SEBI has issued further clarification on circular dated August 2, 2011 which mandated stock brokers to provide SMS and email alerts to investors, helping to mitigate unauthorized trading activity. The alert system also mandates that brokers must upload individual client contact information—such as separate mobile numbers and email addresses—for each client account. This notification system serves to protect clients from potential misuse of their trading accounts, enhancing investor trust in the market.
Key Provisions of the 2011 Circular
SEBI’s 2011 circular stipulates that stock brokers should upload distinct mobile numbers and email addresses for every client to maintain unique and personalized communication for each investor. Under exceptional circumstances, however, brokers may upload the same contact information for multiple accounts, provided these accounts belong to members of the same family. For this purpose, “family” is defined as the individual, their spouse, dependent children, and dependent parents.
This exception allows family members who share close financial ties to receive updates collectively, reducing the burden of repetitive notifications. However, the scope of this exception has traditionally been limited to individual clients only, excluding other client types, such as Hindu Undivided Families (HUFs), partnerships, trusts, and corporations.
Proposed Update: Expanding Exceptions for Non-Individual Clients
Recently, SEBI proposed expanding this exception to encompass non-individual clients as well. This move would allow organizations such as HUFs, partnerships, trusts, and corporations to opt for unified SMS and email alerts under specific authorized representatives. For instance, a corporate account could list an authorized individual under a board resolution, while a partnership could nominate one of its approved partners to receive notifications on behalf of the partnership. These amendments aim to simplify compliance and operational ease for non-individual entities, aligning SEBI’s investor protection framework with the evolving structure of modern investments.
The proposed exception outlines specific representatives for each non-individual client type:
Hindu Undivided Families (HUFs): The Karta or any Co-parcener, with Karta’s prior approval, may be designated as the authorized contact.
Partnership Firms: Any partner, authorized by all partners, may be designated.
Trusts: Authorized trustees or beneficiaries may receive alerts, provided the trust passes a resolution.
Corporates: The Board of Directors may designate an authorized person responsible for trading alerts.
These provisions ensure that each entity has a responsible contact receiving real-time updates regarding account activity, fostering accountability and swift response in case of discrepancies.
Public Comments and Industry Input
The draft circular is currently open for public comment, inviting feedback from stakeholders on SEBI’s website until November 18, 2024. SEBI is actively encouraging input from investors, industry experts, and market participants to refine these guidelines and ensure they meet industry standards while maintaining investor protection. Comments can be submitted via SEBI’s online portal, or in case of technical issues, by email to consultationMIRSD@sebi.gov.in, with the subject “Public comments on Draft Circular – SMS and E-mail alert to investors by stock exchanges.”
