SEBI broadens the parameters for designating Qualified Stock Brokers (QSBs)

SEBI has recently issued a circular to extend the framework of QSBs to encompass more stockbrokers, to safeguard the interest of investors and for building trust in securities market. Previously, SEBI had outlined 4 criteria for designating a stockbroker as a QSB on an annual basis and subsequently, stock exchanges had notified a list of 15 stock brokers as QSB’s.
 
The revised framework for classifying a stockbroker as a QSB includes additional parameters and outlines the procedure for identifying such brokers. Parameters (e) to (g) are in addition to the existing 4 parameters (a) to (d).
 
𝐏𝐚𝐫𝐚𝐦𝐞𝐭𝐞𝐫𝐬 𝐟𝐨𝐫 𝐝𝐞𝐬𝐢𝐠𝐧𝐚𝐭𝐢𝐧𝐠 𝐚 𝐬𝐭𝐨𝐜𝐤𝐛𝐫𝐨𝐤𝐞𝐫 𝐚𝐬 𝐐𝐒𝐁:
 
a) Total number of active clients of the stock broker;
b) Total assets of clients available with the stock broker;
c) Trading volumes of the stock broker (excluding the proprietary trading volume);
d) End of day margin obligations of all clients of a stock broker (excluding the proprietary margin obligation in all segments);
e) Proprietary trading volumes of the stock broker;
f) Compliance score of the stock broker; and
g) Grievance redressal score of the stock broker.
 
𝐏𝐫𝐨𝐜𝐞𝐝𝐮𝐫𝐞 𝐟𝐨𝐫 𝐢𝐝𝐞𝐧𝐭𝐢𝐟𝐲𝐢𝐧𝐠 𝐚 𝐬𝐭𝐨𝐜𝐤 𝐛𝐫𝐨𝐤𝐞𝐫 𝐚𝐬 𝐐𝐒𝐁:
 
For each stock broker, the percentage (%) of a particular parameter compared to the aggregate of the respective parameter summed across all stockbrokers shall be calculated. Stock brokers with a total sum of individual (%) of the parameters mentioned at points (a) to (e), greater than or equal to 6.25, shall be identified as QSBs. For point (f), all stockbrokers (up to a maximum of 5) shall be considered QSBs if their individual compliance score is equal to or more than 2%. Similarly, for point (g), all stockbrokers (up to a maximum of 5) shall be considered QSBs if their individual grievance redressal score is equal to or more than 5%.
 
These values shall be calculated annually, with the revised list of QSBs jointly released by stock exchanges in consultation with SEBI. QSBs that no longer qualify will continue to adhere to the enhanced obligations and responsibilities for an additional period of 3 FYs or as determined by Market Infrastructure Institutions (MIIs) in consultation with SEBI.
 
The circular also provides provisions for stockbrokers to voluntarily seek designation as QSBs, even if they wouldn’t qualify based on the specified parameters.
 
The parameters mentioned at points (a) to (e) shall be applicable from June 1st of the subsequent year, while those at points (f) and (g) shall be applicable from September 1st of the subsequent year.
 
A copy of the SEBI circular is enclosed herewith.
 
Readers are welcome to share their views with Regstreet Law Advisors on info@regstreetlaw.com.