Image credits - Reuters
In a move aimed at enhancing investor protection and addressing concerns related to suspicious activities in the capital markets, the Securities and Exchange Board of India (SEBI) announced on Friday its plan to implement a framework for the voluntary blocking of online trading accounts. This new measure, set to be in place by April 1, 2024, will empower trading members to proactively block the online access of trading accounts displaying suspicious activities.
The regulatory framework will be established in collaboration with the Brokers’ Industry Standards Forum (ISF), along with the active involvement of stock exchanges. The guidelines will encompass a detailed policy for voluntarily freezing or blocking a client’s online trading account, offering a structured approach to handling such scenarios.
Key components of the framework include communication protocols for clients to request blocking, the issuance of acknowledgment upon message receipt, and a defined timeframe for processing requests and subsequently blocking the trading account. Additionally, SEBI outlined that trading members will be required to take appropriate action following the receipt of a request for freezing or blocking, and the framework will outline the process for re-enabling the client for trading activities.
The shift from traditional call-and-trade methods to online modes of trading has been a notable trend in India’s stock broking industry. However, the absence of a mechanism for voluntarily blocking accounts has been a gap in the system, leaving investors vulnerable to suspicious activities.
SEBI emphasized that the move is in response to the observed instances where investors notice suspicious activities but lack the necessary tools to promptly address the issue. By introducing this framework, Sebi aims to provide a mechanism similar to what is available for blocking ATM cards and credit cards, enhancing security and risk management for investors in the stock market.
The framework aligns with the broader trend of increasing digitization in financial markets, where technological advancements bring both opportunities and challenges. Investors, who now predominantly engage in online trading using login credentials provided by trading members, will benefit from this initiative.
SEBI has already implemented a similar facility for voluntary blocking/freezing of demat accounts, extending the investor protection measures to cover both trading and demat accounts.
To ensure effective implementation, SEBI has mandated that the guidelines under the framework be executed by trading members from 1st July 2024. This proactive approach from the regulator aims to streamline processes, enhance investor confidence, and contribute to the ease of doing business in the Indian capital markets.