September 26, 2016
The Managing Directors of all Recognized Stock Exchanges and Depositories
Subject: Enhanced Supervision of Stock Brokers/Depository Participants
1. SEBI constituted a committee on “Enhanced Supervision of Stock Brokers”, which included representatives from Stock Exchanges, Depositories and Brokers. With a view to implement the recommendations, the guidelines as Annexed to this circular are being issued. These guidelines cover the following broad areas:
I. Uniform nomenclature to be followed by stock brokers for Naming/Tagging of Bank and Demat Accounts and the reporting of such accounts to the Stock Exchanges/Depositories.
II. Monitoring of Clients’ Funds lying with the Stock Broker by the Stock Exchanges, through a sophisticated alerting and reconciliation mechanism, to detect any misutilisation of clients fund.
III. Changes in the existing system of internal audit for stock brokers/depository participants viz. appointment, rotation of Internal Auditors, formulation of objective sample criteria, monitoring of quality of Internal Audit Reports, timeline for submissions of Internal Audit Reports, etc. Page 2 of 29
IV. Monitoring of Financial Strength of Stock Brokers by Stock Exchanges so as to detect any signs of deteriorating financial health of stock brokers and serve as an early warning system to take preemptive and remedial measures.
V. Imposition of uniform penal action on stock brokers/depository participants by the Stock Exchanges/Depositories in the event of non-compliance with specified requirements.
VI. Other Requirements:
a. Uploading client’s funds and securities balances by Stock Brokers to Stock Exchange System and onwards transmission of the same to the clients for better transparency.
b. Clarification on Running Account Settlement
c. Providing PAN details of Directors, Key Management Personnel and Dealers, to Stock Exchanges and any change thereof.
2. The Stock Exchanges/Depositories are directed to:
a. bring the provisions of this circular to the notice of the Stock Brokers/depository participants and also disseminate the same on their websites.
b. make necessary amendments to the relevant bye-laws, rules and regulations for the implementation of the above directions in co-ordination with one another to achieve uniformity in approach. c. communicate to SEBI, the status of the implementation of the provisions of this circular in their Monthly Development Reports.
3. This circular is issued in exercise of powers conferred under Section 11(1) of the Securities and Exchange Board of India Act, 1992 to protect the interest of investors in securities and to promote the development of and to regulate the securities market.
Market Intermediaries Regulation and Supervision Department
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