The logic behind Sebi’s location curbs on brokers
What prompted the change?
The immediate reason seems to be the Axis Mutual Fund front-running scandal, in which some fund managers were found to have shared trade information with outside brokers who used it to trade and make illicit profits. The Securities and Exchange Board of India, which has raided 16 entities in relation with the case, has found that the violation happened at a time the fund managers were working from home with little surveillance. This has forced the regulator’s hand in asking traders who typically trade in bulk to work from office or branch office terminals that are registered and monitored by stock exchanges.
How did brokers start WFH?
Modern securities trading is entirely electronic, and does not require physical presence of brokers. However, regulators have installed barriers to prevent remote trading, commonly called location curbs. When the covid-19 pandemic broke out in March 2020, these restrictions were relaxed, stock market trading was declared an essential activity, and individuals trading in securities were allowed to operate their terminals from home or other remote locations. Since trading continued during the two years of pandemic without a glitch, there was growing consensus to make remote trading permanent.
What has changed?
Sebi says those using a broker’s terminal for trading should do so only from the office or branch office where the terminals are registered with the exchanges for monitoring purposes. All officials at a fund house handling critical functions that deal with the markets, such as investments, dealing, operations, compliance, risk management need to work from office. Will this reduce manipulation?
To an extent, yes. Under a Sebi order, beginning October 2020, all calls made or received by fund house executives taking investment decisions are recorded if they happen during market hours. This includes all private conversations too. Offices also need to maintain call records of orders or instructions received from clients. Such monitoring and recordings are easier in the office, and the presence of colleagues deters mischief to some extent. A regulatory official said, WFH made manipulation easier.
Will it suit professionals?
Post the pandemic, professionals across sectors are seeking out jobs and profiles that permit a flexible work model, one that allows them WFH or options to work remotely. Many prefer reduced physical office hours. Many executives now feel the entire trading industry is being punished for a few bad apples. Experts say a long-term solution is needed. Regulators should interact with associations and find a middle path that allows employees to work from home without compromising on market sanctity and financial integrity.