SEBI mandates surveillance of trading activities by stock brokers to prevent frauds

The Securities and Exchange Board of India or SEBI has issued certain rules under brokers’ institutional mechanisms for stock brokers in order to prevent fraud or market abuse.

SEBI in its latest circular has laid down new regulations, which mandate the “setting up of systems for the surveillance of trading activities and internal controls; obligations of the stock broker and its employees; escalation and reporting mechanisms; and whistle-blower policy”.

These provisions of the circular will come into force in a “risk-based, staggered manner”, says SEBI, adding that it will ensure smooth adoption and effective implementation for all the stock brokers by providing enough time to make changes.

The effective date for the implementation of these rules for different stock brokers is January 01, 2025, for those with less than 50,000 active Unique Client Codes or UCCs; April 01, 2025, for those with 2,001 to 50,000 UCCs; and April 01, 2026, for those up to 2,000.

In case of qualified stock brokers (QSBs), considering the enhanced obligations and responsibilities such as governance structure and processes and surveillance of client behaviour are already being followed by them, the effective date is August 01, 2024.

SEBI says stock exchanges must bring the provisions of the circular to the notice of stock brokers and also disseminate them on their websites. They will also have to make amendments to the relevant bylaws, rules and regulations for the implementation of the above provisions. Additionally, they will issue a joint notice indicating the date of applicability of the circular to various stock brokers, and notify the obligation/requirement of the stock brokers to follow these standards.

The exchanges have also been advised to communicate the status of the implementation of the provisions to SEBI in the monthly development report. SEBI says the circular has been issued “to protect the interests of investors in securities and to promote the development of, and to regulate the securities market”.

NSE puts 90% cap on listing price of SME IPOs

In separate news, the market exchange NSE or the National Stock Exchange has introduced the overall capping of 90% on the opening price or equilibrium price of small and medium enterprises during a special pre-open session for initial public offer (IPO).

In a circular issued today, NSE says the move has been taken to standardise the opening price discovery or equilibrium price across exchanges. "...it has been decided to put an overall capping up to 90% over the issue price for SME IPOs. The price control cap of 90% shall be applicable only to the SME segment and not for mainboard IPOs/relisted securities/public debt."

The circular will come into force with immediate effect i.e. 4th July 2024.