labels: Brokers
SEBI moots monthly settlement for brokers news
25 July 2009

In a move intended to prevent stock brokers from misusing funds and securities lying in their clients' trading accounts, the Securities and Exchange Board of India has proposed that brokers settle the balance funds/securities lying in the accounts on the last day of every calendar month.

"The broker should send all the clients a monthly statement ... the retention of funds/securities, if any, by the broker should be duly explained in the statement," SEBI said, framing proposed guidelines for client registration and trading operations.

Under a practice called 'running account authorisation', clients give brokers the right to retain their funds and securities on an ongoing basis, to be used to meet settlement/margin obligations for later trades.

However, SEBI has received many complaints that brokers were misusing the residual funds and securities in their clients' accounts. ''The funds and securities of the clients lying with the brokers are prone to several risks,'' the regulator said in its discussion paper.

The regulator has proposed that the 'running account authorisation' should be dated, and contain a clause that the client can revoke the authorisation at any time.

If the client requests a return of the securities or funds lying in the account at any time during the interim period, the broker will have to transfer it within one working day from the date of receiving the request.


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SEBI moots monthly settlement for brokers