Prevention of Unauthorised Trading by Stock Brokers
Summary
SEBI mandates that all stock brokers must maintain verifiable evidence of client orders before executing trades to prevent unauthorized trading. The circular specifies acceptable forms of evidence, including physical records, telephone recordings, and digital logs, shifting the burden of proof to the broker in disputes. Stock exchanges are directed to amend their bye-laws and ensure implementation of these provisions effective from January 1, 2018.
Text
all brokers shall execute trades of clients only after keeping evidence of the client placing such order, it could be, inter alia, in the form of: a. Physical record written & signed by client, b. Telephone recording, c. Email from authorized email id, d. Log for internet transactions, e. Record of SMS messages, f. Any other legally verifiable record.
When dispute arises, the burden of proof will be on the broker to produce the above records for the disputed trades.
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.
This circular shall be effective with effect from 1st January 2018.
bring the provisions of this circular to the notice of the Stock Brokers and also disseminate the same on their websites.
make necessary amendments to the relevant bye-laws, rules and regulations for the implementation of the above directions in co-ordination with one another to achieve uniformity in approach.
communicate to SEBI, the status of the implementation of the provisions of this circular in their Monthly Development Reports.
This circular is issued in exercise of powers conferred under Section 11(1) of the Securities and Exchange Board of India Act, 1992 to protect the interest of investors in securities and to promote the development of and to regulate the securities market.
Source: SecMarx — Prevention of Unauthorised Trading by Stock Brokers. Verbatim text is public record; SecMarx structuring (linkage to applying orders) is cited to us.