The Indian stock market is one of the highly regulated stock exchanges. SEBI, or Securities Exchange Board of India, regulates NSE and BSE with its strict rules and guidelines, which must be followed by everybody who belongs to stock market activities. It keeps adding and updating these guidelines to maintain the highest integrity and transparency in the trading activities.
Today in this post, we will understand the Sebi guidelines for stockbrokers who are essential to the stock market. They may hold confidential data of the businesses. To prevent any misuse of such data, SEBI has applied a strict set of guidelines and rules. Thus, if you are also interested in learning about the fundamental rules and regulations about the stockbrokers, then stay on this post.
Who is Stockbroker As Per SEBI’s Guidelines?
A stockbroker is a body in the stock exchange, who can trade with the stocks and securities on behalf of investors. The investor needs the assistance of a stockbroker as they can not do trading directly in the stock exchange. They can come on this platform and trade in securities for their profit. The stockbroker can be a single person or a firm that the SEBI authorizes to sell or buy the securities.
Generally, the stockbroker charges a small commission amount from the traders or investors for their services. Thus, if an investor wants to invest in the stock market, they can refer to a stockbroker or brokerage firm and let them buy or sell the desired share by giving a commission.
Roles of Stockbroker in Share Market
There are some significant roles of stockbrokers in the share market mentioned below:
1. They Advise Their Clients for Trading
Advising the clients is also a significant role of the stockbrokers to help them make trading decisions. They keep their mind updated with the latest investment trends and opportunities and help their investors to earn profit.
2. Deal With The Required Paperwork
The stockbroker facilitates their clients by handling some paperwork on their behalf. This paperwork can be maintaining records of transactions and statements.
3. Manage and Maintain The Portfolio of Their Clients
In most cases, the brokers also handled the client’s portfolio and updated it whenever demanded.
4. Give Suggestions Or Provide Investment Strategies
The share market is dynamic, and it keeps changing; thus, an investor can make a profit or loss. Hence their stock broker also helps their clients to make some stable strategies and provide suggestions to avail any available opportunity.
SEBI Guidelines for Stock Brokers
#1. The stockbroker or the sub-broker must follow the rules and guidelines issued by SEBI and other relevant information from the government bodies. Below are some key highlights of the guidelines issued by India’s Securities & Exchange Board for the stockbroker or brokerage firms working in NSE and BSE.
#2. The stockbroker must ensure that all the electronic communication sent by email should comply with the IT act 2000. It means every communication made must be digitally signed, non-tamper, and encrypted. If the broker sends some attached files through the email. Then that also needs to be digitally protected by a digital signature, encryption, and other mentioned measures. Nowadays, digital signing is not complicated as many digital signature tools can ease the process.
#3. The stockbroker also needs to maintain the backup of the ECNs in their software or another digitally secured place. Also, they need to maintain these backups based on the rules, regulations, and guidelines issued by SEBI. A stockbroker also requires maintaining the log report generated by the system when the contract is signed among the trader or investor for the specified period decided by SEBI or exchange. The log report will help by securing the emails that did not deliver to the client properly or bounced back.
#4. However, if the electronic communication does not deliver due to any reason through the email. In that case, the stockbroker can send the contract in physical mode within the stipulated period decided by the SEBI. Aside from this, they also need to maintain the proof of the delivery of the contract in physical form.
#5. As per the SEBI’s guideline, the stockbroker can also provide internet-based stock brokerage services such as IBT or Internet-based trading. This trading method can include the phone, laptop, computer, and other technology given by the guidelines. However, these technologies need to use the IP or internet protocol to do internet trading in BSE and NSE. The stockbroker or brokerage firm requires implementing all the guidelines of SEBI issued for internet-based securities trading with the help of the internet.
#6. Whenever the broker suggests the investor about investing in the securities or shares. Then they also need to explain the features of the trade, associated risk, responsibilities, liabilities, and more. They also need to tell whether the trading can be done through wireless technology or other technologies.
SEBI’s New Guidelines for Stockbroker
The investor now needs to wait for the next two working days to receive the sale generated by selling their holdings.
As per SEBI’s new margin rules, the cash market transactions will demand margins. Also, the exchange can make the margin necessary for selling the stocks.
So, stockbrokers are an essential part of the share market, and they can hold several confidential data of the companies. Hence, limiting their activities and maintaining the highest level of transparency and integrity has applied some rules and guidelines for the stockbrokers. And all the brokers and brokerage firms registered under the SEBI are obligated to follow these guidelines. If the stockbroker does not follow the guidelines issued by the SEBI and government. Then SEBI can take legal action against them and cancel their license.
Hence in this article, we learned some critical regulations issued by the SEBI for the stockbrokers in short. I hope now you have some fundamental ideas about the role of broker and duties too. Thus, if you assume it helped you, share it in the comment section and share it with your friends to learn the SEBI guidelines for a stockbroker.