SEBI Tells Stock Brokers: Put Mechanisms in Place To Prevent Market Abuse And Fraud

In another bid to instill investors' confidence in the stock markets, the Securities and Exchange Board of India (SEBI) on Thursday asked brokers to have a proper mechanism to prevent and detect market abuse as well as fraud.

In a circular, the market regulator said that stock brokers need to put in place an institutional mechanism for the prevention and detection of fraud or market abuse.

Systems for surveillance

The markets regulator said stock brokers will comply with the mechanisms as laid down in the Broker Regulations. These mechanisms are to ensure "systems for surveillance of trading activities and internal controls; obligations of the stock broker and employees; escalation and reporting mechanisms; and a whistleblower Policy".

Qualified Stock Brokerages (QSBs) will need to implement these mechanisms from August 1, while other brokerages will have to roll them out between January 1, 2025, and April 1, 2026.

Standards of implementation

The circular stated that the standards of implementation, including operational modalities, will be formulated by the brokers' Industry Standards Forum (ISF) in consultation with SEBI.

The provisions of this circular will come into force in a risk-based, staggered manner to ensure smooth adoption and effective implementation for all the stock brokers by providing enough time for stock brokers, based on their size, to make necessary changes, said the markets regulator