Bourses asked to clear proprietary trading

Sebi seeks broker due-diligence before allowing such deals

The Securities and Exchange Board of India (Sebi) has asked bourses to ensure that brokers or sub-brokers of the same exchange do not enter into proprietary trading or for trading on behalf of clients without their prior permission.

Further, the directve says that exchanges, while giving such permission, should consider the reasons stated by brokers or sub-brokers and only after a due-diligence should such deals be allowed.

The securities watchdog has also said that a stock broker or sub-broker of an exchange can deal with only one broker or sub-broker of another exchange for proprietary trading after intimating the names of such stock broker or sub broker to his parent stock exchange

Sebi said these directives were being issued after inspections revealed that certain members and sub brokers are dealing through a large number of other stock brokers and sub-brokers of the same exchange or other exchange for their proprietary trades as well as trades on behalf of clients.

"Trading through large number of brokers or sub brokers raises serious issues of regulatory concerns including taking excessive exposure, executing pro-account trading from multiple locations in violation of Sebi regulations and possibility of over leveraging and default..," it said.

Market sources said that this was an old practice by the National Stock Exchange where one broker is not allowed to route transactions through another broker of the same exchange. This ensures that position limits are not flouted.

Sebi has been taking a large number of initiatives in order to streamline the market place and make it a safer place for the small investor.

On Wednesday, it asked brokers to give full details about block deals being transacted by them. The details would also include the name of the clients on whose behalf the deals are done.