Capital market regulator Securities and Exchange Board of India (SEBI) on Monday issued guidelines to tighten norms for qualified stock brokers. SEBI has also asked stock markets i.e Bombay Stock Exchange (BSE) and National Stock Exchange (NSE) to release the list of qualified stock brokers within 15 days. 

The guidelines have been issued by SEBI in view of "significant developments in the securities markets" such as advancement in technology, investor penetration, and awareness, the concentration of activity among few stock brokers, and increase in risk, including on account of the possibility of cyberattacks. 

"Certain stock brokers, due to various factors like their size, trading volumes and amount of clients’ funds handled by them, have come to occupy a significant position in the Indian securities market which is leading to concentration of activity among few stock brokers," SEBI said.

"Such stock brokers cater to the needs of large number of investors and therefore, it is imperative for such stock brokers, inter-alia, to adhere to the regulatory guidelines, provide satisfactory services to investors and resolve investor complaints. The failure of such stock brokers has the potential to cause disruption in the services they provide to large number of investors causing widespread impact in the securities market," it added.

Parameters for designation of QSB’s

The capital markets regulator has issued parameters in line with stock broker regulations, 1992, for designating certain stock brokers as qualified stock brokers. 

"The stock broker designated as a QSB shall be required to meet enhanced obligations and discharge responsibilities to ensure appropriate governance structure, appropriate risk management policy and processes, scalable infrastructure and appropriate technical capacity, a framework for orderly winding down, robust cyber security framework, and investor services including online complaint redressal mechanism," according to the SEBI’s circular. It has directed Market Infrastructure Institutions (MIIs) and domestic stock markets to carry out enhanced monitoring of qualified stock brokers. 

The parameters include 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, which excludes he proprietary trading volume of the stock broker and the end of day margin obligations of all clients of a stock broker, which excludes the proprietary margin obligation of the stock broker in all segments. 

Vulnerability Assessment and Penetration Testing

In order to thwart cyber attacks, SEBI has mandated qualified stock brokers to carry out VAPT on a half yearly basis to detect security vulnerabilities in their IT environments exposed to the internet. “QSB shall also carry out penetration tests on half-yearly basis, in order to conduct an in-depth evaluation of the security posture of the system through simulations of actual attacks on its systems and networks that are exposed to the internet,” SEBI said. 

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