TMI BlogEnhanced obligations and responsibilities on Qualified Stock Brokers (QSBs)X X X X Extracts X X X X X X X X Extracts X X X X ..... ignificant position in the Indian securities market which is leading to concentration of activity among few stock brokers. Such stock brokers cater to the needs of large number of investors and therefore, it is imperative for such stock brokers, inter-alia, to adhere to the regulatory guidelines, provide satisfactory services to investors and resolve investor complaints. The failure of such stock brokers has the potential to cause disruption in the services they provide to large number of investors causing widespread impact in the securities market. 4. Hence, in order to further strengthen the compliance and monitoring requirements relating to stock brokers and to ensure efficient functioning of securities market, SEBI, vide Gazette Notification dated January 17, 2023, amended the SEBI (Stock Broker) Regulations, 1992 for designating certain stock brokers, having regard to their size and scale of operations, likely impact on investors and securities market, as well as governance and service standards, as Qualified Stock Brokers (QSBs), on the basis of certain parameters and appropriate weightages thereon. 5. The stock broker designated as a QSB shall be required to meet enh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e course, if necessary, including, by considering the following additional parameters: a) compliance score of the stock broker; b) grievance redressal score of the stock broker; and c) the proprietary trading volumes of the stock broker. 7.5. The scores shall be calculated on annual basis (financial year) and the revised list of QSBs shall be released jointly by stock exchanges, in consultation with SEBI. 7.6. The QSBs which no longer belong to the revised list, shall continue to comply with the enhanced obligations and responsibilities, for an additional period of 3 financial years or such time, as may be specified by SEBI/stock exchanges. 8. Enhanced obligations and responsibilities for QSBs: 8.1. Governance structure and processes: 8.1.1. The Board of Directors (BoD) or analogous body of QSBs shall exercise oversight over incidents/vulnerabilities having an impact on functioning of the QSB in the securities market and investor protection including data security breaches that can affect investor data. 8.1.2. Further, QSBs shall have committees of the Board of Directors (BoD) or analogous body such as Audit Committee (for listed QSBs), Nomination a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o third parties. 8.2.2. Such risk management policy shall: a) strive to address the root cause of the risks and try to prevent recurrence of such risks; b) enable early identification and prevention of risk; c) assess the likely impact of a probable risk event on various aspects of the functioning of the QSB such as impact on investors, financial loss to the QSB, impact on other stakeholders in the market, reputational loss etc. and lay down measures to minimize the impact of such event and d) assign accountability and responsibility of Key Managerial Personnel (KMP) in the organization. Surveillance of client behaviour: 8.2.3. The risk management framework shall have measures for carrying out surveillance of client behaviour through analyzing the pattern of trading done by clients, detection of any unusual activity being done by such clients, reporting the same to stock exchanges and taking necessary measures to prevent any kind of fraudulent activity in the market in terms of the regulatory requirements prescribed by SEBI and MIIs. Ensuring Integrity of Operations: 8.2.4. QSBs shall maintain adequate human resources, systems, processes and procedu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essary support to the clients to ensure a smooth and secure transfer process; c) Providing adequate notice to the clients before winding down of the operations after taking approval of the stock exchanges; and d) Preventing any significant impact on the market and inconvenience to the investors. 8.4.2. In case of wind down which may happen due to regulatory action, erosion of networth of the QSB etc., such wind down of operations of the QSB will be implemented under the supervision of the stock exchange. 8.5. Robust cyber security framework and processes: 8.5.1. Digitalization and online platforms have given rise to need for effective mitigation of information and cyber risks. SEBI, has specified the framework on cybersecurity and cyber resilience to be followed by all stock brokers. 8.5.2. However, QSBs handle sensitive data of a large number of the investors in the securities market and any cyber-attack on the systems of a QSB can compromise the confidentiality and integrity of such data. 8.5.3. Hence, QSBs shall have additional features in their cyber security framework which would be commensurate with the amount of data handled by them. The cyber securit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by them and on half yearly basis, conduct vulnerability assessment to detect security vulnerabilities in their IT environments exposed to internet. 8.5.9. QSB shall also carry out penetration tests on half-yearly basis, in order to conduct an in-depth evaluation of the security posture of the system through simulations of actual attacks on its systems and networks that are exposed to the internet. Business Continuity Plan: 8.5.10. QSB shall put in place a comprehensive Business Continuity Plan (BCP) and such policy shall be reviewed on half-yearly basis to minimize the incidents affecting the business continuity. 8.5.11. QSB shall develop and document mechanisms and standard operating procedures to recover from the cyber-attacks within the stipulated Recovery Time Objective (RTO) of the QSB, various scenarios and standard operating procedures for resuming operations from Disaster Recovery (DR) site of QSB. 8.5.12. The CISO of the QSB shall review the implementation of the BCP and SOP on DR on monthly basis and submit a report to the board of QSBs. 8.5.13. All the provisions applicable to specified stock brokers (as stated in SEBI circular SEBI/HO/MIRSD/TPD-1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bserved, Stock Exchanges shall take necessary steps to ensure that the same is corrected by QSBs including initiating disciplinary action, wherever found necessary, in accordance with the relevant regulatory provisions/bye-laws. 10. The provisions of this circular (excluding para 7.4) shall come into effect from July 01, 2023. 11. Stock Exchanges and QSBs shall put in place appropriate systems and procedures to ensure compliance of the provisions of this circular. 12. Stock Exchanges are directed to: 12.1. bring the provisions of this circular to the notice of their members / participants and also disseminate the same on their websites; 12.2. make necessary amendments to the relevant Bye-laws, Rules and Regulations for the implementation of the above provisions; 12.3. issue the first list of QSBs within 15 days from the date of issuance of this circular; and 12.4. seek confirmation from QSBs that necessary systems required to comply with the enhanced obligations and responsibilities for QSBs, stated in this circular, are in place and shall submit a compliance report to SEBI within 7 days of implementation. 13. This circular is issued in exercise of powers co ..... X X X X Extracts X X X X X X X X Extracts X X X X
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