SEBI Circular Update: Strengthening Trust in India's Securities Market

Introduction

The Securities and Exchange Board of India (SEBI) recently issued a circular[1] having serial number SEBI/HO/MIRSD/MIRSD-PoD-1/P/CIR/2024/14 dated March 11, 2024, which intends  to strengthen the public's confidence in the securities market. The circular addresses an expansion of the Qualified Stock Brokers (QSBs) framework, which leads to increased compliance and monitoring requirements in the field of stockbrokers. Expansion implies that further criteria for marking QSBs as such will be introduced, thereby providing investors with protection against fraud and creating a trustworthy environment for securities market participants.

Explanation

SEBI's move to strengthen the QSB framework is evidence of the regulator's focus on building confidence among investors as well as safeguarding market integrity. Firstly, the circulars were the main tool to introduce the topic. SEBI/HO/MIRSD-PoD-1/P/CIR/2023/24 dated February 06, 2023, and para 18 of the Master Circular for Stock Brokers dated May 17, 2023, the QSB framework primarily relied on four parameters for designation: total number of active clients, client balances, trading volumes and margin requirements. Yet, the recognition of the necessity for a more robust system has seen SEBI broadening this structure.

The revised framework now includes three additional parameters:

• Compliance Score: The score assesses the degree of compliance by the stockbroker with the regulatory norms and rules. It is composed of the components including promptness in report submission, adherence to capital adequacy norms and anti-money laundering regulations.
• Grievance Redressal Score: This ratio measures the speed of the stockbroker in finding resolution to the client's complaints. It measures the response and resolution time of the stockbroker's complaints resolution system, such as trade execution, fund transfer, and account maintenance.
• Proprietary Trading Volumes: This part of the criteria is to measure the level of proprietary trading done by the stockbroker. It aims to make sure that the stockbroker’s dealings are transparent and that conflicts of interest are minimized by examining the number of proprietary trades made by the stockbroker relative to those done by clients.

The decision of which QSBs will be designated will be done through a thorough process. Stockbrokers who will be considered as QSBs will be selected from those who satisfy the above-mentioned parameters. Besides, SEBI promotes stockbrokers to register themselves on a voluntary basis for QSB designation, which in turn creates a culture of compliance among its members.

Conclusion

SEBI's active stance in the expansion of the QSB framework shows its unshakable devotion to investors’ interests and the uprightness of the securities market, with an objective of instilling more parameters and voluntary participation, SEBI will set the tone of a regulatory environment that is characterized by transparency, accountability, and investor trust. The implementation of this initiative is not only expected but also destined to add substantially to the security and sustainability of the entire Indian securities market ecosystem.

Thus, SEBI's circular is a momentous achievement in the ongoing process of building more robust regulatory frameworks and restoring faith in the securities market, which, in the long run, will benefit investors and market players alike. With a financial background in a dynamic state, SEBI firmly adheres to its function of safeguarding market integrity and investor interests.

[1] https://www.sebi.gov.in/legal/circulars/mar-2024/measures-to-instill-trust-in-securities-market-expanding-the-framework-of-qualified-stock-brokers-qsbs-to-more-stock-brokers_82149.html