Friday, 15 January 2016

What is POA in Demat & Online Trading


Do you read every line of the booklet the stock broker give you to sign before opening a trading or Demat account? A very few do full reading and understanding about what are the accurate rules and clauses. We simply do sign about 20 signatures moreover give him every necessary documents. However do you make out what power is been given to him by signing the documents blindly?



When opening a trading account should one compulsorily sign a power of attorney (PoA) in favour of the stock broker? No, not necessarily. But then, it has become a common exercise in this age of on-line Trading. With the Securities Exchange Board of India introducing a set of guidelines in 2010 standardizing the norms that brokers to need to follow when obtaining PoA, the risk of the broker misusing his power is almost zero
SEBI Circular dated April 23rd 2010 and aftermath clarification about few doubts on the said circular dated Dec 30th 2010 indicates that POA is mandatory only for online accounts but not to offline accounts.

POA is only an option available and no stock broker or depository participant can deny service to you simply because you refused to execute a PoA in his favour.

What is POA ?

POA is a legal document giving legal authority to another person to operate your account as per the instruction contained in the power of attorney

Different types of POA ?
There are 2 types of POA i.e. Specific POA or Limited POA and General POA

  • General Power Of Attorney-Here the POA holder can perform all activities on behalf of the original holder. Hence, before going for such generic POA you must do take care of the after effect also. It gives more power to POA holder.


  • Specific Power Of Attorney-  The guidelines here state that the broker can use his power under PoA to only transfer securities from the client's account to meet delivery obligations (and pledging of stock for margin requirements of the client) and transfer funds from the client's bank account to meet settlement obligations (and towards fees due to the broker for using his service).


What can brokers do with the Limited Power of Attorney or Specific Power of Attorney ?

1) Securities-

Transferring of the securities for stock exchange which happen due to trade execute by client on exchanges from the similar broker.

To oath the securities in support of share broker for limited time to meet the mere requirement of trade executed by the client.

To pertain for various stuffs like Mutual Funds, rights, Public Issues, etc. based upon the client directions which also include releases.

2) Funds-

Funds transfer from client’s account in the subsequent cases.

For meeting agreement obligations and margin necessities for the trade done by the client from the stock exchange by the same share broker.

For recovering exceptional dues rising out of the client trading activities on the exchange from the similar share broker.

For meeting any other obligations of client subscription to products like offer of shares, public issues, mutual funds, etc.

For dues awaiting as charges or a fee to maintain DP account and trading account.

What Brokers Cannot do with your POA ?

1) To transfer securities intended for off market trading but for other parties mentioned in the POA.

2) Transferring of funds from the client’s account for the trade done by client from another share broker.

3) To open a trading account along with any stock broker.

4) Execute trades without client consent.

5) Barring issue of release instruction slips to helpful owners.

6) Barring clients from the working account.

7) Merging balance from other accounts for nullifying debit in other account.

8) To create an email account in aid of the client for receiving statutory transactions.

9) To renouncing from liability rising out of directions provided by share broker to obstruct the client’s bank’s account.


Thus it is essential to keep an eye on the stock broker if one has given POA to the broker to operate Demat Account.