SEBI says off-market transactions must have delivery instructions signed by clients

PALAK SHAH Mumbai | Updated on August 27, 2020

The Securities and Exchange Board of India (SEBI) has banned all the off-market transactions of shares that were being done by brokers through the use of client Power of Attorney (PoA).

SEBI has directed stock brokers to not insist on PoA from clients to discourage its misuse. Usually, brokers take client PoA at the time of account opening. This is necessary to give delivery of client shares to depository participants after sell orders. However, some brokers were found to have misused the PoA to transfer client shares to their own account.

“It has also been decided that all off-market transfer of securities shall be permitted by the Depositories only by execution of Physical Delivery Instruction Slip (DIS) duly signed by the client himself or by way of electronic DIS. The Depositories shall also put in place a system of obtaining client’s consent through One Time Password (OTP) for such off market transfer of securities from client’s demat account,” SEBI said in a circular on Thursday.

The circular has highlighted that even earlier norms specifically said that PoA was optional and brokers should not insist on it from clients. “However, it has been observed that PoA is invariably obtained by brokers from the investors as part of the KYC and account opening process. Such PoA executed by clients has further been found to have been misused by the stock brokers,” SEBI said.

SEBI added that it found brokers were executing client traders or transferring their shares without their consent. Karvy Broking has been the most glaring example of such practice.

Published on August 27, 2020

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