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Investor Protection in the Digital Age: SEBI Introduces Voluntary Account Freezing Facility

The Securities Exchange Board of India (‘SEBI’) has recently issued a circular[i] on 12.01.2024 under s. 11(1) of the SEBI Act, 1992, read with reg. 30 of the SEBI (Stockbrokers) Regulations, 1992, to enhance investor security in stock broking and promote investments by providing them with the facility to freeze/block the trading accounts voluntarily.

In India, the stock broking industry has transitioned from a traditional call and trade method to an online model. This shift has led to several instances where the investors reported suspicious activities in their accounts. Previously, trading members lacked the ability to freeze or block these accounts in response to such activities. Recognizing the need for enhanced security measures akin to those available for ATMs and credit cards, SEBI has now introduced a facility to voluntarily freeze or block trading accounts, a feature already available in demat accounts. The circular issued by SEBI outlines the following new provisions:

  • The circular introduces a model framework that allows trading members to facilitate the online freezing or blocking of clients’ trading accounts, with clients having access to this feature. The Industry Standards Forum (‘ISF’), in coordination with stock exchanges and after consulting with SEBI, is responsible for creating specific guidelines by 01.04.2024. These guidelines will encompass policies for voluntary account freezing/blocking and provisions for online access to clients’ trading accounts. They will describe the procedures for clients to submit requests for account blocking, outline how to process and acknowledge these requests, and specify the timeframe for implementing the account blocks or freezes.

  • Upon receiving a request to freeze or block a trading account, trading members are required to undertake the following steps:

    • Implement a process for re-enabling clients for trading and transfers.

    • Provide clients with information regarding the introduction of the account-blocking facility.

  • Further, it mandates that stock exchanges must ensure trading members comply with the guidelines effectively starting from 01.07.2024. Additionally, it requires stock exchanges to implement reporting requirements and submit compliance reports to SEBI by 31.08.2024.

  • The circular directed the stock exchanges to:

    • Take necessary steps and establish systems for implementation.

    • Make required amendments to by-laws, rules, and regulations for the implementation of this circular.

    • Notify the trading members regarding the circular and provide the same on their websites.

Conclusion

The circular issued by SEBI provides a framework for the securities exchanges to incorporate the features with respect to freezing/blocking the trading accounts to enhance the protection and interests of the investor. This is a commendable move towards investor protection and promises to promptly address related issues in the industry. This implementation across stock exchanges will help regularize India’s securities markets. This will make business transactions more flexible in this industry and promote investment in the stock market.

In essence, SEBI’s initiative is committed to protecting investor interests and regulating India’s securities markets, thereby fostering a more secure and investor-friendly environment.


End Note:

[i] Circular No. SEBI/HO/MIRSD/POD-1/P/CIR/2024/4 dated 12.01.2024.


Authored by Purvi Garg, Advocate at Metalegal Advocates. The views expressed are personal and do not constitute legal opinion.

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