SEBI Expands Framework for Qualified Stock Brokers to Enhance Market Compliance

New Developments in QSB Criteria

The Securities and Exchange Board of India (SEBI) has revised its parameters for designating Qualified Stock Brokers (QSBs) to include more brokers and strengthen investor protection and compliance culture. This revision, effective from March 11, 2024, incorporates additional criteria into the QSB framework as mandated by the SEBI Act, 1992 and SEBI (Stock Brokers) Regulations, 1992.

Revised Parameters for QSB Designation

• Existing Parameters:
  1. Total number of active clients of the stock broker.
  2. Available total assets of clients with the stock broker.
  3. Trading volumes of the stock broker (excluding proprietary trading volumes).
  4. End of day margin obligations of all clients (excluding the broker’s proprietary margins).
• Newly Added Parameters: 5. Compliance score of the stock broker.

• Grievance redressal score.
• Proprietary trading volumes.

With these seven parameters, SEBI aims to provide a robust measure of a stock broker’s performance and reliability, fostering a stronger compliance and governance environment within the securities market.

Implications for Stock Brokers

• Voluntary Participation: Stock brokers can voluntarily apply to be designated as QSBs.
• Governance and Obligations: QSBs are required to uphold high standards in governance, risk management, and cybersecurity.
• Evaluation and Status: Brokers will be evaluated on new criteria including compliance and grievance redressal scores; once removed, a broker can retain its QSB status for three financial years.

Key Dates

• Compliance and Grievance Scores: These scores will be assessed for QSB designation from September 1 of the subsequent year.
• Other Parameters: The evaluation for other parameters will take place on June 1 of the subsequent year.

SEBI Mandates Registration for Index Providers

Overview

Alongside the QSB framework update, SEBI has also introduced the SEBI (Index Providers) Regulations, 2024, requiring all index providers that manage benchmarks based on Indian-listed securities to register with SEBI. This regulation is set to enforce transparency and governance in the management of financial benchmarks.

Registration Requirements

• Exemptions:
  • Global index providers are exempt unless their indices significantly impact domestic asset managers.
  • Indices used exclusively abroad and those regulated by the RBI are not covered under these SEBI regulations.
• Eligibility Criteria:
  • Must be an entity incorporated under the Companies Act, 2013 or similar foreign legislation.
  • Required to have a minimum net worth of Rs 25 crores.
  • Should have adequate infrastructure and human resources.

Governance and Compliance

• Oversight and Control:
  • An Oversight Committee will oversee all benchmark determinations separate from the index calculation department.
  • A Control Framework will ensure the accuracy and proper dissemination of index calculations.
  • A Whistle-Blowing Mechanism will support the reporting of misconduct.

These regulations and framework enhancements by SEBI are designed to protect investors, improve market operations, and ensure that entities involved in the securities market adhere to the highest standards of conduct and transparency. These initiatives highlight SEBI’s commitment to strengthening the financial market’s infrastructure and investor confidence in India.

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