SEBI Update - Enhanced obligations and responsibilities on Qualified Stock Brokers (QSBs) - February 6, 2023

SEBI vide its Circular dated 6 th February, 2023 came out with parameters for qualified stock brokers (QSBs), who handle a large number of clients' funds and trading volumes. Certain stock brokers handle a very large number of clients' funds and trading volumes. Possible failure of such brokers has the potential to cause widespread impact on investors and reputational damage to the securities market. To mitigate this risk, Sebi would designate stock brokers as QSBs based on certain parameters such as the total number of active clients of the stock broker, available total assets of clients with the stock broker, trading volumes of the stock broker and the end of day margin obligations of all clients of a stock broker.

Further, circular details the parameters which shall be considered for designating a stock broker as QSB, enhanced obligations and responsibilities which shall be cast on such QSBs and guidelines on enhanced monitoring of QSBs which shall be carried out by Market Infrastructure Institutions (MIIs).

Parameters for designating a stock broker as QSB: Initially, the following parameters shall be considered for designating a stock broker as QSB: the total number of active clients of the stock broker; the available total assets of clients with the stock broker;the trading volumes of the stock broker (excluding the proprietary trading volume of the stock broker); andthe end of day margin obligations of all clients of a stock broker (excluding the proprietary margin obligation of the stock broker in all segments). Procedure for assigning score to a stock broker: For each stock broker, an individual score for a particular parameter would be calculated by dividing the individual parameter by the aggregate of the respective parameter summed across all stock brokers-- stock broker's count of active clients will be divided by the aggregate count of active clients of all stock brokers and similarly, individual scores would be calculated for other parameters as well. Then, the total score would be calculated by adding individual scores of all the parameters. For calculating the scores for a particular financial year, parameters as on December 31 of such a financial year would be considered. Identification of QSBs: Initially, stock brokers with a total score greater than or equal to five based on the parameters would be identified as QSBs. The scores would be calculated on an annual basis and the revised list of QSBs would be released joi