Enhanced obligations and responsibilities on Qualified Stock Brokers (QSBs)
Summary
This section establishes the regulatory framework for designating Qualified Stock Brokers (QSBs) based on specific operational parameters and scoring mechanisms. It outlines the enhanced obligations regarding governance structures, risk management policies, and investor protection measures that designated QSBs must adhere to. The text further details requirements for surveillance of client behavior and the maintenance of operational integrity within these entities. This section mandates the designation of CXO-level officers for risk, compliance, and security management within Qualified Stock Brokers. It requires QSBs to maintain scalable infrastructure, robust cyber security frameworks with dedicated teams, and orderly wind-down procedures. Additionally, it outlines obligations for business continuity planning, periodic audits by CERT-IN empanelled auditors, and investor service centers. Section 9 mandates enhanced monitoring and surveillance of Qualified Stock Brokers (QSBs) by Stock Exchanges, including annual inspections and specific oversight areas. Section 10 establishes the effective date of these provisions as July 1, 2023, excluding paragraph 7.4. Sections 11 through 13 out
Text
Initially, the following parameters shall be considered for designating a stock broker as QSB: a) the total number of active clients of the stock broker; b) the available total assets of clients with the stock broker; c) the trading volumes of the stock broker (excluding the proprietary trading volume of the stock broker); and d) the end of day margin obligations of all clients of a stock broker (excluding the proprietary margin obligation of the stock broker in all segments)
The following procedure shall be followed to assign score to a stock broker, based on the parameters enumerated at para 7.1 above: a) For each stock broker, individual score for a particular parameter shall be calculated by dividing the individual parameter by the aggregate of the respective parameter summed across all stock brokers... b) Then, total score shall be calculated by adding individual score of all the parameters. For calculating the scores for a particular financial year, parameters as on December 31st of such financial year shall be considered.
Initially, stock brokers with a total score greater than or equal to five based on the parameters enumerated at para 7.1 above, shall be identified as QSBs. The first such list of QSBs shall be prepared on the basis of parameters as on December 31, 2022.
The framework may be extended to more stock brokers in due course, if necessary, including, by considering the following additional parameters: a) compliance score of the stock broker; b) grievance redressal score of the stock broker; and c) the proprietary trading volumes of the stock broker.
The scores shall be calculated on annual basis (financial year) and the revised list of QSBs shall be released jointly by stock exchanges, in consultation with SEBI.
The QSBs which no longer belong to the revised list, shall continue to comply with the enhanced obligations and responsibilities, for an additional period of 3 financial years or such time, as may be specified by SEBI/stock exchanges.
The Board of Directors (BoD) or analogous body of QSBs shall exercise oversight over incidents/vulnerabilities having an impact on functioning of the QSB in the securities market and investor protection including data security breaches that can affect investor data.
Further, QSBs shall have committees of the Board of Directors (BoD) or analogous body such as Audit Committee (for listed QSBs), Nomination and Remuneration Committee, Risk Management Committee, Information Technology (IT) Committee, Cybersecurity Committee and any other committee as mandated by SEBI from time to time.
The Chief Financial Officer (CFO) or analogous person of the QSB shall submit to the audit committee, details in respect of financial status of the entity, disclosure of any related party transactions, inter-corporate loans and investments, internal financial controls and risk management systems, compliance with listing and other legal requirements relating to financial statements, adherence to regulatory provisions etc.
QSBs shall, before appointing directors, Key Managerial Personnel (KMP) and other employees, consult the nomination and remuneration committee with regard to their appointment, tenure and remuneration.
QSBs shall seek inputs from various committees such as risk management committee and cybersecurity committee while framing policies relating to respective areas such as risk management of the organization and, establishing a robust cyber security framework and augmenting IT infrastructure and scalability of operations.
QSBs shall submit an annual report to the stock exchanges regarding the observations of the committees of BOD or analogous body, corrective action taken by the QSB and measures taken to prevent recurrence of such incidents.
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Source: SecMarx — Enhanced obligations and responsibilities on Qualified Stock Brokers (QSBs). Verbatim text is public record; SecMarx structuring (linkage to applying orders) is cited to us.