SEBI bars brokerage firms from taking power of attorney

Monday, August 30, 2010   |    11 Comments
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New Delhi: Market regulator the Securities and Exchange Board of India (SEBI) has prohibited brokerage firms from taking power of attorney that allows conducting transactions without the consent of the client. The brokerage firms have to comply with the guidelines by 1 September, 2010. The guidelines will also bar the brokers from asking investors to give a notice, which is generally for a period of 15 days to one month, for termination of the power of attorney. At the same time, brokers have been asked not to refuse services if a client is not willing to sign the power of attorney at all, a senior official said. The Securities and Exchange Board of India's move followed complaints that many brokers were getting power of attorney signed from their clients containing clauses that could be misused against the investor. Power of attorney is executed by a client in favour of a stock broker to authorise him to operate the client's demat account and bank account to facilitate the delivery of shares and payment of funds. Power of attorney is generally required for Internet-based trading services, but almost all brokers insist on clients signing it even for non-Internet services. Concerned over the prevailing misuse of the power of attorney, the secondary market advisory committee of SEBI has decided to overhaul the way these agreements are being framed by the brokerage firms, a senior official said. After consultations with various stakeholders, SEBI has asked brokers to comply with its new guidelines and revoke all the non-compliant clauses from existing power of attorneys by September 1. In a circular issued to the brokers and other market players such as stock exchanges, SEBI said, "It has come to the SEBI's notice that the clients are compelled to give irrevocable power of attorney to manage their demat and bank accounts so that they are able to pay funds or deliver shares to their brokers on time." "In some cases, the power of attorney even allows a broker to open and close accounts on behalf of the client and to trade on the client's account without the consent of the client," SEBI said. SEBI has also told brokers that power of attorneys cannot be mandatory for getting broking services and it is "merely an option available to the client" to facilitate delivery of shares and funds. "No stockbroker or depository participant shall deny services to the client if the client refuses to execute power of attorney in their favour," SEBI said.
Source: PTI
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