Sebi Proposes Separate Business Units for Brokers in GIFT-IFSC

New Delhi, Mar 21 (PTI) Markets regulator Sebi on Friday proposed to abolish the requirement for stock brokers to seek its approval for floating a subsidiary or joint venture to undertake securities market-related activities in Gujarat International Finance Tec-city – International Financial Services Centre (GIFT-IFSC).

Moreover, stock brokers proposing to undertake securities market related activities in GIFT-IFSC can do so under a Separate Business Unit (SBU) of the stock broking entity itself on an arm's-length basis, Sebi said in its consultation paper.

At present, Sebi-registered stock brokers are required to obtain approval from it in the form of NOC to float subsidiaries or to enter into joint ventures to undertake securities market-related activities in GIFT-IFSC.

Further, stock brokers are required to maintain an arms-length relationship between their activities and that of their subsidiary/joint venture in GIFT-IFSC. Such a relationship is required to be maintained in terms of key personnel, infrastructure, segregation of books and records, independent regulatory control and supervisory mechanism, etc.

"In order to facilitate Sebi registered stock brokers to undertake securities market related activities in GIFT-IFSC, it has been decided to do away with the requirement of obtaining specific approval from Sebi. Stock brokers proposing to undertake securities market related activities in GIFT-IFSC may do so under a Separate Business Unit (SBU) of the stock broking entity itself," the regulator said in its consultation paper.

The matters related to policy, eligibility criteria, risk management, investor grievances, inspection, enforcement, claims among others for the separate business unit in GIFT-IFSC would be specified under the regulatory framework issued by the respective regulatory authority. All activities of the such SBU in GIFT-IFSC should be under the jurisdiction of that regulatory authority.

Sebi suggested that stock brokers should ensure that securities market related activities of the SBU in GIFT-IFSC are segregated and ring-fenced from the Indian securities market related activities of the stock broker and arms-length relationship between these activities are maintained. Further, such SBU in GIFT-IFSC should be exclusively engaged in providing securities market related activities in GIFT-IFSC only.

Stock brokers should prepare and maintain a separate account for the SBU on an arm's-length basis.

The regulator suggested that the net worth of the SBU should be kept segregated from the net worth of the stock broker in the Indian securities market and net worth criteria for stock brokers should be satisfied after excluding accounts of the SBU.

As the activities of the SBU should be under the jurisdiction of another regulatory authority, Grievance Redressal Mechanism and Investor Protection Fund (IPF) of the stock exchanges and SCORES should not be available for investors availing the services of the SBU, the regulator proposed.

Such stock brokers who have already floated subsidiaries or entered into joint ventures to undertake securities market related activities in GIFT-IFSC after obtaining approval from Sebi can dismantle such subsidiary or joint ventures and carry out such services under an SBU of the stock broking entity itself.

The Securities and Exchange Board of India (Sebi) has sought public comments till April 11 on the proposals.