Markets regulator Sebi on Monday notified norms to designate certain large brokers as qualified stock brokers (QSBs) in order to strengthen compliance.
In a circular, the regulator noted a concentration of activity thanks to certain brokers cornering a large share of the market. In order to curb any adverse impact on the markets owing to failure by these brokers or any other potential risk, these QSBs will have to adhere to enhanced guidelines.
The stock exchanges have been directed to provide the first list of such brokers within 15 days. Further, exchanges have to ensure QSBs have put in place the enhanced norms and obligations stated in the circular, and report the same to Sebi within seven days of implementation.
Parameters such as active clients, assets of clients, trading volumes, and end-of-day margin obligations of clients — as of December 31— will be considered before designating a broker as QSB. Brokers will be assigned scores on these parameters, and those with a score higher than 5 will be designated QSBs.
“The stock broker designated as a QSB shall be required to meet enhanced obligations and discharge responsibilities to ensure appropriate governance structure, appropriate risk management policy and processes, scalable infrastructure and appropriate technical capacity, framework for orderly winding down, robust cyber security framework, and investor services, including online complaint redressal mechanism,” said the circular.
These QSBs will have enhanced governance structures, with the board or an analogous body in charge of observing the functioning and providing updates to the exchanges from time to time.
In addition, these QSBs shall also put in place mechanisms pertaining to cyber security, business continuity plans, online complaint redressal, vulnerability assessment and risk management. They shall also hold periodic audits on a half-yearly basis.