New SOP to harmonise action against trading members

Sebi said that initiating Stock Exchange (ISE) / SEs / CCs and depositories should seek documents, explanation or meeting with the designated directors of the trading member within three trading days of the trigger.

The Securities and Exchange Board of India (SEBI) on Wednesday issued a Standard Operating Procedure (SOP) to harmonise the action amongst all stock exchanges (SE), clearing corporations (CC), and depositories in a time bound manner when an SE /CC is of the view that a trading member (TM) / clearing member (CM) is likely to default in repayment of funds or securities to its clients.

Sebi said that initiating Stock Exchange (ISE) / SEs / CCs and depositories should seek documents, explanation or meeting with the designated directors of the trading member within three trading days of the trigger. “A limited purpose joint inspection of TM shall be initiated. ISE along with other SEs shall send a team of officials for taking possession of the copy of the books of accounts and other relevant records including but not restricted to securities register, trial balance, client master, bank books, debtors and creditors ledger (preferably in electronic mode) for the last 3 years (if available),” Sebi said.

Within seven trading days of the aforesaid step, the trading terminal of the TM may be directed to be disabled by the managing director of the ISE as an interim measure, Sebi said. Depositories should freeze the demat accounts of the TM, including TM pool accounts, within one trading day from the receipt of information of disablement.

Depositories should also not allow new account opening by the depository participant (DP) (defaulting TM / CM) and should suspend all power of attorney in favour of the defaulting TM given by its clients.

Banks should also be given instructions to freeze the balance in all bank accounts of TM/CM within one trading day of receipt of information of disablement.

“If the TM is also a depository participant, the depositories shall depute its officials / auditor to monitor the transactions in demat securities of the clients of TM and / or transfer the demat accounts of the clients to another DP,” Sebi said.