SEBI PREVENTS MISUSE OF POA BY BROKER

This post was written by Neeraj Aarora on June 23, 2010
Posted Under: Shares Market

On 23/04/2010, SEBI vides it circular no. CIR/MRD/DMS/13/2010 issued new guidelines for Execution of Power of Attorney (PoA) by the Client in favour of the Stock Broker/ Stock Broker and Depository Participant.  Generally, the brokers refused to open online trading/demat account without signing PoA by the client in favour of broker which allows the broker to trade in accounts of the clients without approval/permission/consent of the client. Even, some of them allowed the broker to open/close the account on behalf of the client, transfer funds from the bank accounts of the client, transfer securities of clients for off market trades without the consent of client though the SEBI has made it clear that brokers cannot refuse services to clients who do not sign PoAs in the favour of brokers/DP.

Since long, SEBI was receiving number of complaints regarding the misuse of the PoAs signed by the clients in favour the stock broker. The new guidelines will certainly prevent the misuse of power of attorney by brokers and depository participants (DP).  As per the new guidelines issued by SEBI:-

  • PoA would be optional and not mandatory for availing broking or depository participant services.
  • A duplicate/ certified true copy of the PoA will be provided to the Client(s) after execution.
  • The broker cannot transfer securities for off market trades.
  • The broker cannot transfer the funds from the bank account(s) of the clients for trades executed by the clients through another stock broker.
  • The broker cannot execute trades in the client account with the consent of the client.
  • The broker cannot create an email ID on behalf of the client for receiving statement of transactions, bills, contract notes etc. from stock broker / DP.

SEBI further directed the brokers to implement these guidelines for new clients from 1st May 2010 and upto 1st September 2010 for existing clients.

Reader Comments

thanks for keeping me up to date on this subject.

Sent from my iPad 4G

#1 
Written By Hayabusa brother on August 29th, 2010 @ 12:17 PM

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