Market regulator the Securities and Exchange Board of India (Sebi) today clarified that its recent order barring brokerage firms from taking irrevocable authorisation to operate clients' accounts does not cover settlement dues arising from past trades.
In its clarification on the guidelines disbarring brokerage firms from getting irrevocable Power of Attorney (PoA) from clients, the Sebi said: "... Such revocation shall not be applicable for any outstanding settlement obligation arising out of the trades carried out prior to receiving request for revocation of PoA."
A PoA is executed by a client in favour of a stockbroker to authorise the broker to operate the client's demat account and bank account to facilitate the delivery of shares and payment of funds.
The regulator also asked brokerage firms to properly record the date and time of requests from clients to revoke PoA so that a proper audit trail can be maintained.
"Furthermore, the PoA revocation requests should be dated and time stamped by the brokers for ensuring proper audit trail," it said.
Brokerage firms have to comply with the guidelines by September 1. The guidelines were formulated in response to complaints that many of the power of attorney agreements drafted by brokers contained clauses that could be misused against the investor.
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The Sebi today said the existing PoA will have to be revoked if they are not consistent with the current guidelines.
"Stock broker/depository participants (DP) may revoke those authorisations that are inconsistent with the present guidelines by communicating the inconsistent clauses to the existing clients," the regulator said in its clarification.
According to the new guidelines issued by the market regulator, the brokers would also be barred from asking investors to give a notice period, which is generally of 15 days to one month, for termination of PoA.
The Sebi also said the PoA between brokerage firms and client will allow the transfer of securities held in clients accounts towards payment of margin or delivery obligations to stock exchanges. This kind of arrangement will also include payment towards settlement of trade.
The PoA may also be used for applying for various mutual fund products, public issues, etc, but only after explicit instructions from clients. In this kind of PoA, redemptions by clients could also be included in the PoA, but only with clients' consent, it said.