Sebi issues guidelines to mitigate misuse of power of attorney

The Securities and Exchange Board of India (Sebi) on Monday issued guidelines mandating the execution of documents for the transfer of securities towards deliveries and settlements. The execution of the document — Demat Debit and Pledge Instruction (DDPI) — will also be applicable for pledging/ re-pledging of securities in favour of the trading member/ clearing member, Sebi said on Monday.

The strict guidelines are mainly to mitigate the misuse of power of attorney (PoA) given by clients to stockbrokers and against the backdrop of instances like the Karvy Stock Broking matter. The guidelines will be effective from July 1, Sebi said in the circular.

According to the market regulator, a client may use the DDPI or can opt to complete the settlement by issuing a physical delivery instruction slip (DIS) or electronic delivery instruction slip (eDIS). After the implementation of the circular, the PoA shall no longer be executed for the transfer of securities and pledging/ re-pledging of securities.

Furthermore, the DDPI will be executed only if clients provide their explicit consent, including for internet-based trading, and should be adequately stamped and digitally signed by the clients, Sebi said.

Existing PoAs will remain valid till the time the client revokes them. Further, the stock broker/ stock broker and depository participant should not directly/  indirectly compel the clients to execute the DDPI or deny services to the client if the client refuses to execute the DDPI.

“PoA is optional and should not be insisted upon by the stock broker/ stock broker depository participant for the opening of the client account,” Sebi said.

The regulator has also asked the exchanges, and depositories to ensure that existing clients are made aware of the availability of the facility for the execution of DDPI, through letters, messages, and emails.