SEBI expands Framework for Qualified Stock Brokers; Mandates Registration of Index Providers

On March 11, 2024, the Securities and Exchange Board of India (SEBI) expanded the framework of Qualified Stock Brokers (QSBs) to more stock brokers in order to protect the interest of investors, building trust in securities market, and strengthening the compliance culture among stock brokers

• This information by SEBI is issued in exercise of its powers conferred under Section  11(1) of Chapter IV of the SEBI Act, 1992, read with Regulation  30 of Chapter  VII  of SEBI  (Stock Brokers)  Regulations,  1992.

The New Parameters:

Now, as per the revised list of QSBs following parameters, in addition to above mentioned  four parameters are added:

i.Compliance score of the stock broker

ii.Grievance redressal score of the stock broker

iii.Proprietary trading volumes of the stock broker

After revision, there are 7 parameters for designating a stockbroker as QSB.

The Earlier Parameters:

As per the earlier circular, there are following four parameters for designating a stockbroker as QSB

i.Total number of active clients of the stock broker

ii.Available total assets of clients with the stock broker

iii.Trading volumes of the stock broker (excluding the proprietary trading volume of the stock broker)

iv.End of day margin obligations of all clients of a stock broker (excluding the proprietary margin obligation of the stock broker in all segments)

Key Points:

i.Stockbrokers can now voluntarily become Qualified Stock Brokers (QSBs).

ii.QSBs must meet higher obligations including governance, risk management, and cybersecurity.

iii.QSB status is retained for three financial years if removed from the list, as per Market Infrastructure Institutions (MIIs) and SEBI.

iv.Stockbrokers designated as QSBs will be evaluated based on compliance and grievance redressal scores.

v.For designating stock brokers as QSBs, the applicable date will be September 1 of the subsequent year with respect to two parameters viz. Compliance Score and Grievance Redressal Score.

• The rest of the parameters will be applicable on June 1 of the subsequent year.

Click Here for Official Circular

SEBI Mandates Registration of Index Providers

SEBI has notified the SEBI (Index  Providers)  Regulations, 2024 in exercise of the powers conferred by sub-section (1) of Section 30 read with sub-section (2) of Section 11 and Section 12 of the SEBI  Act,  1992 (15 of 1992).

• Under this, SEBI has mandated registration for index providers managing important indices based on Indian-listed securities. This promotes transparency in governing and administering financial benchmarks in the securities market.
• This regulation requires all index providers to register, and the provisions will take effect on the 180th day from March 8, 2024.

Applicability:

i.Global index providers don’t need SEBI registration unless their indices are used by domestic asset managers with significant funds.

ii.Indices exclusively used abroad are exempt.

iii.Benchmarks regulated by the Reserve Bank of India (RBI) are also excluded from SEBI regulations.

iv.Applicant should be an entity incorporated under Companies Act, 2013 or should be incorporated with an equivalent legislation in the country of incorporation; or

v.Applicant has a minimum net worth of Rs 25 crores or an equivalent amount in the currency of the country in which the applicant is incorporated.

vi.Applicant has a proper infrastructure and adequate number of human resources.

Key Points:

i.An Oversight Committee will govern all aspects of benchmark determination.

It will be separate from the department handling daily index calculations.

• Duties include reviewing index design changes, overseeing new benchmark introductions, and implementing audit recommendations.
• It will also handle cessation procedures, expert judgment exercises, and conduct periodic reviews.

ii.A Control Framework will ensure accurate index calculation, maintenance, and dissemination.

iii.A Whistle-Blowing Mechanism will be in place to encourage reporting of potential misconduct by employees.

Click Here for Official Notification

Recent Related News:

i.SEBI has extended the timeline for market rumor verification for a second time to June 1, 2024 from February 1, 2024 for the top 100 companies and to December 31, 2024 from August 1, 2024 for the top 250 companies.

ii.SEBI has released a Framework for Offer for Sale (OFS) of Shares to Employees through Stock Exchange Mechanism which will come into effect from February 22, 2024.

About Securities Exchange Board of India (SEBI):
Chairperson– Madhabi Puri Buch
Headquarters– Mumbai, Maharashtra
Establishment– 12 April 1992