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Context: SEBI's new norms for the voluntary freezing or blocking of trading accounts aim to safeguard investors from potential fraud and suspicious activities.

Key points and implications

SEBI's Proposal

• SEBI has mandated that a framework for voluntary freezing or blocking of trading accounts should be laid down by April 1, 2024.
• The new facility is set to be implemented from July 1, 2024.
• The Brokers’ Industry Standards Forum (ISF), under the guidance of stock exchanges and in consultation with SEBI, will formulate the guidelines.

Rationale Behind the Proposal

• Shift to Online Trading: With the stock broking industry moving predominantly online, investors conduct transactions through their trading accounts using login credentials provided by trading members.
• Addressing Suspicious Activities: SEBI observed that investors sometimes encounter suspicious activities in their trading accounts. However, the majority of trading members lack the facility to freeze or block accounts.
• Comparable to Other Financial Instruments: The move is seen as addressing the need for a mechanism similar to the one available for blocking ATM cards and credit cards.

What is a Trading Account?

• A trading account is an investment account that allows retail investors to buy or sell securities in the stock market.
• It serves as a link between the demat account (where securities are held electronically) and the bank account.
• Opened with stock broking firms, trading accounts provide access to the trading platform of stock exchanges, enabling the execution of trades on behalf of the account holder.

Conclusion

• SEBI's initiative aims to enhance investor protection by providing a mechanism for the voluntary freezing or blocking of trading accounts in case of suspicious activities, aligning with the shift towards online trading in India's stock broking industry.

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Securities and Exchange Board of India (SEBI):  https://www.iasgyan.in/daily-current-affairs/securities-and-exchange-board-of-india-sebi

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