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Sebi’s New Online System Will Detect Misuse Of Clients’ Securities By Brokers

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Sebi’s New Online System Will Detect Misuse Of Clients’ Securities By Brokers
Dipen Pradhan - 15 February 2020

New Delhi, February 15: The Securities and Exchange board of India (Sebi) has developed an online system for detecting misuse of clients’ securities by brokers. The regulator said some brokers have misused clients’ securities received as collateral to meet their own settlement obligation of other clients.

In a bid to curb such misuse, Sebi has developed an in–house online system, which will prepare client-level securities holding register of the brokers. The system can track the movement of client securities collected by broker as collateral and raise alerts with exchanges if diversion of clients’ securities is noticed.

These reports are already being generated by SEBI on a weekly basis, as it collects the details of the clients’ securities submitted in weekly reports filed by brokers with the exchanges. Moreover, three such mismatch reports have already been forwarded to exchanges for reconciliation with members, Sebi said.

According to the regulator, in the recent past, some brokers misled clients to pledge their securities with the banks and NBFCs to raise funds for their own use. Sebi noted that though the Depositories Act provides for acceptance of client securities as collateral by way of pledge, the collateral of securities is accepted by way of title transfer of securities by brokers.

“The client providing collateral in the form of securities needs to transfer his securities in the name of the broker and once the securities move out of the demat account of the client, it is not possible for him to keep a track of use/ misuse of those securities by the broker,” noted Sebi.

Further, the regulator has declared a few brokers as defaulters for failing to meet liabilities to the clients. It added that the available assets of the broker were found short to meet the clients’ funds and securities obligations.

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