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Prudential governance norms for stock brokers in the offing

After prescribing a new Corporate Governance Code for listed companies, capital markets watchdog Sebi is now mulling over a new set of Prudential Governance Norms for stock brokers to safeguard investors’ interest.

The proposed norms, which are currently at draft stage and are going through consultations, would considerably enhance the disclosure requirements by stock brokers and can subject them to tightened regulations with regard to related party transactions and audit of their books and other dealings.

Besides, the brokers may also be required to put in place a whistle-blower mechanism and frame an effective ‘code of conduct’ for their directors and senior management personnel, in line with similar norms for listed companies as prescribed by Sebi and in the new Companies Act, sources said. These norms have been proposed by Sebi to ensure that any adverse impact on the interest on investors as well as on the integrity of securities markets can be avoided in the event of any lapses at the end of stock broker.

Sebi is aiming to ‘minimise/prevent occurrence of circumstances leading to default in making payments by stock brokers to stock exchanges or clients due to lack of due diligence in their risk management system, due to mis-management leading to instability or failure in operations of stock broker including insolvency etc’ with these norms.

The new corporate governance norms for listed companies are coming into effect from 1 October. However, Sebi recently relaxed some provisions after representations from the industry bodies and the government and it has given time till 1 April, 2015 for a key provision of having minimum one woman director on the boards of listed companies.

A senior official said that the brokers have expressd their concerns that any tightening of corporate governance norms could hurt their business due to high compliance costs. The brokers are arguing that the new Companies Act has already provided for significant tightening of norms for the corporate 
brokerage firms.
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