Sebi Mandates Voluntary Trading Account Blocking for Clients

New Delhi, Jan 12 (PTI) Capital markets regulator Sebi on Friday said a framework will be put in place by April 1, allowing trading members to offer the facility of voluntarily blocking online access of trading accounts for clients displaying suspicious activities.

The framework will be laid down by Brokers' Industry Standards Forum (ISF) in collaboration with stock exchanges and Sebi, the regulator said in a circular.

The framework will include guidelines on the detailed policy for voluntarily freezing or blocking a client's online trading account.

It will prescribe communication methods for clients to request such blocking, the issuance of acknowledgment upon message receipt, and the timeframe for processing the request and blocking the trading account.

Further, Sebi said that action will be taken by the trading member following the receipt of a request for freezing/blocking of the trading account and the process for re-enabling the client for trading.

The stock broking industry in India has moved from a call-and-trade type of scenario to online mode, wherein the investors use the login IDs and passwords provided to them by the trading members.

"It has been observed that at times, suspicious activities are noticed by investors, but the facility of blocking of accounts is not available with the majority of trading members," the Securities and Exchange Board of India (Sebi) said.

Many times, investors raise issues of suspicious activities in their trading accounts and thus, there is an urgent need to address the situation of having a facility for blocking trading accounts as it is available for blocking ATM cards and credit cards, it added.

A similar facility of voluntary blocking/ freezing of demat accounts is already available for investors and this facility would now be offered to the investors for their trading accounts also.

"To enhance ease of doing business and ease of investment, it has been decided that the framework for trading members to provide the facility of voluntary freezing/blocking the online access of the trading account to their clients on account of suspicious activities shall be laid down on or before April 1, 2024, by the ISF," Sebi said.

Further, the regulator asked stock exchanges to ensure that the guidelines issued under the framework are implemented by trading members from July 1, 2024.

In a separate circular, Sebi asked stock exchanges to put in place a mechanism for monitoring clients' funds lying with the stock brokers. This will be based on the principle that the total available funds -- cash and cash equivalent -- with the stock broker and with the clearing corporation/clearing member should always be equal to or greater than clients' funds as per the ledger balance.

This came after Sebi received representations from various stakeholders citing inefficiencies due to duplication of monitoring mechanisms and difficulties in uploading data to exchanges.