SEBI’s Circular on Prevention of Unauthorised Trading by Stock Brokers

Mar 26, 2018 | by Avantis RegTech Legal Research Team

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The Securities and Exchange Board of India (SEBI) in the past has taken several steps to tackle the issue of “Unauthorized Trades” namely Periodic Running Account Settlement, Post transactions SMS/email by exchanges/Depositories, Ticker on broker/DP websites etc. It was observed that in spite of measures taken, a considerable proportion of investor complaints are of the nature of “Unauthorized Trades”.

To further strengthen regulatory provisions against un-authorized trades and also to harmonise the requirements across markets, SEBI has decided that all brokers shall execute trades of clients only after keeping evidence of the client placing such order.

Further, wherever the order instructions are received from clients through the telephone, the stock broker shall mandatorily use telephone recording system to record the instructions and maintain telephone recordings as part of its records.

The Brokers are required to maintain the records specified above for a minimum period for which the arbitration accepts investors’ complaints as notified from time to time currently three years. However in cases where dispute has been raised, such records shall be kept till final resolution of the dispute. If SEBI desires that specific records be preserved then such records shall be kept till further intimation by SEBI.

The earlier circulars on the same subject mentioned below stand rescinded:

·       CIR/HO/MIRSD/MIRSD2/CIR/P/2017/108 dated September 26, 2017

·       CIR/HO/MIRSD/MIRSD2/CIR/P/2017/124 dated November 30, 2017

·       CIR/HO/MIRSD/MIRSD2/CIR/P/2018/109 dated January 11, 2018

This master circular shall continue to be effective from April 1, 2018.

[Circular SEBI/HO/MIRSD/DOP1/CIR/P/2018/54]



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