Thursday, September 2, 2010

SEBI clarification of signing Power of Attorney for Demat Accounts

Most of the brokers expect their retail clients to have demat with them and also provide Power of Attorney (POA) to brokers for Direct Pay - In and sometimes POA is also issued for Bank transfers. It is advisable and helpful for logistical purpose. 

The advantages of POA are 
a) Client need not worry about the pay in as Direct pay In can be done.
b) Client can have direct pay- out in account (Else Brokers will check Debits in accounts and then transfer the shares as most of the time clear Payments from client is received in T+2)
c) Brokers can give leverage to clients based on his portfolio.
d) Clients can always track their portfolio from statements

But such POA issued by clients were also mis - used by Brokers (In some cases) , they were
a) Brokers used to take blanket POA for Demat accounts and they are irrevocable.
b) Such POA were misused in case of some issues between client and Broker (When Clients used to make losses and Clients would say we are not aware of such trades )
c) Brokers used to withdraw shares abruptly from demat accounts under the pretext of Margins and margins shortfall.
d) Brokers used to transfer shares in pool accounts without pay in.
e) Brokers used to sell shares of clients to meet its pay In.

To overcome such flaws and misuse, SEBI came with revised circular pertaining to POA to be issued to brokers for Demat accounts. The features of the circulars are

a) It is not mandatory for clients to issue POA to brokers except in case of Internet Trading.
b)The POA should used to meet pay In and Margin requirements only.
c) The POA should be issued on Brokers firm name (SEBI Registration name) and not on name of any authorised person / employees of firm.
d) The POA can be issued for applying in IPO, Open offers, Right and Mutual funds
e) The POA should mention the account numbers and Name, where the shares / Funds can be transferred (Pool account for Demat and Client account for Funds)
f) The brokers have to maintain Audit trail for such transactions.
g) POA should not provide the authority to transfer the rights in favour of any assignees.
h) POA should contain a clause that any erroneous transfers from clients would be returned.
i) POA should be revocable any time.
j) POA should not facilitate off- market transfers 
k) POA should not give rights to open accounts with brokers or Depository.
l) POA cannot prohibit client from operating that account
m) POA cannot allow transfer of funds in family accounts to offset debits.
n) Duplicate/ Certified true copy of POA should be given to client.

To Download SEBI circulars 

Circular Circular I


5 comments:

  1. I really appreciate your post and you explain each and every point very well.Thanks for sharing this information.And I’ll love to read your next post too.
    regards
    options trading

    ReplyDelete
  2. Hi Jigam,

    Nice article, thanks!!! solved a lot of queries. However the SEBI Circular links are not working. Is there a chance that you can provide the links once again please?

    Regards,
    DB

    ReplyDelete
  3. It is very useful information to the people who are new in share market. Find all the answers related to demat account opening, How to open demat account in india.

    ReplyDelete
  4. Thank you for sharing such great information. It is informative, can you help me in finding out more detail on demat account opening , i am very new to this field and wanted to understand the basics of demat account opening.

    ReplyDelete
  5. Hi Jigam,
    1. If I don't sign POA with broker, am I be able to function/execute trades smoothly.
    2. If I opt to sign POA which are the clauses which won't impact me I need take under consideration.

    ReplyDelete