No restriction imposed on use of POA by broker: SEBI

No restriction imposed on use of POA by broker: SEBI

Business


Markets regulator SEBI on Tuesday said it has not imposed any restriction on the use of Power of Attorney (PoA) between a client and a broker in the equity markets.

The regulator said that systems are in place where broker using POA transfers client securities as margin into his client’s collateral account and then place these securities with clearing corporation (CC) by way of transfer or creation of pledge towards margin.

“There is no change caused in conditions of POA,” the Securities and Exchange Board of India (SEBI) said in a statement.

Even after June 1, broker using POA may continue to transfer client securities to his client collateral account towards margin, it added.

The only difference would be that now, the broker would not be able to report all securities lying in the demat account of the client as margin collected.

In order to post securities as margin, these securities even today are required to be moved out of client demat account to collateral account of clearing member or CC, SEBI said.

Securities lying in the client demat account of client are not counted as margin by clearing member or CC and no exposure is permitted, it added.

“There is no restriction imposed on the use of POA by broker,” SEBI said.

The clarification comes following a media report which said that SEBI has discontinued the use of POA between a client and broker in the equity markets.

The regulator said it is further envisaged that effective August 1, by operationalising the pledge and re-pledge mechanism, the securities of client will remain in that client’s demat account and entire trail of the securities utilised for margin purposes will be available.

In this mechanism, the trading or clearing member will not be able to misuse securities of client A towards margin of client B and for also for its own proprietary trades. Earlier, this was scheduled to implement from June 1.

In a bid to curb the misuse of power of POA given by the clients to the trading member (TM) or clearing member (CM), SEBI in February prescribed that margin obligations to be given in the form of securities by client will be by way of pledge or re-pledge in the depository system, and title transfer of securities to the client collateral demat account of the TM/ CM for margin purposes will not be permitted.

In cases where a client has given a POA in favour of a TM / CM, such holding of POA will not be considered as equivalent to the collection of margin by the TM/ CM in respect of securities held in the demat account of the client with effect from June 1, the regulator had said.

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