Executive Summary:
SEBI circular, dated January 12, 2024, addresses inefficiencies in reporting requirements related to client collateral held by stock brokers. Following recommendations from the Brokers Industry Standards Forum (ISF), certain reports are discontinued to ease business operations while maintaining supervision over client collateral. Stock exchanges must issue operational guidelines and an SOP within 15 days and communicate implementation status to SEBI monthly.
Key Points / Main Content:
* **Discontinuation of Reports & Amendments:**
* Clause 15.5.2 of the SEBI master circular on stock brokers is deleted.
* Clause 15.5.3 is modified, reiterating the "G Principle": Total available funds must be equal to or greater than client funds as per ledger balance.
* Tables 5, 6, and 7 of the master circular are deleted.
* **Implementation & Monitoring:**
* The circular is effective immediately.
* Stock exchanges must monitor client funds according to the G Principle.
* **Directives to Stock Exchanges:**
* Inform stock brokers about the circular and disseminate it on their websites.
* Issue operational guidelines and a Standard Operating Procedure (SOP) within 15 days in consultation with stakeholders.
* Amend relevant byelaws, rules, and regulations.
* Report implementation status to SEBI in their monthly development report.
Impact Analysis:
* **Stock Exchanges:**
* Impact: Required to implement the changes, monitor stock brokers, and ensure compliance with the revised regulations.
* Action Required: Disseminate the circular, issue guidelines and SOP, amend byelaws, and report to SEBI.
* **Stock Brokers:**
* Impact: Experience changes in reporting requirements and monitoring mechanisms related to client collateral.
* Action Required: Adapt to the new reporting structure and comply with the G Principle for client funds.
* **Clearing Corporations:**
* Impact: Continue to supervise client collateral and coordinate with stock exchanges.
* Action Required: Implement the changes in reporting and monitoring.
* **Investors:**
* Impact: Indirectly benefit from the increased efficiency and continued safeguarding of their collateral.
* Action Required: No direct action required.
Key Entities Referenced
Securities and Exchange Board of India (SEBI): The regulatory body issuing the circular concerning stock brokers and clearing corporations.
Stock Exchanges: Entities regulated by SEBI and directed to implement the provisions of the circular.
Clearing Corporations: Entities regulated by SEBI and directed to implement the provisions of the circular.
SEBI master circular on stock brokers: A key policy document which safeguards against misutilisation of clients funds. Certain clauses of this master circular are being modified as per this circular.
Brokers Industry Standards Forum (ISF): An industry forum consulted by SEBI to address inefficiencies in reporting mechanisms.
Securities and Exchange Board of India Act, 1992: The act under which SEBI's powers are conferred to issue the circular.
SEBI Stock Brokers Regulations, 1992: Regulations cited as the basis for issuing the circular.
Securities Contracts Regulation Stock Exchanges and Clearing Corporations Regulations, 2018: Regulations cited as the basis for issuing the circular.
CIRCULAR
SEBI/HO/MIRSD/MIRSD-PoD-1/P/CIR/2024/03 January 12, 2024
To,
All recognized Stock Exchanges and Clearing Corporations
Dear Sir/Madam,
Ease of doing business- Changes in reporting
1. SEBI has taken various measures to safeguard investors’ collateral lying with the
stock brokers. Clause 15 of SEBI master circular on stock brokers (“master circular”)
dated May 17, 2023 safeguards against misutilisation of clients’ funds. Clause 42
safeguards against the use of one clients’ collateral for another. Stock Exchanges
and Clearing Corporations draw various reports from the stock brokers for this
purpose.
2. SEBI received representations from various stakeholders citing inefficiencies due to
duplication of monitoring mechanisms and difficulties in uploading data to
exchanges. In order to address the issue, SEBI advised the industry associations to
consult with MIIs under the aegis of Broker’s Industry Standards Forum (ISF) and
submit a proposal to SEBI. The ISF has recommended that some of the reports can
be discontinued.
3. These recommendations have been considered by SEBI and as the changes in
reports shall continue to allow the stock exchanges and clearing corporations to
retain the supervision over client collateral, in order to bring in efficiencies in
reporting and a step towards ease of doing business, certain reports are being
discontinued. Based on the above decision the following clauses of the master
circular stand modified:-
3.1. Clause 15.5.2 stands deleted.
3.2. Clause 15.5.3 stands modified whereby G principle is reiterated as follows:
15.5.3 Stock exchanges shall put in place a mechanism for monitoring of
clients’ funds (‘G’ principle) lying with the stock brokers on the principle
enumerated below:
Page 1 of 2G Principle: The total available funds i.e. cash and cash equivalent with
the stock broker and with the clearing corporation/clearing member
should always be equal to or greater than clients’ funds as per the
ledger balance.
3.3. Table 5, 6 and Table 7 stands deleted.
4. The provisions of this circular shall come into force with immediate effect.
5. The stock exchanges are directed to:
a. bring the provisions of this circular to the notice of stock brokers, and also
disseminate the same on their websites;
b. jointly issue the following within 15 days from the date of issuance of this
circular
i. operational guidelines in consultation with relevant stakeholders; and
ii. an SOP for monitoring the implementation of provisions of this circular
c. make amendments to the relevant bye-laws, rules and regulations for the
implementation of the above provisions; and
d. communicate to SEBI, the status of the implementation of the provisions of
this circular in their monthly development report.
6. This circular is issued in exercise of powers conferred under Section 11(1) of the
Securities and Exchange Board of India Act, 1992 read with Regulation 30 of SEBI
(Stock Brokers) Regulations, 1992 and Regulation 51 of Securities Contracts
(Regulation) (Stock Exchanges and Clearing Corporations) Regulations, 2018, to
protect the interests of investors in securities and to promote the development of,
and to regulate the securities markets.
Yours faithfully,
Aradhana Verma
General Manager
Tel.No: 022 26449633
aradhanad@sebi.gov.in
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