “In last few years, SEBI has taken several measures to protect investor money. The call recording is proof that the trader has put an order with a specific broker and the broker needs to maintain that recording for three years and provide it, when required during physical inspection”.
A broker association member told Moneycontrol: “Large broking houses created infrastructure that helps in working from home. They set up a common facility where calls are recorded, but orders were executed from home. However, this facility is not created by mid or small size brokers. They keep sending order execution messages to clients, but that has not solved the problem of unauthorized trade”.
Sebi may also not allow brokers who do not have the recording facility during executing trade, to work from designated alternate locations.
A source in the broking industry told Moneycontrol: “SEBI is ready to accept all other demands, including reporting for artificial intelligence and machine learning applications, submission of internal audit report for HYE (half-year ending) March 2021, submission of system audit report for the period ended March 2021, concurrent audit report and submission of cyber security and cyber resilience audit report of March 2021”.
The market has seen massive growth in the retail segment in the equity market. Demat account holders have doubled in a short span of time.
The regulator does not want to take a risk, which hurts the confidence of any investors. It will continue to impose strict conditions on intermediaries for keeping the market healthy.