SEBI defines scope of PoA to be issued to stock brokers/ depository participants

On August 27, 2020, the Securities and Exchange Board of India (“SEBI”) issued circular no. SEBI/HO/MIRSD/DOP/CIR/P/2020/158 on ‘Execution of Power of Attorney (PoA) by the Client in favour of the Stock Broker/ Stock Broker and Depository Participants’ (“Circular”). In the Circular, SEBI observed that while the ‘Guidelines for execution of Power of Attorney by the client favouring Stock Broker/ Stock Broker and Depository Participant’ (“Guidelines”) provide that issuing a power of attorney (“PoA”) was mandatory, a PoA was invariably being obtained from investors as a part of KYC and account opening process. In relation to the same, SEBI reiterated the following 1. PoA is optional and should not be insisted upon by the stock broker/ stock broker and depository participant for opening of the client account. 2. PoA executed in favour of stock broker/ stock broker and depository participant by the client shall be utilized towards the following i. 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; ii. for pledging/re-pledging of securities in favour of trading member/ clearing member for the purpose of meeting margin requirements of the clients in connection with the trades executed by the clients on the stock exchange; and iii. for the limited purposes as specified in paragraph 1(iii) and 2 of the Guidelines. 3. Paragraph 1(i) and 1(ii) of the Guidelines are modified in accordance with paragraph 2(a) and 2 (b) above. 4. Stock exchanges and depositories shall ensure that PoA is not used by trading member/ clearing member/ depository participants for any purpose other than as specified above and in SEBI circulars dated April 23, 2010 read with SEBI circular dated August 31, 2010. 5. Off-market transfer of securities can now be permitted by the depositories only by 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 client’s demat account. 6. Stock exchanges and depositories are directed to i. make necessary amendments to the relevant bye-laws, rules and regulations for the implementation of the above decision; ii. bring the provisions of this circular to the notice of their members/ participants and also, disseminate the same on their websites; and iii. communicate to SEBI, the status of implementation of the provisions of this circular in their monthly report. Please find a copy of the Circular here. This update has been contributed by Adity Chaudhury (Partner) and Kshitija Naik (Associate).