Sebi Directs Brokers To Disclose Most Important Terms to Investors

Sebi has issued guidelines directing brokers to communicate essential terms to clients for better clarity. Brokers will have to mandatorily comply with MITC from April 1, 2024 while on boarding new clients, while existing clients have to informed by June 1, 2024
Sebi
Sebi

In a bid to enhance transparency in the broker-client relationship, the Securities and Exchange Board of India (Sebi) has mandated the disclosure of Most Important Terms and Conditions (MITC) by brokers. This move aims to ensure that investors receive crucial information about their dealings with brokers, in a bid to simply the understanding of voluminous documents governing the broker-client relationship.

“In order to bring into focus the critical aspects of the broker-client relationship and for ease of understanding of the clients, it has been decided that brokers shall inform a standard Most Important Terms and Conditions (MITC) which shall be acknowledged by the client,” Sebi said.

From April 1, 2024, brokers have to mandatorily comply with MITC while on boarding a new client. Sebi has also mandated that the MITC should be informed to existing clients through email or another suitable mode of communication by June 1, 2024.

Why MITC? Sebi’s Reasoning In Detail

Sebi’s directive in May 2023, the ‘Master Circular On Stock Brokers’ specifies uniform documents required for formalizing the broker-client relationship. These include the account opening form, rights and obligations, risk disclosure documents, guidance note, policies and procedures, and tariff sheet.

Brokers are obligated to provide clients with a copy of these documents free of charge.

However, recognizing the challenges posed by the voluminous nature of these documents, Sebi said that investors may lose focus on critical aspects of their relationship with the broker. Thus, to address this concern and facilitate better comprehension for clients, Sebi decided that brokers should now inform clients of a standard MITC.

The Brokers’ Industry Standards Forum (ISF), operating under the supervision of stock exchanges and in consultation with Sebi, will publish the form, nature of communication, documentation, and detailed standards for implementing MITC on or before January 1, 2024. If the ISF fails to publish the standards, Sebi, may, at its discretion, publish the standards, Sebi said in its release.

The client would also be required to give acknowledgement of the MITC document, Sebi added.

Also, to ensure compliance, stock exchanges have been directed to communicate the status of implementing these provisions in their monthly development reports to Sebi. This proactive step by Sebi is expected to empower investors with vital information, thus fostering a more transparent and informed broker-client relationship.

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