Brokers cannot use power of attorney to transfer client shares from June 1

The Securities and Exchange Board of India (SEBI) has prohibited brokers from using power of attorney (PoA) to transfer clients' shares in equity markets.

"Holding of a PoA by trading member/clearing member will not to be considered as equivalent to the collection of margin," SEBI said in its circular. The market regulator's order comes into effect from June 1.

SEBI's move came a few months after the Karvy Stock Broking crisis where clients' shares had been pledged illegally as collateral against loans.

The new rule means that clients themselves will have to transfer shares to the margin account if they wish to pledge them. Under the existing system, brokers transfer the shares to the client's demat account, often invoking using PoA for the purpose.

PoA arrangements will have to be modified, and the entire process of margin placement of shares to brokers will have to be changed, a broker named Vijay Bhushan told BusinessLine.

SEBI has issued a clarification stating that t has not imposed any restriction on the use of Power of Attorney (PoA) between a client and a broker in the equity markets.

"There is no change caused in conditions of POA," SEBI said in a statement, as quoted by PTI.