Brokers Call For Sebi Intervention to Avert a Freeze on Bank Accounts

Stockbrokers have approached the capital markets regulator seeking a change in the way their bank accounts are tagged. This follows recent instances of brokers’ official bank accounts, which are crucial for the settlement of trades, getting frozen by the police or other law enforcement agencies on accounts of complaints by investors. Currently, brokers must maintain a client’s bank account as “Name of Stockbroker Client Account,” according to Sebi rules. Brokers said if an aggrieved client files a complaint with law enforcement agencies (LEAS) of an alleged fraudulent transfer of money from his bank account, they direct banks or payment aggregators to freeze the account belonging to the stock broker, which also holds funds of all clients. In the last four months, at least six members have faced the issue of a freeze on their client bank accounts, according to ANMI. The settlement process of a large mutual fund was also stalled recently after a client filed a complaint against a broker with the Mumbai police. In a letter to the Securities and Exchange Board of India (ANMI), a broker association, suggested amending the clause in the regulations that will replace “Name of Stockbroker Client Account” with “Name of Stockbroker Nodal Account”. Such a change will restrict the freeze only to the disputed account and amount, said ANMI.

“Such a freeze affects its various clients and threatens the member’s reputation and systemic risk to the entire settlement system. This freeze is removed after deliberation with the LEAS, banks, and payment aggregators,” ANMI said. ANMI said that presently, members must maintain a client bank account to receive and pay all clients’ funds on behalf of their clients who are trading in the capital markets. The banks treat these client accounts as normal corporate accounts because the account title is “Name of Stock broker Client Account.” According to V Raghavendra Prasad, CEO of ANMI, if the broker’s account has a nomenclature of a nodal account, the member’s risk is restricted only to the disputed or alleged fraud amount, and it protects members from having their entire frozen. ANMI also requested Sebi to take up the matter with the top bureaucrats and police officials of the states to bring awareness. S-ET Image Source : Google

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