A Step Towards Client-Broker Relationship

The master circular by the SEBI for Stockbrokers was released on 17^th May 2023[1] with an aim to provide access to the provisions of all the circulars in a single place. This move was brought in for the convenience of the stock brokers as well as the investors. The 2023 master circular supersedes the Master Circular for stock brokers applicable from June 2018[2] since it contains the updated guidelines, statues, regulations, etc.

According to the 2023 Master Circular, obliges the broker to provide the clients with a copy of the account opening form, rights and obligations, risk disclosure documents, guidance note, policies and procedure and tariff sheet.  However, generally, these documents are voluminous and technical for the client to attend to the important aspects of their relationship with the investor. Thus, the SEBI came in with a notification mandating the brokers to inform the clients of the Most Important Terms and Conditions (MITC) in a standard format. This would contain the most important terms and conditions which would help the investor to understand their rights and liabilities towards the brokers in an easier way. SEBI this action is in line with its objective “to protect the interests of investors in securities”.[3] Further, this MITC shall be acknowledged by the client.

The standard for this MITC is to be published by January 1, 2024, by the Broker’s Industry Standard Forum (ISF) in consultation with the SEBI and support of the Stock Exchanges. In case of failure of the ISF, the SEBI will publish the same.

The date of compliance for already existing clients is June 1, 2024 and the date of implementation of this mandate for new investors is April 1, 2024. The only thing left to be remarked here, is whether the MITC mandate is able to fulfil its objective to clearly state the important aspects of a client-broker relationship. This will in turn aid the SEBI to ensure the fulfilment of the obligations of the stock brokers.[4]

[1] SEBI Master Circular for Stock Brokers, https://www.sebi.gov.in/legal/master-circulars/may-2023/master-circular-for-stock-brokers_71265.html

[2] SEBI Most Important Terms and Conditions, https://www.sebi.gov.in/legal/circulars/nov-2023/most-important-terms-and-conditions_79085.html

[3] SECURITIES AND EXCHANGE BOARD OF INDIA, SEBI INVESTOR EDUCATION PROGRAMME (INVESTMENTS IN MUTUAL FUNDS), https://www.sebi.gov.in/sebi_data/commondocs/siep_h.html#:~:text=The%20objectives%20of%20SEBI%20are,the%20interest%20of%20the%20investors.

[4] SECURITIES AND EXCHANGE BOARD OF INDIA (STOCK-BROKERS AND SUB-BROKERS) REGULATIONS, 1992, https://www.sebi.gov.in/acts/stockreg.html