SEBI Mandates Stock Brokers To Establish Fraud Prevention Mechanisms
Stock brokers must establish mechanisms to prevent and detect fraud or market abuse, the Securities and Exchange Board of India announced on Thursday.
The circular issued by SEBI states that the amended regulations require stock brokers to establish systems for surveillance of trading activities, enforce internal controls, and implement obligations for brokers and their employees. Additionally, there must be an escalation and reporting mechanism in place, along with a whistleblower policy.
The standards for implementing these measures, including operational modalities, will be formulated by the Broker's Industry Standards Forum, in consultation with SEBI, the circular noted.
The circular outlines a risk-based, staggered approach for compliance to ensure smooth adoption. For stock brokers with more than 50,000 active Unique Client Codes, the implementation date is Jan. 1, 2025. Brokers with 2,001 to 50,000 UCCs have until April 1, 2025, while those with up to 2,000 UCCs must comply by April 1, 2026.
For Qualified Stock Brokers, which already adhere to enhanced governance and surveillance obligations, the new measures take effect from Aug. 1, 2024.
SEBI has directed stock exchanges to communicate these new requirements to brokers and ensure the necessary amendments are made to their bye-laws, rules, and regulations. Stock exchanges must issue a joint notice indicating the date of applicability and notify brokers to follow the standards adopted by the ISF, SEBI said.
This circular, issued under the authority of Section 11(1) of Chapter IV of the SEBI Act, 1992, aims to protect investor interests and promote the securities market's development and regulation.
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