NSE proposes stricter rules for Authorised Persons, greater broker accountability

The National Stock Exchange (NSE) has floated a consultation paper proposing a comprehensive overhaul of the regulatory framework governing Authorised Persons (APs). The draft rules, prepared jointly with the Securities and Exchange Board of India (SEBI), aim to tighten supervision and bolster investor protection.

Under the proposed framework, individual APs would need a minimum net worth of Rs 5 lakh, while partnership firms, LLPs, and body corporates would require Rs 25 lakh. Additionally, every AP must maintain a deposit of at least Rs 1 lakh with their stock broker.

Eligibility norms are set to become stricter, with mandatory educational qualifications, work experience, NISM certifications, and net worth criteria. APs will also have to disclose all bank and demat accounts during onboarding and provide details of business-related websites and social media handles. Brokers would be required to conduct social media screening of APs and their principals.

Technology-based safeguards are also proposed for APs using trading terminals. These include geo-tagging of terminals, CCTV surveillance, and face recognition or biometric authentication before access.

The draft places significant responsibility on stock brokers, making them liable for all acts of omission and commission by their APs and employees. Brokers would need to conduct regular inspections, surprise audits, and generate offsite alerts to flag unusual trading activity, recurring client complaints, and compliance risks.

The paper reiterates that APs cannot receive client funds or securities in their own accounts. Brokers are also expected to directly educate clients about the role of APs and caution against promises of assured returns. They must maintain client communication records, monitor call recordings, and verify AP operations regularly.

Public comments on the consultation paper are invited until August 27.