NSE Lays Framework For Action Against Brokers For Misuse Of Clients Funds

The National Stock Exchange on Wednesday came out with a framework for taking immediate action against trading members in cases of misuse of client funds by them.

In the recent past, the exchange has observed instances of misuse of client funds during its inspections as well as in the alerts generated under offsite supervision.

In order to initiate immediate actions in critical cases where misuse of client funds is observed, the exchange said that proprietary deposits of the trading member available with the clearing house, NSE Clearing Ltd., will be blocked to the extent of the misuse amount or Rs 10 crore, whichever is lower, according to a circular.

The action will be taken for violating "principles of enhanced supervision" for stock brokers in cases of misuse of clients funds.

In case misuse is observed with regards to "principles of enhanced supervision" for stock brokers, the NSE said the amount equivalent to the aggregate amount of all principles will be blocked.

Further, proprietary deposits will be blocked after two trading days from the date of communication of the direction regarding the blocking of such deposits to the trading member. Such deposits will be blocked for 10 days.

Moreover, no exposure will be granted to the trading member on such deposits.

The new framework will come into force on September 1, NSE said.

Also, the exchange evaluates the penal provisions for non-compliance by the members regarding various regulatory requirements to make them more effective and act as a deterrent.