Shift to e-DIS method to keep securities in your demat acccount safe

This will ensure that you don't have to give power of attorney to your broker and yet do not lose out on convenience

Through its circular dated August 27, the Securities and Exchange Board of India (Sebi) has reiterated that brokers should not make it mandatory for clients to give power of attorney (PoA) at the time of opening broking or depository participant accounts.

While the regulator is concerned about past misuse of PoA by brokers, it also wants to highlight that it has put new systems in place that have made PoA redundant.

According to B Gopkumar, managing director and chief executive officer, Axis Securities: “The regulator wants to minimise their use. They should be used for the purpose of settlement only.”
 

Adds S Ravi, former chairman of the BSE and managing partner, Ravi Rajan & Co: “Sebi wants to eliminate the misuse of PoA. It also wants to create a more transparent system where customers are self-reliant.”

The new margin pledge system will become operational from September 1. 

When a client wants to trade through a broker, he has to deposit margin money. He can use the stocks in his demat account for this purpose. Once he does so, the broker provides a trading limit.

Until now, when securities were pledged as margin, the broker transferred them from the customer’s demat account to his. 

 

 

“Once securities left the client’s account, he had no control over what the broker did with them,” says Venu Madhav, chief of operations, Zerodha.

Henceforth, securities will not move out of the client’s account. A pledge or lien will be marked on them in the depository’s system (see box). If the client doesn’t pay up in case of loss, the broker will invoke the pledge and sell the securities. 

“PoA allowed brokers to create margin pledge on behalf of clients. Under the new system, they will not have a role in pledging,” says Venu Madhav, chief of operations, Zerodha.

Clients also give PoA to the broker so that if they sell shares, the latter can withdraw them from the client’s demat account and pass them to the exchange to settle the trade. 

The client does not have to visit the broker’s office to hand over a physical delivery instruction slip (DIS) each time.

A new system called e-DIS (electronic DIS) has now been created. As soon as the client sells shares, he gets a message from his depository: “You have sold shares. Do you want to transfer them to your broker?” 

The shares get transferred only when the client puts in the OTP. 

“The broker has no role in the e-DIS system. The only snag is that many brokers have not implemented it,” says Shrey Jain, founder, SAS Online, a Delhi-based discount broking firm.

Stick to brokers who have implemented this safer system. Alternatively, give a limited purpose PoA to your broker just for settling your trades by pulling shares from your account and transferring to the exchange. The limited PoA will ensure they do not misuse the facility for offline transactions —transferring shares from your account to that of a related party.