SEBI to designate large Indian brokers as QSBs

You have heard of Qualified Institutional Buyers (QIBs) and TBTF (too big to fail) banks in India. Now SEBI wants to introduce a new category of Qualified Stock Brokers (QSB). Under the new paradigm, Indian brokers will be assigned scores based on an array of parameters and the brokers with a score of above 5 would be designated as QSBs. The idea is to strengthen compliance for such brokers to protect the stability and the integrity of capital markets.

 

According to SEBI, the broking volumes have become concentrated in handful of brokers, with discount brokers doing bulk of volumes on stock exchanges. However, large number of clients and larger share must come with a higher degree of accountability for such brokers. SEBI wants to curb any adverse impact on markets owing to failure of these brokers, which could trigger a payment and liquidity crisis. QSBs must adhere to enhanced guidelines.

 

Stock exchanges have been directed to furnish the first list of such brokers within 15 days. Also, the stock exchanges will have to put in place enhanced norms and obligations as stated in the circular and the same has to be reported to SEBI within 7 days of implementation. This would be based on parameters like active clients, client assets, trading volumes, EOD margin obligations of clients, geographical spread of clients etc. 

 

Such QSBs will have to ensure appropriate governance structure, risk management policies, scalable physical and digital infrastructure as well as a robust cyber security framework. They must also demonstrate investor servicing capabilities and online complaint redressal mechanism. Such QSBs shall also hold periodic audits on a half-yearly basis.

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