Who Regulates Authorised Person in India?

4 mins read
by Angel One

Stock markets in India are a heavily regulated industry. Investors, brokers, and other key players need to understand the rules and regulations that govern the stock markets and comply with them while trading. These rules and regulations have been established by market regulator, SEBI and serve the unique purpose of maintaining a degree of integrity and transparency for the benefit of clients and brokers alike. These regulations are applicable for every trade that takes place in both the Bombay Stock Exchange and the National Stock Exchange.

If you are an authorised person, SEBI has laid down certain dos and don’ts that you must first know about and then adhere to. Keeping oneself updated with these regulations will ensure that you don’t get penalized for overstepping the stated lines.

The Need for A Regulator

As explained earlier, SEBI plays a vital role in keeping a check on day-to-day buying and selling of stocks and ensuring transparency in trading activities. This ensures that all players in the process remain free from questionable doubt. In the event that a rule violation does occur, it can be quickly traced back to its origin. Another important aspect of trading one must consider is that brokers and authorised persons hold critical financial data about their clients. Having a strict set of guidelines will ensure that this confidential information is not misused and all trading that takes place at the exchange is only of the highest integrity. SEBI has put in place a team of investigators who can quickly probe any misadventures and penalize offenders if needed.

Regulations for authorised persons and Clients

The rules, set about by SEBI, are applicable for all members looking to invest in the stock market. These rules mandate that all members, whether a broker, authorised person or clients, ensure clarity of all stages of stock trading. This is regardless of whether it is at an individual broker capacity, their liabilities, and/or limitations prescribed. Some of the regulations prescribed by SEBI are as follows:

– Clients must only invest in financial instruments that are approved by the exchange and listed by SEBI

– Brokers, authorised persons, and clients will trade under the bylaws set by SEBI that govern the market.

– Before the client invests in a stock, it is their responsibility to check the credibility and capability of the stockbroker. Background checks should be conducted before investing through an authorised person. SEBI does not take any responsibility for mismanagement of transactions.

– In the same way, a broker or authorised person should be in the know about the financial history of their client before carrying forward any financial transactions on their behalf.

– Stockbrokers must educate their clients about the nature of their business, policies, limitations, and liabilities, and capacity under which the stockbroker trades on behalf of the client.

– The authorised person must assist the broking firm in completing deals with clients

– Every client must go through the account opening formalities. This includes providing all documents requested and familiarizing oneself with trading guidelines set by SEBI.

– All client-related information, whether personal or financial related, must be kept confidential. Stockbrokers are duty bound to keep this information to themselves under all circumstances, unless demanded by the law.

Objectives of SEBI

The Securities and Exchange Board of India (SEBI) was officially appointed as the authority for regulating the financial markets in India on 12th April 1988. Overtime, the fundamental objectives of the regulator have evolved. Today, the market regulator’s primary objective is keeping a check on day-to-day buying and selling of stocks and ensuring transparency in trading activities. This results in a safe and well-regulated marketplace for all intended parties to trade with complete confidence. Additional SEBI objectives are:

– To monitor and keep checks on all trading activities that take place on the stock exchange.

– To safeguard the rights of the investors

– To curb fraudulent practices by maintaining a balance between statutory regulations and self-regulation.

– To define the code of conduct for the brokers, underwriters, and other intermediaries.

Final Thoughts

Authorised persons looking to get started with a business in the stock markets should understand the rules and regulations set by market regulator SEBI. Doing so will not only keep oneself away from unwanted trouble while trading, it is also good to know knowledge that can be passed to clients and other team members.