Sebi Sets Deadline For Brokers To Install Mechanism For Preventing Market Abuse

Securities and Exchange Board of India (SEBI) directed stockbrokers to establish an institutional mechanism to prevent and detect fraud or market abuse and instil confidence in the securities market. The provisions will come into force in a risk-based, staggered manner based on the brokerages’ size, with the deadline set for January 1, 2025, for brokers with over 50,000 unique client codes (UCCs).

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Those with UCCs ranging from 2,000 to 50,000 can do so by April 1, 2025. and those with UCCs less than 2,000 have time till April 1, 2026. “Sebi Broker Regulations requires stock brokers to put in place an institutional mechanism for prevention and detection of fraud or market abuse,” Sebi circular said. Accordingly, the brokers should provide for the following or mechanisms for the same.

Systems for Surveillance of Trading Activities: Stock brokers must establish systems for surveillance of trading activities and internal controls to ensure compliance with regulatory requirements and detect potential fraud or market abuse.

Obligations of the stock broker and its employees: They should maintain adequate knowledge of your client surveillance systems, and customize surveillance systems and internal controls based on transaction complexity. There are nine more obligations listed in the broker regulations.

Escalation and reporting mechanisms: The stock broker shall on the detection of any suspicious activity report any suspicious activity to stock exchanges within 48 hours. They must submit a summary analysis and action taken report on instances of suspicious activity, fraud, and market abuse on a half-yearly basis to the stock exchanges.

Whistle-Blower Policy: Stockbrokers are required to establish and maintain a documented whistle-blower policy providing a confidential channel for raising concerns about fraudulent, unfair, or unethical practices, regulatory violations, or governance vulnerability.

The standards for implementation of the same including operational modalities shall be formulated by the Broker’s Industry Standards Forum (ISF), in consultation with SEBI. In the case of Qualified Stock Brokers (QSBs), considering that they are meeting many of these requirements, they should implement the institutional mechanism by August 1, 2024.