Explainer: How SEBI's New Framework on Voluntary Freezing of Trading Account Safeguard Investors
Moneylife Digital Team 15 January 2024
Market regulator Securities and Exchange Board of India (SEBI) has asked stock brokers' Industry Standards Forum (ISF) to lay out a framework to provide a facility for voluntary freezing or blocking the online access of the trading account to their clients due to suspicious activities. SEBI has asked the ISF to share the framework by 1st April so that it can be implemented by trading members from 1 July 2024.
 
In a release, SEBI says, "It has been observed that at times, suspicious activities are noticed by investors, but the facility of freezing or blocking of accounts is not available with majority of trading members. Many times, investors raise issues of suspicious activities in their trading accounts, and thus, there is an urgent need to address the situation of having a facility for blocking trading accounts as it is available for blocking ATM cards and credit cards."
 
For stock market investment, after opening a demat account, the investor needs to open a trading account with a broker, which allows buying and selling shares.
 
A similar facility for voluntarily blocking or freezing demat accounts is already available for investors. The proposed facility is being offered to investors for their trading accounts also, the market regulator says.
 
ISF, under the aegis of stock exchanges and in consultation with SEBI, has been asked to come out with necessary guidelines for voluntary freezing or blocking online access to the client's trading account. 
 
The guidelines will include modes through which a client can request the trading member to voluntarily block their trading accounts, the period within which the request would be processed, and how the trading account will be frozen or blocked.
 
The guidelines should also specify the action a trading member has to take after receiving a request to freeze the trading account and the process for re-enabling the client for trading or transfer.
 
After introducing the facility, trading members are asked to inform clients about the blocking or freezing of trading accounts.
 
While asking stock exchanges to place an appropriate reporting requirement by trading members to enforce the facility and system, SEBI says stock exchanges must submit a compliance report by 31 August 2024.
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