Clients whose KYC (Know Your Customer) are not found valid will neither be permitted to trade nor will they be able to square up their open positions, until they comply with the requirement, said National Stock Exchange in a recent circular.

This came into effect from 2 September, 2023. Moreover, the exchange has asked brokers to specifically monitor the open positions of such clients and take appropriate measures.

What is a valid KYC?

SEBI has made it mandatory for all stockbrokers to ensure that client records are validated by the relevant Know Your Customer (KYC) Registration Agency (KRA) before they are uploaded to the exchange database.

“This step is crucial to maintaining the integrity and security of the market and ensuring that all trading activities are conducted in a transparent and compliant manner,” as per the market regulator.

KRAs are tasked with verifying the PAN, name and address of all clients within two days of receipt of KYC records. The KRAs also verify the client’s mobile number and e-mail ID.

Some KRAs registered with SEBI are: CSDL Ventures Limited, Karvy Data Management Services, NDML (NSDL Database Management Limited), CAMS Investor Services and NSE Data & Analytics (formerly known as Dotex).

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What’s the issue?

In an email to the regulator sent in August, the Association of National Exchange Members of India said that clients were facing ‘link-related difficulties’.

“For a long time, KRA self-validation link has not been working leaving clients in a vulnerable position. Members have informed that KRA agencies NDML, CAMS, and DOTEX are the key areas where these link-related difficulties persist,” ANMI’s e-mail mentioned.

As a result, clients’ ability to fulfill their validation requirements has been hindered, impacting their trading activities.

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What are brokers saying?

“About 15 percent of our clients will be affected by this,” said the executive of a Bengaluru-based stock broking firm, on the condition of anonymity.

“If clients are not allowed to square off positions before they expire, it could lead to huge undesirable losses,” he said. And if the broker goes ahead and pre-emptively squares off any position, it could lead to slew of litigations.

Meanwhile, Jimeet Modi, founder of Samco Group, said that such cases for them are few – about two or three in a few thousand. Samco was founded in 2015, when the KYC process was already in place. “It is the older active clients who are facing difficulties with KYC,” he said.

In the meantime, clients have already taken to X to share screenshots of the issue. Either an old mobile phone number is no more operational or the KRA keeps redirecting to homepage or the website says ‘Try after two days’ – problems are plenty and some traders are bound to suffer losses, which are out of their control.