Starting July 1, 2024, investors in India might have the option to voluntarily freeze or block their trading accounts if they detect any suspicious activity, according to a circular from the Securities and Exchange Board of India (SEBI) on January 12, 2023.
SEBI highlighted the need for such a facility, saying investors report seeing suspicious activities in their trading accounts but don't have the means to address them promptly.
SEBI notes that such facilities for blocking demat accounts and even ATM cards or credit cards exist, suggesting that similar options should be available for trading accounts.
SEBI instructed stock brokerages to develop and lay out a framework for this voluntary freezing/blocking feature by April 1, 2024, and implement it by July 1, 2024. SEBI has mandated the Brokers' Industry Standards Forum (ISF) to collaborate with stock exchanges to establish the framework.
This framework will outline methods for clients to request account freezing to trading members, issuance of acknowledgment upon receipt of the request, processing periods, action to be taken for blocking and the subsequent process for re-enabling the client for trading.
"The stock broking industry in India has moved from a call and trade type of scenario to online mode, wherein the investors use the login IDs and passwords provided to them by the Trading Members. It has been observed that at times, suspicious activities are noticed by investors, but the facility of freezing/blocking of accounts is not available with most Trading Members," the circular said.
"Similar facility of voluntary blocking or freezing of demat accounts is already available for investors and this facility is now proposed to be offered to the investors for their trading accounts also," it added.
In a related circular, SEBI asked stock exchanges to put in place a mechanism for monitoring clients' funds lying with the stock brokers.
This will be based on one principle detailed in the circular, "The total available funds i.e. cash and cash equivalent with the stock broker and with the clearing corporation or clearing member should always be equal to or greater than clients’ funds as per the ledger balance."
The move came after SEBI received representations from various stakeholders citing inefficiencies due to duplication of monitoring mechanisms and difficulties in uploading data to exchanges.
