The Securities and Exchange Board of India (Sebi) on Tuesday proposed guidelines for incorporating specific conditions in the power of attorney (PoA) given by clients to their stock brokers and depository participants.

PoA is an authorisation letter to act on someone elses behalf in a business transaction.

Earlier, brokers used to take a blanket PoA from their clients, which gave them the freedom to deal with clients shares and funds as they deemed fit. This led to many brokers misusing the PoA for their own benefit.

They would trade in clients shares lying in demat accounts without their knowledge to take advantage of the movement in stock prices, use one clients money to fund the margin obligation of another client, or run up large number of trades to generate higher commission.

According to recommendations by Sebis secondary market advisory committee, a specific PoA will have to be executed in favour of a stock broker, to transfer securities held in the beneficial owner accounts of the client for stock exchange-related margin or delivery obligations arising out of trades executed by the client on the stock exchange through the same stock broker.

Transfer of funds from the bank accounts of the clients for the limited purpose of meeting the settlement obligations of the clients/margin requirements of the clients in connection with the trades executed by the clients on the stock exchange through the same stock broker, the regulator said in its discussion paper.

Provide the particulars of the beneficial owner accounts and the bank accounts of the clients that the stock broker is entitled to operate, the discussion paper said. Besides, transfer of securities will be restricted to the clearing member-pool account or client-margin account of the stock broker only.

Sebi also said the PoA cant be executed in the name of any employee or representative of the stock broker/depository participant, but only in the name of the entity concerned.

Brokers will also have to provide the investor with an original copy of the PoA after execution. The PoA will authorise the broker to send SMS alerts regarding the transactions. It will have to be executed and stamped as per the rules prevailing in the place where the PoA is executed.

The PoA should provide for a clause for settlement of disputes arising out of the operations of the PoA. Broking disputes will have to be settled under the Bye Laws of the stock exchange concerned where the trades have been executed and depository-related issues under the Bye Laws of the depository concerned, where the demat account of the beneficial owner concerned is held, the discussion paper said.