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SEBI seeks ban on exclusive tips

Seeking to improve sales practices followed by the trading members of the stock exchanges, the SEBI proposes strict norms, including complete information on brokers to the clients they were servicing.

business Updated: Mar 31, 2008 21:47 IST

Amid sharp volatility and selling pressure at the bourses, the Securities and Exchange Board of India (SEBI) on Monday proposed to ban exclusive tips for trading and sought to make norms for brokers, researchers and analysts more stringent.

Seeking to improve sales practices followed by the trading members of the stock exchanges, SEBI proposed strict norms, including complete information on brokers to the clients they were servicing.

“Trading members owe their clients a duty to provide suitable investment advice in the best interest of the clients,” said the draft policy for improvement in sales practice by the members of stock exchanges on which SEBI has invited comments from the public by April 15.

The guidelines also make it mandatory for brokers to recommend sale/purchase of shares which are “suitable for such client(s) on the basis of facts disclosed...Financial position, other security holding, past investment experience and pattern and investment needs.”

The SEBI guidelines also seek to ban research analysts from buying or selling shares of the concerned company 30 days before and five days after the publication of the research. The onus of ensuring compliance by research analysts on buying or selling of shares of the concerned company will rest with the brokers.

Brokers would not recommend to their clients “securities or derivative contracts on such securities in a concentrated manner, which represents a subjective or arbitrary supply of information,” it added.

According to the draft, investors would be required to have a minimum net worth of Rs 5 lakh for trading in derivative segments.

Brokers, “shall not execute transactions for own account in securities ahead of making recommendations to their clients in such securities,” the guidelines stated.