Investor accounts: Brokers in control!

In a circular issued on December 3,2009,Sebi had changed various regulations concerning dealings between stock brokers and investors and one of the requirements mandated at that time was a fresh 8216;running account authorisation8217; every year to access the funds and securities of the clients.

These rules were first scheduled to be implemented by March 31,2010,but the deadline was extended to June 30 of that year on brokers8217; requests.

However,the brokers continued to seek relaxation in these rules and Sebi has now given them further reprieve.

In a circular issued last week to chiefs of various bourses,Sebi informed them about the latest amendments to its earlier directions in this regard.

The exchanges have subsequently informed their member brokers about the new Sebi direction.

As per new Sebi circular,it has 8220;received representations from market participants expressing difficulties in implementation of the requirements pertaining to renewal of running account authorisation once in a year8221;.

Sebi said it has therefore decided to drop the clause pertaining to renewal of authorisation every year.

At the time of opening the trading accounts,brokers ask the investors to give them 8216;Running account authorisation8217;,which makes the funds readily available for future buy orders.

Generally,investors also tend to keep some cash,whether fresh or those from sale of shares,in their trading accounts for instant access to funds needed for future buy orders.

However,there have been cases when the brokers use these funds for market dealings without the client8217;s knowledge and then return the funds back into accounts whenever the customer needs it.

Besides,brokers generally used to take 2-3 days to transfer back the funds to the clients from their trading accounts.

It was in this backdrop that Sebi in 2009 made it mandatory for brokers to return such funds within 24 hours,or get a 8216;running account authorisation8217;.

Accordingly,the brokers were asked to give their clients an option to either take back the unutilised funds at the end of every month or quarter,as desired by them,or provide a 8216;running account authorisation.8217;