In the third week of October, brokers from across India gathered at the Taj Lands End hotel in Mumbai for their first mega-physical gathering since the onset of the pandemic. The dignitaries gracing the event included senior exchange officials and regulatory officers. The mood was celebratory the agents had loved a dream run for 2 1/2 years because the wide variety of Demat accounts crossed the hundred and ten million mark. They had raked with inside the moolah through brokerage fees, investor participation, and Interest income, a number of which had been gathered from investor cash stored with them for trading.
But amid all the backslapping, there was an underlying unease over a massive structural shift expected to happen soon, one that could alter the way brokerages do business. Markets regulator Securities and Exchange Board of India (SEBI) does not want brokers handling investor money anymore.
SEBI has proposed a new framework to separate clients’ funds from those of brokers to ensure that client’s funds are not misused. Under the proposed framework, brokers must maintain separate bank accounts for client funds and those of the broker. The broker must also ensure that all client funds are kept in a special account, distinct from any other account, and not be commingled with the broker’s funds. Furthermore, the broker must keep a proper record of all client funds received and all disbursements made. Finally, any unused client funds must be returned to the client upon the closure of the account.
Sebi’s plan to separate brokers from your money involves the introduction of a Client Protection Fund (CPF). This fund will be set up by brokers and deposited with SEBI. Whenever there is a dispute between a broker and a client, the CPF will be used to settle the dispute. In addition, SEBI also plans to introduce a new system of escrow accounts. This will ensure that all funds received from clients are kept in a separate account, and brokers will not have access to this money. This will help to ensure that investors’ funds are safe and secure. Finally, SEBI also plans to introduce a new system of oversight and monitoring of brokers, which will help to ensure that they are complying with the rules and regulations set out by the regulator.