The National Stock Exchange (NSE) has proposed a major overhaul of the regulatory framework for Authorised Persons (APs), aiming to strengthen investor protection, improve supervision and make stock brokers more accountable for the activities of their authorised representatives.
The proposals have been released through a consultation paper, with public comments invited till August 27.
According to the consultation paper, the proposed changes have been prepared jointly by the exchanges in consultation with the Securities and Exchange Board of India (SEBI).
The paper states that the changes have been proposed “to strengthen supervision of Authorised Persons.”
Under the proposed framework, individuals seeking to become Authorised Persons will have to meet stricter eligibility requirements, including educational qualifications, work experience, mandatory NISM certifications and minimum net worth requirements.
The paper stated that individual APs will be required to maintain a minimum net worth of Rs 5 lakh, while partnership firms, LLPs and body corporates will need a minimum net worth of Rs 25 lakh.
In addition, every AP will have to maintain a minimum deposit of Rs 1 lakh with the stock broker.
The proposal also introduces tighter compliance requirements for Authorised Persons. APs will be required to disclose all bank and demat accounts to the broker during onboarding and provide details of their business-related websites and social media handles.
The consultation paper says that brokers “shall conduct social media screening of AP and its promoters/directors/partners through web crawler or web search or otherwise and shall maintain proof.”
For APs using trading terminals, the exchange has proposed several technology-based safeguards. These include geo-tagging of terminals, CCTV surveillance at terminal locations and face recognition or biometric authentication before terminal access.
The paper stated that “appropriate technological controls such as geo-tagging must be implemented to monitor and restrict misuse of terminal access,” while APs “shall implement face recognition or biometric authentication technology for accessing terminals.”
The proposed framework also places greater responsibility on stock brokers. Brokers will be responsible for all acts of omission and commission by their APs and their employees.
It noted that they will be required to conduct regular inspections, surprise audits and generate offsite alerts to identify unusual trading activity, recurring client complaints, social media violations and other compliance risks.
To further safeguard investors, the consultation paper reiterates that APs cannot receive client funds or securities in their own accounts.
It also proposes that stock brokers directly educate AP-sourced clients about the role of APs and caution them against promises of assured returns. Brokers will also be required to maintain client communication, monitor call recordings and verify AP operations on a regular basis.
NSE has invited comments from market participants on the proposed framework until August 27, after which the feedback will be considered before finalising the regulatory changes.
