Power of Attorney (PoA) for Stock Brokers — What It Can and Cannot Authorise

SEBI has prescribed standardised guidelines for execution of Power of Attorney (PoA) by clients in favour of stock brokers. A PoA is executed by the client in favour of the stock broker / stock broker and depository participant to authorize the broker to operate the client's demat account and bank account to facilitate the delivery of shares and pay-in/pay-out of funds. This article explains what a PoA can and cannot authorise, the guidelines for execution, and the rights of clients who refuse to execute a PoA.

The Regulatory Basis

SEBI Circular CIR/MRD/DMS/13/2010 dated April 23, 2010 (as clarified by CIR/MRD/DMS/28/2010 dated August 31, 2010 and SEBI/HO/MIRSD/DOP/CIR/P/2020/158 dated August 27, 2020) issued guidelines for execution of Power of Attorney by clients favouring Stock Broker / Stock Broker and Depository Participant.

Key Principles

PoA Is Optional

Standardizing the norms for PoA must not be construed as making the PoA a condition precedent or mandatory for availing broking or depository participant services. PoA is merely an option available to the client for instructing his broker or depository participant to facilitate the delivery of shares and pay-in/pay-out of funds etc. No stock broker or depository participant shall deny services to the client if the client refuses to execute a PoA in their favour.

However, internet based trading is exempted from this clause.

What a PoA Can Authorise

PoA Favoring Stock Brokers

PoA executed in favour of a stock broker by the client should be limited to the following:

1. Securities:

• Transfer of securities held in the beneficial owner accounts of the client towards Stock Exchange related deliveries / settlement obligations arising out of trades executed by clients on the Stock Exchange through the same stock broker.
• Pledging / re-pledging of securities in favour of TM / CM for the purpose of meeting margin requirements of the clients.
• To apply for various products like Mutual Funds, Public Issues (shares as well as debentures), rights, offer of shares, tendering shares in open offers, redemptions etc. pursuant to the instructions of the Client(s).

2. Funds:

• Transfer of funds from the bank account(s) of the clients for:
  • Meeting the settlement obligations of the client(s) / margin requirements.
  • Recovering any outstanding amount due from the client(s).
  • Meeting obligations arising out of the client subscribing to other products/facilities/services.
  • Towards monies/fees/charges, etc. due to the stock broker / depository participant.

PoA Favoring Stock Brokers and Depository Participants

• Identify/provide the particulars of the beneficial owner account(s) and the bank account(s) that the stock broker is entitled to operate.
• Provide the list of clients' & brokers' Bank accounts & demat accounts where funds and securities can be moved.
• Be executed in the name of the concerned SEBI registered entity only.
• Be revocable at any time.
• Be executed by all the joint holders (in case of a demat account held jointly).

What a PoA Cannot Authorise

The PoA shall not facilitate the stock broker to do the following:

• Off-market trades between parties other than the related parties as mentioned in the PoA.
• Transfer of funds from the bank account(s) of the Clients for trades executed by the clients through another stock broker.
• Open a broking / trading facility with any stock broker or for opening a beneficial owner account with any depository participant.
• Execute trades in the name of the client(s) without the client(s) consent.
• Prohibit issue of Delivery Instruction Slips (DIS) to beneficial owner (client).
• Prohibit client(s) from operating the account.
• Merging of balances (dues) under various accounts to nullify debit in any other account.
• Open an email ID on behalf of the client(s) for receiving statement of transactions, bills, contract notes etc.
• Renounce liability for any loss or claim that may arise due to any blocking of funds.

Guidelines for Execution

Revocation

PoA executed in favour of a Stock Broker / Stock Broker and Depository Participant by the client should be revocable at any time. However, such revocation shall not be applicable for any outstanding settlement obligation arising out of the trades carried out prior to receiving request for revocation of PoA. The PoA revocation requests should be dated and time stamped by the brokers for ensuring proper audit trail.

Copy of PoA

A duplicate / certified true copy of the PoA is provided to the Client(s) after execution.

Merger/Demerger

In case of merger / demerger of the Stock Broker / Depository Participant with another entity / into another entity, the scheme of merger / demerger should be approved by High Court and one month prior intimation given to the client.

How We Help

At Anuj Desai & Associates, we help stock brokers draft and implement PoA documents, ensure compliance with SEBI's guidelines, and advise on the limitations of PoA authorisation. If you need assistance with PoA compliance, reach out to our regulatory compliance desk.