Anmi asks NSE to frame policy to detect prohibitive acts carry out authorised persons

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November 08, 2021 5:10 PM

Many of the members are taking an undertaking from the APs that these are the only bank and demat accounts that the authorised persons hold, it added.

It further said that members are already inspecting the APs as per the scope specified by the exchange in October 2019.

Stock brokers’ association Anmi has asked NSE to put in place guidelines whereby trading members can detect prohibitive activities carried out by their authorized persons.

An authorized person is appointed by a stock broker and who provides access to trading platform of a stock exchange as an agent of the stock broker.

In its letter to NSE last week, Anmi, a grouping of over 900 stockbrokers across the country, said that trading members should not be held liable for prohibitive activities carried out by authorized persons (APs) registered with them.

The National Stock Exchange (NSE), on October 21, informed the members that it was their responsibility to ensure that all APs registered with them are complying with the regulatory requirements and do not undertake any non-permitted activities.

Further, the exchange had said that members will be liable for all such acts of its APs and/or their directors or partners, employees etc including liabilities arising therefrom.

In the letter, the Association of National Exchanges Members of India (Anmi) said it has been receiving concerns from the members as to how such activities restricted for an AP through the rule can be detected by a trading Member during the normal course of business or through inspection.

It further said that members are already inspecting the APs as per the scope specified by the exchange in October 2019.

Apart from verifying other compliances, the scope specifies that APs’ bank and demat accounts also have to be verified for the inspection period.

However, if the APs do not declare a demat or a bank account through which they may be carrying out any un-permitted activities, then there is no other way to find out, whether they are carrying out any such activity as the members do not have powers to ask any other document, Anmi said.

Many of the members are taking an undertaking from the APs that these are the only bank and demat accounts that the authorised persons hold, it added.

Besides, Anmi said it may be possible that such activities may be carried out through some other associate of AP which does not come under the purview of the scope. Further, if the activities are done in cash, then too, it is not possible to detect such activity.

Notably, stock broking activities are offered by establishing broker client relationship which mandatorily requires a broker to get KYC, rights and obligations, risk disclosure documents executed by the clients. These documents do contain dos and don’t guidelines for the client and all these documents are binding in nature on trading member and client.

Further, it is common knowledge even for a layman that the stock market is not a place to earn assured returns as every securities transaction has an element of risk associated with it,” the brokers’ association said.

In such a scenario, if the clients/investors make such arrangements with APs or his employees, then in such an event, these arrangements must be treated as personal and private arrangements between an authorised person and client / investor, it added.

Accordingly, Anmi has asked the exchange to provide guidelines on how such activities can be detected by a trading member.

“For any such activity which are prohibited for an authorised person and which does not come under the scope of the inspection / fall under the rules and bye-laws of the exchange if carried out by the authorised person or his employees, the members should not be held liable,” it added.

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