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    Stock bourses may get access to broker bank account details soon

    Synopsis

    The move is aimed at enhancing stock exchange scrutiny of brokers and comes as regulators and bourses have drawn criticism for the late detection of alleged acts of wrongdoing, such as those involving Karvy Securities and Anugrah Broking.

    marketiStock
    Sebi is also learnt to have told the stock exchanges to proactively pass orders in cases where there are violations.
    Mumbai: Stock exchanges could soon get access to bank account details of brokerages. The Securities and Exchange Board of India (Sebi) is working with banks to design a new framework that will allow bourses to examine such data, including transaction history and details of any suspicious activity, said people with knowledge of the matter.

    The move is aimed at enhancing stock exchange scrutiny of brokers and comes as regulators and bourses have drawn criticism for the late detection of alleged acts of wrongdoing, such as those involving Karvy Securities and Anugrah Broking. Under the framework, all brokerages will be asked to sign consent forms giving exchanges permission to obtain the transaction data from banks. The access will be limited to those accounts linked to client payments.

    Sebi didn’t respond to queries.

    “The idea is to give stock exchanges as much information as possible to aid their surveillance on brokerages,” said a person involved in the discussions.
    sebi

    Standard Operating Procedure

    “Leading banks too have given their in-principle approval for such a framework. The finer details are being worked out,” the person said.

    In the past year, Sebi has detected at least half a dozen instances of brokerages misappropriating client funds or securities. At Karvy, loans were doled out to subsidiaries using client funds. In the matter of Allied Securities, client shares were transferred to different accounts.

    “Currently, we have access only to the data which market institutions such as custodians and depositories maintain but the framework will give more teeth to our surveillance,” said a senior stock exchange official. “There will also be a standard operating procedure to handle instances of suspicious transactions.”

    Under the framework, banks will also provide any further documentation to exchanges if they ask for it. For instance, if a broker has transferred money to a third party, exchanges can seek data on the beneficiary of the transactions if they find it suspicious. “However, such requests will be routed via Sebi since under the law only the market regulator has powers to summon such data,” said the person cited above.

    This coordination between stock exchanges and banks is a departure from the past, as both sides have engaged in multiple legal battles with each other, said market participants. For instance, in the Karvy case, promoters allegedly misappropriated client securities and availed of loans based on those securities. The banks that gave the loans to Karvy’s promoters have now moved the Securities Appellate Tribunal (SAT) staking a claim over those shares.

    Sebi has been systematically tightening the rules for brokerages. Two years ago, brokers had access to the securities of their clients and surplus funds in their accounts. When clients opened a brokerage account, brokers got access to their assets through power of attorney. Sebi has now tightened the framework. Brokerages no longer have direct access to either surplus funds or securities of clients.

    Sebi is also learnt to have told the stock exchanges to proactively pass orders in cases where there are violations. Exchanges act as the first line of regulation for both listed companies and brokerages.

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