Qualified Stock Brokers: How are they crucial for markets?

National Stock Exchange (NSE) issued a list of 15 designated Qualified Stock Brokers (QSBs), including Zerodha Broking, 5paisa Capital, HDFC Securities, ICICI Securities, Anand Rathi Share and Stock Brokers, Angel One, IIFL Securities, Kotak Securities, and Motilal Oswal Financial Services. This list was announced following a February 2023 direction by the capital markets regulator Securities and Exchange Board of India (Sebi).

Sebi defines QSBs as entities who, because of their size and scale of operations, can likely impact investors and the securities market, as well as governance and service standards. These stock brokers cater to the needs of a large number of investors.

A stock broker will be designated as QSB on the basis of four parameters — number of active clients, total available assets of clients, trading volumes. and end-of-day margin obligations. All stock brokers with a total score greater than or equal to five on these four parameters are identified as QSBs. Sebi said it may include more QSBs by considering additional parameters such as compliance, grievance redressal scores and proprietary trading volumes.

The scores are to be calculated on an annual basis (financial year) and the revised list of QSBs will be released jointly by stock exchanges, in consultation with Sebi.

A stock broker designated as a QSB is required to meet enhanced obligations and discharge responsibilities to ensure appropriate governance structure, appropriate risk management policy and processes, scalable infrastructure and appropriate technical capacity, framework for orderly winding down, robust cyber security framework, and investor services.