SEBI Mandates New Measures For Stock Brokers To Prevent Fraud And Market Abuse

SEBI circular says stock brokers must implement surveillance systems for trading activities, introduce internal controls, and establish a whistle-blower policy, among other obligations

The Industry Standards Forum (ISF), in collaboration with SEBI, will formulate the operational modalities and standards for these implementations. Image: PTI

The Securities and Exchange Board of India (SEBI) issued a circular on Thursday, mandating stock brokers to establish robust mechanisms for the prevention and detection of fraud and market abuse. This initiative aims to protect investors' interests in the securities market.

According to the circular, stock brokers must implement surveillance systems for trading activities, introduce internal controls, and establish a whistle-blower policy, among other obligations. 

These requirements are outlined in the SEBI (Stock Brokers) (Amendment) Regulations, 2024, which strive to enhance market integrity and investor protection standards.

The Industry Standards Forum (ISF), in collaboration with SEBI, will formulate the operational modalities and standards for these implementations. The compliance deadlines are set based on the size of the stock brokers:

Brokers with more than 50,000 active Unique Client Codes (UCCs) must comply by January 1, 2025.

Brokers with 2,001 to 50,000 active UCCs are required to comply by April 1, 2025.

Brokers with up to 2,000 active UCCs must comply by April 1, 2026.

Qualified stock brokers, due to their existing obligations for governance and client behaviour surveillance, must comply by August 1, 2024.

SEBI has instructed stock exchanges to notify stock brokers of these new provisions and disseminate the information on their websites. Exchanges are also directed to amend their bye-laws and ensure brokers adhere to the ISF standards. A joint notice will be issued, indicating the applicable dates for the new requirements based on the size of the brokers.

The circular's provisions will be enforced in a risk-based, staggered manner, allowing brokers adequate time to implement the necessary changes, SEBI stated. This phased approach aims to ensure smooth adoption and effective implementation across all stock brokers.

Recently, the regulator  on Monday said that market infrastructure institutions (MIIs) such as stock exchanges, depositories, clearing corporations, etc should impose uniform charges. The markets regulator said that these charges shouldn’t vary based on volumes.