Security and Exchange Board of India (SEBI) issued a circular on August 27, 2020, for its clients that the Power of Attorney (PoA) is optional for the opening of client accounts by stockbrokers or depository participants.

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SEBI mentioned in this circular that it was observed that PoA which is invariably obtained from the investors as part of the KYC and account opening process. Such PoA executed by clients has further found to be misused by the stockbrokers by taking authorization even for activities prohibited by the regulator in its guidelines for execution of PoA, issued in April 2010.

Because of this only SEBI mentioned in the circular, “PoA is optional and should not be insisted upon by the stockbroker/stockbroker depository participant for the opening of the client account.”

It further said, “PoA executed in favour of stock broker/stockbroker depository participant by the client shall be utilized-

  1. For transfer of securities held in the beneficial owner accounts of the client towards Stock Exchange related deliveries/settlement obligations arising out of trades executed by clients on the Stock Exchange through the same stockbroker.
  2. For pledging / re-pledging of securities in favour of trading member (TM)/clearing member (CM) for the purpose of meeting margin requirements of the clients in connection with the trades executed by the clients on the Stock Exchange.”

“It has also been decided that all off-market transfer of securities shall be permitted by the Depositories only by the execution of Physical Delivery Instruction Slip (DIS) duly signed by the client himself or by way of electronic DIS. The Depositories shall also put in place a system of obtaining client’s consent through One Time Password (OTP) for such off-market transfer of securities from the client’s Demat account,” stated the circular issued.

Also, SEBI directed to the Stock Exchanges and Depositories that they are required to – 

  • make necessary amendments to the relevant Bye-laws, Rules and Regulations for the implementation of the above decision; 
  • bring the provisions of this circular to the notice of their members or participants and also disseminate the same on their websites; and
  •  communicate to SEBI, the status of implementation of the provisions of this circular in their monthly report.

With Warm Regards,

CL Bureau.

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