Dated: April 29, 2010
N O T I C E
Trading members are hereby informed that the Exchange has received a Circular from SEBI Ref. No.CIR/MRD/DMS/13/2010 dated 23rd April, 2010 regarding Execution of Power of Attorney by clients in favour of stock brokers and depository participant. The contents of the said Circular are given here under for information of the members.
CIR/MRD/DMS/13/2010 April 23, 2010
The Managing Directors of Stock Exchanges and Depositories
Sub: Execution of Power of Attorney (PoA) by the Client in favour of the Stock Broker/ Stock Broker and Depository Participant
1. A Power of Attorney is executed by the client in favour of the stock broker /stock broker and depository participant to authorize the broker to operate the client’s demat account and bank account to facilitate the delivery of shares and pay – in/ pay – out of funds.
2. Generally, the PoA is taken from the clients who want to avail internet based trading services. For offering internet based trading services, a Stock Broker requires necessary authorizations for seamless trading, collection of margins as well as settlement of funds and securities. Further, some of the Stock Brokers also obtain authorizations from their clients to offer non-internet based services.
3. It has come to SEBI’s notice that the clients are compelled to give irrevocable power of attorney to manage client’s demat account and bank account so that the client is able to pay funds or deliver shares to its broker on time. In some cases, the PoA even allows a broker to open and close accounts on behalf of the client and to trade on client’s account without the consent of the client.
4. In order to standardize the norms to be followed by stock brokers/ stock broker and depository participants while obtaining PoA from the clients guidelines have been finalized based on discussions in Secondary Market Advisory Committee of SEBI (SMAC) and feedback from market participants, investor associations, major stock exchanges and depositories on discussion paper on the captioned subject put on SEBI website. It has been decided that the guidelines as set out in the annexure shall be made applicable to stock brokers/ stock broker and depository participants.
5. Standardizing the norms for PoA must not be construed as making the PoA a
condition precedent or mandatory for availing broking or depository participant services. PoA is merely an option available to the client for instructing his broker or depository participant to facilitate the delivery of shares and pay-in/pay-out of funds etc. No stock broker or depository participant shall deny services to the client if the client refuses to execute a PoA in their favour.
6. The Stock Brokers shall take necessary steps to implement this circular latest by May 31, 2010 for the new clients and ensure to take necessary steps latest by September 01, 2010 to revoke those authorizations given by the existing clients to the stock brokers/ stock broker and depository participants through PoA that are inconsistent with the present guidelines.
7. The Stock Exchanges/ Depositories are directed to:
a) bring the provisions of this circular to the notice of the Stock Brokers/Depository Participants and also disseminate the same on their websites;
b) make necessary amendments to the relevant bye-laws, rules and regulations for the implementation of the above decision;
c) communicate to SEBI, the status of the implementation of the provisions of this
circular in their Monthly Development Reports.
8. 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 markets.
Encl: Guidelines for execution of Power of Attorney by Clients favouring Stock Brokers / Stock Broker and Depository Participants Guidelines for execution of Power of Attorney by Clients favouring Stock Brokers / Stock Broker and Depository Participants PoA favouring Stock Brokers
PoA executed in favour of a Stock Broker by the client should be limited to the following:
i. Transfer of securities held in the beneficial owner account(s) of the client(s) towards stock exchange related margin / delivery obligations arising out of trades executed by the Client(s) on the stock exchange through the same Stock Broker.
ii. Pledge the securities in favour of Stock Broker for the limited purpose of meeting the margin requirements of the client(s) in connection with the trades executed by the clients on the stock exchange through the same Stock Broker. Necessary audit trail should be available with the Stock Broker for such transactions.
iii. To apply for various products like Mutual Funds, Public Issues (shares as well as debentures), rights, offer of shares, tendering shares in open offers etc. pursuant to the instructions of the Client(s). However, a proper audit trail should be maintained by the Stock Broker to prove that the necessary application/act was made/done pursuant to receipt of instruction from Client.
iv. Transfer of funds from the bank account(s) of the clients for the following:
a. For meeting the settlement obligations of the client(s)/ margin requirements of the client(s) in connection with the trades executed by the clients on the stock exchange through the same Stock Broker.
b. For recovering any outstanding amount due from the client(s) arising out of clients trading activities on the stock exchanges through the same Stock Broker.
c. For meeting obligations arising out of the client subscribing to such other products/facilities/services through the Stock Broker like Mutual Funds, Public Issues (shares as well as debentures), rights, offer of shares in etc.
d. Towards monies/fees/charges, etc. due to the Stock Broker/Depository Participant/ Principal payable by virtue of the client using/subscribing to any of the facilities/services availed by the Client at his/her instance. Necessary audit trail should be available with the Stock Broker for such transactions.
POA favouring Stock Brokers and Depository Participants
PoA executed in favour of a Stock Broker and Depository Participant by the client should:
3. identify/provide the particulars of the beneficial owner account(s) and the bank
account(s) of the client(s) that the Stock Broker is entitled to operate.
4. provide the list of clients’ & brokers’ Bank accounts & demat accounts where funds and securities can be moved. Such bank & demat accounts should be accounts of related party only.
5. be executed in the name of the concerned SEBI registered entity only and not in the name of any employee or representative of the Stock Broker/Depository Participant.
6. not provide the authority to transfer the rights in favour of any assignees of the Stock Broker/Depository Participant.
7. be executed and stamped as per the rules / law prevailing in the place where the PoA is executed or the place where the PoA is kept as a record, as applicable.
8. contain a clause by which the Stock Broker would return to the client(s), the securities or fund that may have been received by it erroneously or those securities or fund that it was not entitled to receive from the client(s).
9. be revocable at any time, without notice.
10. be executed by all the joint holders (in case of a demat account held jointly). If the constitution of the account is changed for whatever reason, a new PoA should be executed.
11. authorize the Stock Broker/Depository Participant to send consolidated summary ofClient's scrip-wise buy and sell positions taken with average rates to the client by way of SMS / email on a daily basis, notwithstanding any other document to be disseminated as specified by SEBI from time to time.
The POA shall not facilitate the stock broker to do the following:
12. Transfer of securities for off market trades.
13. Transfer of funds from the bank account(s) of the Clients for trades executed by the clients through another stock broker.
14. Open a broking / trading facility with any stock broker or for opening a Beneficial Owner account with any Depository Participant.
15. Execute trades in the name of the client(s) without the client(s) consent.
16. Prohibit issue of Delivery Instruction Slips (DIS) to beneficial owner (client).
17. Prohibit client(s) from operating the account.
18. Merging of balances (dues) under various accounts to nullify debit in any other account.
19. Open an email ID/ email account on behalf of the client(s) for receiving statement of transactions, bills, contract notes etc. from stock broker / Depository Participant.
20. Renounce liability for any loss or claim that may arise due to any blocking of funds that may be erroneously instructed by the Stock Broker to the designated bank.
Stock Broker / Depository Participant should ensure that:
21. A duplicate/ certified true copy of the PoA is provided to the Client(s) after execution.
22. In case of merger/ demerger of the Stock Broker/Depository Participant with another entity/ into another entity, the scheme of merger/ demerger should be approved by High Court and one month prior intimation given to the client about the corporate restructuring to facilitate investor/ client to continue or discontinue with the broker.
Members are requested to note that the aforesaid guideline of SEBI and act comply accordingly.
DGM (Surveillance & MOP)