This Article is From Jan 19, 2014

Sebi to revisit policy on proprietary trading by brokers

New Delhi:

To ring-fence small investors from any manipulation by brokers, market regulator Sebi is considering revisiting its policy on proprietary trades.

Such trades are conducted by brokers for their own gains and not for the clients.

Brokers are required to make strict disclosures about their proprietary trades and ensure a 'Chinese Wall' like structure between these trading activities and the trades conducted by them on behalf of their clients.

However, many cases have come to fore in the recent past where some brokers were found indulging in manipulative activities involving their proprietary trades, while in certain cases, clients' money has been misused for their own trading interest as well, officials said.

Cases like the NSEL crisis have also revealed possible manipulations by brokers and Sebi has therefore decided to revisit its policy on proprietary trades, they added.

In proprietary trading, brokerage firms trade in stocks, bonds, currencies and commodities, among others, with their own fund rather than customers' money, in order to make a profit for itself.

Besides safeguarding the overall market-place from any manipulation by brokers, the new policy would also look to further ring-fence clients' money from any utilisation for proprietary trading by brokerage firms, officials said.

Revising the policy for proprietary trades is one of the key focus areas in secondary market for Sebi this year.

During the last fiscal, Sebi inspected more than 200 stock brokers and sub-brokers to check any possible non-compliance of norms to check money laundering and terror funding through capital markets.

This marked a significant jump from a total of 81 brokers and sub-brokers on whom such inspections were carried out during the previous fiscal 2011-12.

These inspections focussed on compliance of norms regarding anti-money laundering, settlement of accounts of clients on a timely basis, segregation of clients and proprietary funds/securities and KYC norms.

Sebi has been taking various steps to prevent money laundering and terror-financing through securities markets.

According to Sebi, rapid developments and greater integration of the financial markets, together with

improvements in technology and communication channels, continue to pose serious challenges to the authorities and institutions dealing with anti-money laundering and combating financing of terrorism (AML/CFT).

Sebi has included AML/CFT risks as part of its inspection of market intermediaries such as stock brokers, depository participants and mutual funds.

During 2012-13, Sebi had carried out 40 special purpose inspections of stock brokers to check their compliance with the AML/CFT framework.

Further, 35 inspections of stock brokers and six depository participants focusing on compliance with KYC norms were carried out in 2012-13.