The Securities and Exchange Board of India (Sebi) is expected to implement additional guidelines for stockbroker companies to become qualified stockbrokers (QSBs) if they are handling a significant number of clients, funds, and trading volumes.
Qualified stock brokers (QSBs) who manage a significant number of clients, funds, and trading volumes may be subject to higher net worth requirements from the Securities and Exchange Board of India (Sebi), among other parameters.
According to a Business Standard report, the QSBs will be subject to increased scrutiny from the regulator and market infrastructure institutions and will have to meet an additional 16 parameters, one of which is higher net worth. The Sebi board has decided that QSBs will have to follow stricter guidelines for risk management.
The report says that Sebi is following the Reserve Bank of India’s lead in requiring non-financial banking (NBFC) businesses to adopt a more stringent regulatory framework.
Certain stockbrokers in the market deal with a lot of clients, a lot of client money, and a lot of trading. According to a report by Business Standard, the Sebi noted in its board decisions that “a possible failure by such brokers has the potential to cause a widespread impact on investors and reputational damage to the Indian securities market.”
According to the report, a capital threshold requirement may assist in risk mitigation for stockbrokers with low net worth who conduct high volumes of business. At the beginning of this year, Sebi raised the net worth requirement for stockbrokers to Rs 5 crore.
“Sebi will be able to spend more time on larger brokers under the new framework and reduce systematic risk in the securities market.” In the report, Jimeet Modi, Samco’s group chief executive officer, was quoted as saying, “The turnover, number of clients, and client float can be included as parameters.”
According to the report, this may cause a class divide among new stockbrokers because younger investors associate trust with qualified status.