Sebi asks stock brokers to have mechanism to prevent, detect market abuse, fraud

The market regulator has said that the standards of implementation will be released after discussions with the industry body.

Stock brokers will soon need to put in place specific measures to prevent and detect fraud or market abuse.

Qualified stock brokerages (QSBs) will need to implement this from August 1, 2024. Other brokerages will to roll this out between January 1, 2025, and April 1, 2026. Those who have more than 50,000 active unique client codes (UCCs) will need to implement the measures from January 1, 2025; those with UCCs between 2,001 and 50,000 from April 1, 2025; and those up to 2,000 UCCs from April 1, 2026.

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In a circular issued on July 4, the Securities and Exchange Board of India (Sebi) stated that stock brokers must comply with the following obligations:

1.Systems for surveillance of trading activities and internal controls
2. Obligations of the stock broker and its employees
3. Escalation and reporting mechanisms
4. Whistle Blower Policy

The circular stated that the standards of implementation, including operational modalities will be formulated by the brokers' Industry Standards Forum (ISF), in consultation with SEBI.

The provisions will come into force in a risk-based, staggered manner to ensure smooth adoption and effective implementation for all the stock brokers by providing enough time for stock brokers, based on their size, for making necessary changes, said the circular.

On the earlier deadline for QSBs, it stated that it has been set "considering that enhanced obligations and responsibilities such as governance structure and processes and surveillance of client behaviour are already being followed by them".

Stock exchanges have been asked to bring the provisions of the circular to the notice of stock brokers and to inform the regulator about the status of implementation of the provisions of this circular, among other things.