Pre-funded instruments / Electronic fund transfers
Summary
SEBI mandates that stock brokers must verify the identity of clients issuing pre-funded instruments valued at ₹50,000 or more per day. Stock exchanges are required to implement these provisions by amending bye-laws and reporting their status to SEBI by June 30, 2011. The circular aims to prevent third-party fund flows and ensure a complete audit trail for securities market integrity.
Text
If the aggregate value of pre-funded instruments is ` 50,000/- or more, per day per client, the stock brokers may accept the instruments only if the same are accompanied by the name of the bank account holder and number of the bank account debited for the purpose, duly certified by the issuing bank.
Maintain an audit trail of the funds received through electronic fund transfers to ensure that the funds are received from their clients only.
issue necessary instructions to bring the provisions of this Circular to the notice of their constituents and also disseminate the same on their websites;
make amendments to the relevant bye-laws, rules and regulations for the implementation of the above, as deemed necessary;
communicate to SEBI, the status of the implementation of the provisions of this Circular by June 30, 2011; and
develop the monitoring mechanism through internal audit and inspections.
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 interests of investors in securities and to promote the development of, and to regulate the securities market and shall come into effect from the date of this Circular.
Source: SecMarx — Pre-funded instruments / Electronic fund transfers. Verbatim text is public record; SecMarx structuring (linkage to applying orders) is cited to us.