भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
MASTER CIRCULAR
SEBI/HO/MIRSD/DOP1/CIR/P/2018/87 June 01, 2018
To,
All Stock Exchanges
All Registered Stock Brokers
Dear Sir / Madam,
Subject: Master Circular for Stock Brokers
1. Securities and Exchange Board of India (SEBI), from time to time, has been issuing
various circulars/directions to Stock Brokers. In order to enable the users to have
access to the applicable circulars at one place, Master Circular in respect of Stock
Brokers has been prepared.
2. This Master Circular is a compilation of relevant circulars issued by SEBI which are
operational as on date of this circular. References in the circular to the Statutes /
Regulations which now stand repealed, have been suitably updated.
3. The Master Circular is a compilation of all the existing / applicable circulars issued
by Market Intermediaries Regulation and Supervision Department of SEBI
pertaining to Stock Brokers. Efforts have been made to incorporate applicable
provisions of existing circulars issued by other Departments of SEBI relevant to
Stock Brokers. A list of SEBI circulars compiled in this Master Circular is given in
Appendix at the end of this Master Circular.
4. In case of any inconsistency between the Master Circular and the applicable
circulars, the content of the relevant circular shall prevail.
5. This circular is available on SEBI website at www.sebi.gov.in.
Yours faithfully
Debashis Bandyopadhyay
General Manager
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भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
TABLE OF CONTENTS
I. REGISTRATION OF STOCK BROKERS
S. No. Subject Page no.
1. Registration of Brokers – Verification of antecedents of the applicant 6
2. Conversion of individual membership into corporate membership 6
3. Additional information to be submitted at the time of registration of Stock 6
Broker with SEBI
4. Additional requirements for processing applications of Stock Brokers for 12
Registration/ Prior approval for sale of membership/ Change of name/ trade
name
5. Merger/ Amalgamation of Trading Members 14
6. Intimation to the brokers to permit their Sub-Brokers to start business only after 14
receipt of Sub-Broker registration certificate from SEBI
7. Admission of Limited Liability Partnerships as Members of Stock Exchanges 14
8. Simplification of registration requirements for Stock Brokers 15
9. Single registration for Stock Brokers & Clearing Members 16
10. Registration of Members of Commodity Derivatives Exchanges 18
11. Online Registration Mechanism for Securities Market Intermediaries 19
12. Integration of broking activities in Equity Markets and Commodity Derivatives 19
Markets under single entity
II. TRADING ACCOUNT OPENING, UNIQUE CLIENT CODE, KNOW YOUR CLIENT, KYC
REGISTRATION AGENCY, CENTRAL KYC RECORDS REGISTRY
13. Unique Client Code 21
14. Simplification and Rationalization of Trading Account Opening Process 21
15. Requirements relating to dealings between a Client and a Stock Broker (Trading 24
Members included)
16. SARAL Account Opening Form for Resident Individuals 26
17. The Securities and Exchange Board of India (KYC Registration Agency) 27
Regulations, 2011
18. Operationalisation of Central KYC Records Registry (CKYCR) 30
19. AADHAAR 31
20. Guidelines on Identification of Beneficial Ownership 33
III. SUPERVISION & OVERSIGHT
21. Oversight of Members (Stock Brokers/Trading Members/Clearing Members of 35
any Segment of Stock Exchanges and Clearing Corporations)
22. Policy of Annual Inspection of Members by Stock Exchanges/Clearing 41
Corporations
23. Enhanced Supervision of Stock Brokers / Depository Participants 43
24. Annual System Audit of Stock Brokers / Trading Members 61
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भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
IV. DEALINGS WITH CLIENT
25. Regulation of Transactions Between Clients and Brokers 83
26. Collateral deposited by Clients with Brokers 85
27. Severance of connections with other businesses 86
28. Applicability of Rule 8(1)(f) and 8(3)(f) of the Securities Contract (Regulation) 86
Rules, 1957
29. Mode of payment and delivery 86
30. Pre- funded instruments / Electronic fund transfers 87
31. Disclosure of proprietary trading by Broker to Client 87
32. “Pro – account” trading terminal 88
33. Review of norms relating to trading by Members/ Sub-Brokers 89
34. Market Access through Authorised Persons 90
35. SMS and E-mail alerts to investors by Stock Exchanges 93
36. Prevention of Unauthorised Trading by Stock Brokers 95
37. Execution of Power of Attorney (PoA) by the Client in favour of the Stock 96
Broker/ Stock Broker and Depository Participant
38. Modification of Client Codes of Non-institutional Trades Executed on Stock 100
Exchanges (All Segments)
39. Margin Trading Facility 102
V. TECHNOLOGY RELATED
40. Electronic Contract Note 108
41. Conditions to be met by Broker for providing Internet Based Trading Service 111
42. Securities Trading through Wireless medium on Wireless Application Protocol 115
(WAP) platform
43. Securities Trading using Wireless Technology 117
44. Additional Requirements for Internet Based Trading (IBT) and Securities 119
trading using Wireless Technology (STWT)
45. Direct Market Access facility 120
46. Smart Order Routing 129
47. Broad Guidelines on Algorithmic Trading 132
48. Testing of Software used in or related to Trading and Risk Management 136
49. Safeguards to avoid trading disruption in case of failure of software vendor 140
VI. CHANGE IN STATUS, CONSTITUTION, CONTROL, AFFILIATION
50. Surrender of Certificate of Registration of Sub-Brokers and Change of 142
Affiliation of Sub-Brokers
51. Change in affiliation of Sub-Brokers 145
52. Periodical Report – Grant of prior approval to members of Stock Exchanges/ 148
Sub-Brokers
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भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
53. Revised procedure for seeking prior approval for change in control through 150
single window
VII. SUBSIDIARY
54. Floating of a Subsidiary/Company by a Stock Exchange to acquire the 152
membership of other Stock Exchange
55. Exclusion of turnover from the turnover of the Subsidiary 153
56. Eligibility for Trading Member 153
57. Restructuring of the Subsidiary Management 154
58. Access to unauthorized persons by the Members of Subsidiaries 155
VIII. FOREIGN ACCOUNTS TAX COMPLIANCE ACT
59. Inter-Governmental Agreement with United States of America under Foreign 156
Accounts Tax Compliance Act – Registration
60. Implementation of the Multilateral Competent Authority Agreement and 157
Foreign Account Tax Compliance Act
IX. SCORES, INVESTOR GRIEVANCES
61. Exclusive e-mail ID for redressal of Investor Complaints 158
62. Redressal of investor complaints against Stock Brokers and Sub-Brokers in 158
SEBI Complaints Redress System (SCORES)
63. Information regarding Grievance Redressal Mechanism 159
X. GENERAL
64. Advertisement by Brokers/ Sub-Brokers and grant of trading terminals 160
65. Registration Number of Brokers / Sub-Brokers to be quoted on all 160
correspondences with SEBI
66. Maintenance of books of accounts and other documents sought by Enforcement 160
Agencies from Stock Exchanges and Brokers
67. Display of Details by Stock Brokers (including Trading Members) 161
68. Unauthenticated news circulated by SEBI Registered Market Intermediaries 161
through various modes of communication
69. Guidelines on Outsourcing of Activities by Intermediaries 162
70. General Guidelines for dealing with Conflicts of Interest of Intermediaries, 169
Recognised Stock Exchanges, Recognised Clearing Corporations, Depositories
and their Associated Persons in Securities Market
71. Digital Mode of Payment 170
72. Regulatory Framework for Commodity Derivatives Brokers 171
73. Annexures pertaining to Section II
i. Annexure 1
ii. Annexure 2
iii. Annexure 3
iv. Annexure 4
v. Annexure 5
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भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
vi. Annexure 6
vii. Annexure 7
74. Appendix - List of Circulars / Notifications
*****
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भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
I. REGISTRATION OF STOCK BROKERS
1. Registration of Brokers - Verification of antecedents of the applicant1
1.1. In terms of Rule 8(1)(e) of Securities Contracts (Regulation) Rules, 1957, "no
person shall be eligible to be elected as a member if he has been convicted of an
offence involving fraud or dishonesty".
1.2. Stock Exchanges shall verify the antecedents of the applicant before granting
admission as a member of Stock Exchange and also submit a declaration at the
time of forwarding the applications for registration with SEBI, to the effect that
the member has not been convicted of any offence involving fraud or
dishonesty.
2. Conversion of individual membership into corporate membership2
2.1. In case of corporatisation of individual membership, the individual member
may trade in his individual name pending registration of the corporate
member by SEBI.
2.2. In case the corporate member acquires the membership through purchase of
membership card of an individual member, the corporate member shall not be
entitled to trade because of the provisions of Section 12 of the Securities and
Exchange Board of India Act, 1992, till registration is granted to the corporate
member by SEBI.
3. Additional information to be submitted at the time of registration of Stock Broker
with SEBI3
3.1. In terms of Regulation 3(2) of Securities and Exchange Board of India (Stock
Brokers and Sub-Brokers) Rules and Regulation 1992, a Stock Broker has to
apply in Form A duly recommended by the Stock Exchange of which he is a
member, for registration as a Stock Broker by SEBI.
3.2. While forwarding the applications in Form A, Stock Exchanges shall ensure
that additional information as per enclosed format is also submitted along with
the application for all the cases sent henceforth for registration. Additional
information to be submitted is prescribed in Annexure below:
1 Reference: Circular SMD/POLICY/CIRCULAR/30/97 dated November 25, 1997.
2 Reference: Circular SMD/POLICY/CIR-34/97 dated December 11, 1997.
3 Reference: Circular SMD/POLICY/CIR-11/98 dated March 16, 1998.
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भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
ANNEXURE
1. Name of the Stock Exchange
2. Name of the Applicant Member Broker
3. Exchange Clearing Code No. (If allotted by the Stock Exchange)
4. Trade Name of Member
5. Address of Member
Tel. No. (O):
Tel No. (R):
Fax No.
6. Form of Organisation: Please tick the relevant entity
6.1 Partnership
6.2 Corporate Body
a. Financial Institution
b. Others
c. Foreign Joint Ventures
(If an Indian Company is holding more than 25% of total equity in the joint
venture, please give details of top five shareholders of Indian Company).
Name of Indian Company
Top five Shareholders % Holding
1
2
3
4
5
FIPB Approval, if applicable
Sole Proprietorship:
Name of Educational Age (on the date of Experience
proprietor Qualification filing of (specify the nature
application) and years)
Partnership:
Name of Age (on the Educational Experience In case
partners date of Qualification (specify the partner(s)
application) nature and is/are
years) registered
with SEBI,
give SEBI
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भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
Regd. No.
Corporate Body (Financial Institution /Others)
MOA object clause contains stock broking as one of the object in
Main Object
Other Object
Incidental Object
(If, stock broking clause appears in other object please attach a copy of special
resolution to amend the MOA to incorporate Stock Broking in main object clause)
Mention relevant clause no. (Please enclose copy of the relevant clause of the MOA
duly certified by the Stock Exchange. If certified copy is not enclosed application
would be returned).
Information regarding directors
Name of Percentage of Educational Experience Whether
directors with Share holding Qualification (specify directors in
designation nature and other
(whether whole years) corporate
time/designated/ bodies
additional engaged in
capital
markets
(please give
names and
SEBI Regd.
No.)
Details of top five shareholders
Name of Percentage Educational Experience Whether
shareholders of Share Qualification (specify shareholders in
holding nature and other corporate
years) bodies engaged
in capital
markets (please
give names and
SEBI Regd.
No.)
8
भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
7. Date of Admission to Membership of the Stock Exchange.
8. Mode of Acquiring Membership (Please attach old SEBI Registration certificate
in all cases other than the cases of new membership)
8.1 New Membership
8.2 Conversion
8.3 Succession
8.4 Auction Purchase
(In case member has become defaulter)
8.5 Market Purchase
8.6 Transfer to another Company under same management
(please specify reasons)
8.7 Others, please specify
9. Please give the following information in all the cases other than the case of new
membership
9.1 Name of the previous holder of the card
9.2 SEBI Registration No.
9.3 Date of Registration with SEBI
10. Whether the applicant is member of more than one Stock Exchange? YES/ NO
11. If yes, please give name(s) of the Stock Exchange(s) with Code No. and SEBI
registration no.
12. Whether any of the Associate Companies/Partnership/ Proprietorship Firm is
/are having direct/indirect interest (* as defined below) in capital market? YES
/ NO
* The member is deemed to have direct/indirect interest in the following conditions:
12.1 Where he is individual, he or any of his relative being a broker/any
intermediary, he or any of his relative being a partner in a broking
firm/any intermediary, he or any of his relative being a director in a
broking company/any intermediary or he or any of his relatives clubbed
together holding substantial equity in any broking company/any
intermediary engaged in capital market.
12.2 Where it is partnership firm/company, the relative(s) of
partner(s)/director(s) in the firm(s)/corporate body being a broker/any
intermediary or being partner(s)/director(s) in any broking/intermediary
or the same set of shareholders holding substantial equity in other broking
/ any intermediary engaged in capital market.
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भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
12.3 Relative shall mean husband, wife, brother, unmarried sister or any linear
ascendant or descendant of an individual.
12.4 If yes, please give details (you may attach separate sheet, if required)
Name Form of Type of Whether Nature of
Organisation Intermediary# registered interest
with SEBI
(give Regd.
No.)
# Merchant Banker, Portfolio Manager, Registrar to Issue & Share Transfer Agent,
Banker to an Issue, Mutual Fund, Venture Capital , Underwriter, Debenture Trustee,
FII.
13. Disciplinary Action initiated/taken against the Associate entities, as indicated in
12.4 above. (Please state details of nature of violation, action initiated/taken and
by which authority)
13.1 Disciplinary action taken by SEBI (if yes, please attach details mentioning
nature of violation and action taken) YES / NO
13.2 Disciplinary action taken by any other authority (please attach details of
nature of violation and action initiated) YES / NO
13.3 Disciplinary action initiated by SEBI (if yes, please attach details of nature
of violation and action taken) YES / NO
13.4 Disciplinary action initiated by any other authority (please attach details of
nature of violation and action initiated ) YES / NO
14. Net-worth as per the requirement of the exchange (Rs in Lakhs)
15. Applicant’s net-worth in accordance with formula prescribed by concerned
Stock Exchange (Rs in Lakhs) (Certificate from a qualified CA certifying the
above should be enclosed)
16. Please indicate the net-worth as per the following formula (Rs in Lakhs)
16.1 Paid up Capital
16.2 Free Reserves (Exclusive of Revaluation Reserves)
16.3 Less - Misc. expenditure not written off
Total Net-worth (16.1 + 16.2 + 16.3)
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भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
I/we declare that the information given in this form is true to the best of my
knowledge and belief.
Date: Signature
Name and Address of the applicant
List of Enclosures:
a. Registration fees –Rs 50,000/- through NEFT/RTGS/IMPS or any other mode
allowed by RBI or by draft in favour of “The Securities and Exchange Board of
India”.
b. Copy of relevant clause of MOA duly certified by the Stock Exchange.
c. Certificate from the qualified Chartered Accountant certifying the networth and
paid up capital.
d. Undertaking by applicant that he/ it had not introduced through any member
broker/ sub-broker of the Exchange any fake/forged/stolen shares in the
Exchange/market. If yes, details thereof including action taken, if any, by the
applicant.
Certification by Stock Exchange
The above details have been scrutinised as per record made available to the Stock
Exchange.
SIGNATURE:
NAME:
DESIGNATION:
SEAL OF STOCK EXCHANGE
Certification from the Stock Exchange:
This is to certify that
i) The member is eligible to be admitted as the member of the Exchange as per the
provisions of SC(R)A, SC(R)R, bye-laws of the exchange and circulars issued by
Government of India and SEBI, in particular the GOI guidelines dated November 09,
1989 and SEBI circular dated May 14, 1993.
ii) ------------------- is admitted as a member of this exchange as approved by the
Council of Management in its meeting held on _.
iii) No complaints/ arbitration cases/ disciplinary action are pending against the
transferor M/s _ and all the complaints received by the Exchange or referred by SEBI
have been settled to the satisfaction of the Stock Exchange.
iv) We have verified the educational qualification, age, experience of the member
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भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
with respect to the original record and found it to be correct as per the information
given in the application.
v) No litigation with regard to transfer of card is pending in court of law.
The application is recommended for registration with the Securities and Exchange
Board of India under Securities and Exchange Board of India (Stock Brokers and
Sub-Brokers) Rules and Regulations, 1992.
Signature:
Name:
Designation:
List of Enclosures alongwith application:
1. Turnover fee details of the transferor in the prescribed format (enclosed).
2. Disciplinary record of the transferor
3. Board Resolution approving the membership (will be submitted by the Exchange)
4. Additional requirements for processing applications of Stock Brokers for
Registration/ Prior approval for sale of Membership/ Change of name/ Trade
name4
4.1. The applications for grant of registration / requisite approvals are processed
by SEBI based on information communicated by the Exchange/ members to
SEBI. Such information can undergo a change within a very short period of
time. It has been observed that in many cases information/ documents
enclosed along with the applications are outdated for SEBI to take any
cognizance of the same.
4.2. In order to improve the standard of information flow so as to enable SEBI to
take an informed decision while processing applications, the following norms
may be adhered to:
4.2.1. Application for registration of stock brokers:
a. Stock Exchanges shall ensure that the following documents which are
forwarded by the Exchanges along with registration applications are
not more than three months old from the date of forwarding of the
application.
i. Form A
ii. Additional Information Form
4 Reference: Circular SMD/DBA-II/CIR-22/2002 dated September 12, 2002.
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भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
iii. Undertakings furnished by the Applicant
4.2.2. Change of name applications for Brokers
a. Stock Exchanges shall ensure that change of name applications should
be accompanied by information from the Exchange as to whether the
change in name is accompanied by / associated with change in
majority shareholding / management / control. Applications not
accompanied with such information from the Exchange would be
returned to the concerned exchanges.
b. Stock Exchanges shall instruct all the member brokers of the exchange
to comply with the above instructions and ensure that applications
forwarded to SEBI strictly adhere with the above time schedules /
documents failing which the applications would be returned to the
concerned Exchange.
4.3. Clarification regarding eligibility for availing fee continuity benefit by
corporate entity formed by converting partnership membership card of the
Exchange
4.3.1. In order to get benefit of clause I (4) of Schedule III of SEBI (Stock Brokers
and Sub-Brokers) Regulations, 1992, all erstwhile partner(s) should be
wholetime directors in the corporate entity so formed, and the wholetime
director shall individually (in case there is one wholetime director) or
jointly (in case there are more than one wholetime directors) have to hold
atleast 40% of the paid up equity capital of the corporate entity formed
for a period of atleast three years from the date of such conversion.
4.3.2. In case of Exchanges which do not grant membership to the partnership
firms, but permit individual members to form partnerships, each of the
erstwhile member partner, now wholetime director of the corporate
entity, will have to individually or jointly hold atleast 40% of the paid-up
capital of the corporate entity so formed for a period of atleast three years
from the date of such conversion.
13
भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
5. Merger/ Amalgamation of Trading Members5
5.1. When two or more corporate broking firms merge leading to creation of a new
entity, the SEBI registration granted to the extinguishing entity does not
automatically devolve upon the emerging entity and the new entity has to fulfil
the eligibility criteria and apply afresh for registration and pay the registration
fees.
5.2. The emerging entity may be allowed to trade on the registration of the
extinguishing entity for a period of say 45 days. However, the emerging entity
should apply to SEBI at the earliest and give an undertaking to be liable for the
act of the extinguishing entity and such applications in any case should be
made not later than 30 days of the registration granted by the Registrar of
companies to the emerging entity.
6. Intimation to the Brokers to permit their Sub-Brokers to start business only after
receipt of Sub-Broker registration certificate from SEBI6
6.1. As per Section 12(1) of the SEBI Act, 1992 read with Rule 3 of Securities and
Exchange Board of India (Stock Brokers and Sub-Brokers) Rule 1992, no sub-
broker shall buy, sell, deal in securities, unless he holds a certificate granted by
the Board under the Regulations. Stock Exchanges shall inform all the brokers
that their sub-brokers are permitted to start business only after clearance and
receipt of registration certificate from SEBI. If any person contravenes or
attempts to contravene or abets the contravention of the above said rule, shall
be punishable under section 24(1) of SEBI Act 1992.
7. Admission of Limited Liability Partnerships as Members of Stock Exchanges7
7.1. Securities Contract (Regulation) Rules, 1957 (SCRR) do not explicitly mention
Limited Liability Partnerships (LLPs) as the Limited Liability Partnership Act,
2008 was a subsequent development. As per the LLP Act, LLP is a body
corporate. Sub-rule 4A and 5 of Rule 8 of the SCRR provides that Limited
Liability Companies (LLC) and partnership firms are eligible to be admitted as
members of Stock Exchanges. In this context it may be stated that LLPs are akin
5 Reference: Circular SMD/POLICY(BRK.REG.)/CIR-18/98 dated July 09, 1998.
Paragraph in Circular SMD/POLICY(BRK.REG.)/CIR-18/98 dated July 09, 1998, which read “It
is generally seen that while the application comes to SEBI after the court has approved the scheme of
amalgamation/ merger, the existing entity is required to seek prior approval from SEBI in case of any
change in its constitution, in terms of Rule 4(c) of SEBI (Stock Brokers and Sub-brokers) Rules and
Regulations, 1992. Therefore, you are advised that as soon as the application for merger is filed before the
High Court, the extinguishing broking entity should approach SEBI through the Stock Exchange for
obtaining prior permission, to the scheme of merger/ amalgamation giving all necessary details of the
proposal.” deleted in view of Notification LAD-NRO/GN/2011-12/03/12650 dated April 19, 2011.
6 Reference: Circular SUB-BROK/CIR/02/2001 dated January 15, 2001.
7 Reference: Circular CIR/MIRSD/12/2011 dated July 11, 2011.
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भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
to LLC and partnership firms.
7.2. In view of the above and since the Parliament has put in place a legal
framework for LLPs, Stock Exchanges may consider granting membership to
LLPs subject to LLP complying with the conditions laid down in Rule 8(4A) of
the SCRR, as far as it can apply to LLPs.
8. Simplification of registration requirements for Stock Brokers8
8.1. As per the amendment to SEBI (Stock Brokers and Sub-Brokers) Regulations,
1992 (hereinafter referred to as Broker Regulations) vide Notification No. LAD-
NRO/GN/2013-14/25/24775 dated September 27, 2013, the existing practice of
obtaining multiple registrations for operating in different segments of a Stock
Exchange / Clearing Corporation has been done away with and instead a single
registration per Stock Exchange / Clearing Corporation shall be required. For
operating in multiple segments, approval will be required from the Stock
Exchange or Clearing Corporation.
8.2. The implementation of the revised registration requirements will be as per the
following guidelines:
8.2.1. If a new entity intends to register as a stock broker or clearing member in
any segment(s) of a Stock Exchange or a Clearing Corporation promoted
by that Stock Exchange, then the entity shall apply to SEBI through the
respective Stock Exchange or Clearing Corporation in the manner
prescribed in the Broker Regulations in any one segment. The entity shall
be issued a certificate with a unique registration number for each Stock
Exchange or Clearing Corporation, as the case may be, irrespective of
number of segments.
8.2.2. If an entity is already registered with SEBI in any segment of the Stock
Exchange, then for operating in any other segment of that Stock Exchange
or for operating in the Clearing Corporation promoted by that Stock
Exchange, the entity need not apply to SEBI. The entity can directly apply
to the concerned Stock Exchange or Clearing Corporation as per the
procedure prescribed in the Broker Regulations for approval.
8.2.3. Similarly, if any entity is already registered with SEBI in any segment of
the Clearing Corporation, then for operating in any other segment of the
Clearing Corporation or for operating in the Stock Exchange which has
promoted that Clearing Corporation, the entity shall follow the procedure
as prescribed in Clause 8.2.2 above.
8 Reference: Circular CIR/MIRSD/8/2013 dated September 30, 2013.
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भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
8.2.4. Fees shall be applicable for all the stock brokers, self clearing members
and clearing members as per Schedule V of the Broker Regulations. As
per current practice, the entity shall continue to be liable to pay fees for
each additional segment approved by the Stock Exchange or Clearing
Corporation, as per the Schedule to the Brokers Regulations. For stock
brokers coming under Schedule III, fees shall continue to be applicable as
per that Schedule till such time as the Schedule V becomes applicable to
them.
8.3. The Stock Exchange or Clearing Corporation shall grant approval for any
additional segment to the stock broker, self-clearing member or clearing
member, as the case may be, after exercising due diligence and on being
satisfied about the compliance of all relevant eligibility requirements, and shall
also ensure:
8.3.1. The applicant, its directors, proprietor, partners and associates satisfy the
Fit and Proper Criteria as defined in the SEBI (Intermediaries)
Regulations, 2008 and whether any past actions taken / initiated against
them by SEBI / Stock Exchange(s) or other regulators.
8.3.2. The Stock Exchange or Clearing Corporation shall satisfy itself that the
applicant has taken corrective steps to rectify the deficiencies or
irregularities observed in the past. They may also seek details whether
the Board of the applicant is satisfied about the steps taken. They may
also carry out inspection, wherever considered appropriate.
8.3.3. Recover all pending fees / dues payable to SEBI and / or stock exchange.
9. Single registration for Stock Brokers & Clearing Members9
9.1. As per the amendment to SEBI (Stock Brokers and Sub-Brokers) Regulations,
1992 (hereinafter referred to as Broker Regulations) vide Notification No. LAD-
NRO/GN/2014-15/15/1671 dated October 08, 2014, the requirement of
obtaining registration as stock broker/ clearing member for each Stock
Exchange/ Clearing Corporation has been done away with and instead a single
registration with any Stock Exchange/ Clearing Corporation shall be required.
For operating in any other Stock Exchange(s)/ Clearing Corporation (s),
approval will be required from the concerned Stock Exchange or Clearing
Corporation.
9.2. The implementation of the revised registration requirements will be as per the
following guidelines:
9 Reference: Circular CIR/MIRSD/4/2014 dated October 13, 2014.
16
भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
9.2.1. If a new entity desires to register as a stock broker or clearing member
with any Stock Exchange or Clearing Corporation, as the case may be,
then the entity shall apply to SEBI through the respective Stock Exchange
or Clearing Corporation in the manner prescribed in the Broker
Regulations. The entity shall be issued one certificate of registration,
irrespective of the Stock Exchange(s)/ Clearing Corporation(s) or number
of segment(s).
9.2.2. If the entity is already registered with SEBI as a stock broker with any
Stock Exchange, then for operating on any other Stock Exchange(s) or any
Clearing Corporation, the entity can directly apply for approval to the
concerned Stock Exchange or Clearing Corporation, as per the procedure
prescribed in the Broker Regulations for registration. The Stock
Exchange/ Clearing Corporation shall report to SEBI about such grant of
approval.
9.2.3. Similarly, if any entity is already registered with SEBI as a clearing
member in any Clearing Corporation, then for operating in any other
Clearing Corporation(s) or any Stock Exchange, the entity shall follow the
procedure as prescribed in Clause 9.2.2 above.
9.2.4. Fees shall be applicable for all the stock brokers, self-clearing members
and clearing members as per Schedule V of the Broker Regulations. As
per current requirement, the entity shall continue to be liable to pay fees
for each segment approved by the Stock Exchange or Clearing
Corporation, as per the Schedule to the Brokers Regulations.
9.3. The Stock Exchange or Clearing Corporation shall grant approval for operating
in any segment(s) or additional segment(s) to the SEBI registered stock broker,
self-clearing member or clearing member, as the case may be, after exercising
due diligence and on being satisfied about the compliance of all relevant
eligibility requirements, and shall also, inter-alia ensure:
9.3.1. The applicant, its directors, proprietor, partners and associates satisfy the
Fit and Proper Criteria as defined in the SEBI (Intermediaries)
Regulations, 2008;
9.3.2. The applicant has taken satisfactory corrective steps to rectify the
deficiencies or irregularities observed in the past in actions initiated/
taken by SEBI/ Stock Exchanges(s) or other regulators. The Stock
Exchange or Clearing Corporation may also seek details whether the
Board of the applicant is satisfied about the steps taken. They may also
carry out inspection, wherever considered appropriate; and
9.3.3. Recovery of all pending fees/ dues payable to SEBI, Stock Exchange and
17
भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
Clearing Corporation.
9.4. Recover all pending fees / dues payable to SEBI and / or stock exchange.
10. Registration of Members of Commodity Derivatives Exchanges10
10.1. Any person desirous of becoming a member of any commodity derivatives
exchange(s), shall have to meet the eligibility criteria to become a member of an
exchange and conditions of registration, as specified in Securities Contract
(Regulation) Rules, 1957 and SEBI (Stock Brokers and Sub-Brokers)
Regulations, 1992, respectively.
10.2. The application for registration shall be made in the manner prescribed in the
Stock Broker Regulations, through the commodity derivatives exchange, of
which it holds membership, in the prescribed form, along with the applicable
fees. The application shall be accompanied by additional information as
prescribed in para 3 above regarding additional information to be submitted at
the time of registration of stock broker with SEBI).
10.3. The minimum net worth specified for members of commodity derivatives
exchanges, as per Stock Broker Regulations, shall have to be computed as
follows:
 Capital +Free reserves
 Less non-allowable assets viz.,
a. Fixed assets
b. Pledged securities
c. Member’s card
d. Non-allowable securities (unlisted securities)
e. Bad deliveries
f. Doubtful debts and advances*
g. Prepaid expenses, losses
h. Intangible assets
i. 30% of marketable securities
*Explanation – includes debts/advances overdue for more than three months or
given to associates.
10.4. It is clarified that, “business in goods related to the underlying” and/ or
“business in connection with or incidental to or consequential to trades in
commodity derivatives”, by a member of a Stock Exchange, would not be
10 Reference: Circular CIR/MIRSD/4/2015 dated September 29, 2015,
Circular SEBI/HO/MIRSD/MIRSD1/CIR/P/2017/04 dated September 21, 2017 and
Circular FITTC/DC/CR-1/98 dated June 16, 1998.
18
भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
disqualified under Rule 8(1)(f) and Rule 8(3)(f) of the Securities Contract
(Regulation) Rules, 1957.
11. Online Registration Mechanism for Securities Market Intermediaries11
11.1. SEBI Intermediary Portal (https://siportal.sebi.gov.in) has been
operationalized for the intermediaries to submit all the registration
applications online. The SEBI Intermediary Portal includes online application
for registration, processing of application, grant of final registration,
application for surrender / cancellation, submission of periodical reports,
requests for change of name / address / other details etc.
11.2. All applications for registration / surrender / other requests shall be made
through SEBI Intermediary Portal only. The application in respect of stock
brokers / sub-broker and depository participants shall continue to be made
through the Stock Exchanges and Depositories respectively.
11.3. The applicants will be separately required to submit relevant documents viz.
declarations / undertakings, in physical form, only for records without
impacting the online processing of applications for registration.
11.4. Where applications are made through the Stock Exchanges / Depositories, the
hard copy of the applications made by their members shall be preserved by
them and shall be made available to SEBI, as and when called for.
12. Integration of broking activities in Equity Markets and Commodity Derivatives
Markets under single entity12
12.1. Government of India vide Gazette notification no. G.S.R. 664(E) dated June 27,
2017 amended the Securities Contracts (Regulation) Rules, 1957 (hereinafter
referred to as "SCRR") and Securities and Exchange Board of India (Stock
Brokers and Sub-Brokers) (Amendment) Regulations 2017 which was notified
on July 13, 2017 (hereinafter referred to as "the Stock Broker Regulation").
12.2. Through these amendments, restriction on stock brokers dealing in securities
(other than commodity derivatives) to deal in commodity derivatives has been
done away with. Similarly, restriction on stock brokers dealing in commodity
derivatives to deal in other securities has also been done away with. Therefore,
post these amendments, a stock broker can deal in commodity derivatives and
other securities under a single entity, thereby facilitating ease of doing
business.
12.3. As per the existing procedure under single registration mechanism, a one-time
11 Reference: Circular SEBI/HO/MIRSD/MIRSD1/CIR/P/2017/38 dated May 02, 2017.
12 Reference: Circular SEBI/HO/MIRSD/MIRSD1/CIR/P/2017/04 dated September 21, 2017.
19
भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
certificate of registration as stock broker / clearing member shall be granted by
SEBI and subsequent permissions to act as a stock broker / clearing member of
other Stock Exchanges / Clearing Corporation, shall be granted by the
respective Stock Exchange / Clearing Corporation after proper due diligence.
12.4. Prior approval from SEBI will be required to be obtained by the stock broker
only in cases where integration leads to change in control of the stock
broker/clearing member.
12.5. Further, to facilitate integration between stock brokers, it is clarified that client
account may be transferred from one stock broker to the other stock broker, by
taking the express consent of the client through a verifiable mode of
communication and thereby continuing with the existing set of documentation
in respect of broker client relationship.
*****
20
भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
II. TRADING ACCOUNT OPENING, UNIQUE CLIENT CODE, KNOW
YOUR CLIENT, KYC REGISTRATION AGENCY, CENTRAL KYC
RECORDS REGISTRY
13. Unique Client Code13
13.1. It shall be mandatory for the broker to use unique client code for all clients. For
this purpose the broker shall collect and maintain in their back office the
Permanent Account Number (PAN) allotted by the Income Tax Department for
all their clients.
13.2. In case of other entities –
13.2.1. Brokers shall verify the documents with respect to the unique code retain
a copy of the document.
13.2.2. The brokers shall also be required to furnish the above particulars of their
clients to the Stock Exchanges/Clearing Corporations and the same
would be updated on a monthly basis. Such information for a specific
month should reach the exchange within 7 working days of the following
month.
13.2.3. The Stock Exchanges shall be required to maintain a database of client
details submitted by brokers. Historical records of all quarterly
submissions shall be maintained for a period of 7 years by the exchanges.
14. Simplification and Rationalization of Trading Account Opening Process14
14.1. SEBI has devised the uniform documentation to be followed by all the stock
brokers / trading members; a copy thereof to be provided by them to the
clients. The details of such documents are listed below:
14.1.1. Index of documents giving details of various documents for client
account opening process: Annexure-1.
14.1.2. Client Account Opening Form in two parts:
13 Reference: Circular SMDRP/POLICY/CIR-39/2001 dated July 18, 2001 and Circular
SEBI/MRD/SE/CIR-34/2003/29/09 dated September 29, 2003.
14 Reference: Circular CIR/MIRSD/16/2011 dated August 22, 2011,
Circular MIRSD/SE/CIR-21/2011 dated October 05, 2011,
Circular CIR/MIRSD/13/2013 dated December 26, 2013,
Circular CIR/MIRSD/64/2016 dated July 12, 2016 and
Circular CIR/MIRSD/66/2016 dated July 21, 2016.
21
भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
a. Know Your Client (KYC) form capturing the basic information about
the client and instruction/check list to fill up the form: Annexure-2.
The KYC template finalised by Central Registry of Securitization and
Asset Reconstruction and Security interest of India (CERSAI) shall be
used by the registered intermediaries as Part I of AOF for
individuals.
KYC form for Non-individuals shall be as specified by SEBI.
b. Document capturing additional information about the client related
to trading account: Annexure-3.
14.1.3. Document stating the Rights & Obligations of stock broker, sub-broker
and client for trading on exchanges (including additional rights &
obligations in case of internet / wireless technology based trading):
Annexure–4.
14.1.4. Uniform Risk Disclosure Documents (for all segments / exchanges):
Annexure-5.
14.1.5. Guidance Note detailing Do’s and Don’ts for trading on exchanges:
Annexure-6.
14.2. In the account opening process, the stock brokers / trading members would
also give the following useful information to the clients:
14.2.1. A tariff sheet specifying various charges, including brokerage, payable by
the client to avoid any disputes at a later date.
14.2.2. Information on contact details of senior officials within the stock broking
firm and investor grievance cell in the Stock Exchange, so that the client
can approach them in case of any grievance.
14.3. It may be noted that any voluntary clause / document added by the stock
brokers shall form part of the non-mandatory documents. The stock broker
shall ensure that any voluntary clause/document shall neither dilute the
responsibility of the stock broker nor it shall be in conflict with any of the
clauses in the mandatory documents, Rules, Bye-laws, Regulations, Notices,
Guidelines and Circulars issued by SEBI and the Stock Exchanges from time to
time. Any such clause introduced in the existing as well as new documents
shall stand null and void.
14.4. The client will now be required to sign only on one document i.e. Account
Opening Form. Further, in the same form, the client shall continue to put his
22
भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
signatures instead of saying ‘yes’ or ‘tick mark’ while indicating preferences for
trading in different exchanges / segments, in accordance with existing
requirements. However, in case the investor wants to avail Running Account
facility, execute Power of Attorney, etc., he would have to give specific
authorization to the stock broker in order to avoid any dispute in the future.
14.5. In case the stock broker is also a depository participant, he can use the same
KYC form (as specified in Annexure-2) for basic details and take additional
information pertaining to demat account.
14.6. Stock Broker/ Depository Participant shall make available these standard
documents to the clients, either in electronic or physical form, depending upon
the preference of the client as part of account opening kit. The preference of the
client shall be sought as part of the account opening form. In case the
documents are made available in electronic form, stock broker/ depository
participant shall maintain logs of the same.
14.7. Stock Exchanges / Depositories / stock brokers/ depository participants shall
continue to make the documents mentioned in para 14.1.3 to 14.1.5 above,
available on their website and keep the clients informed about the same.
14.8. Further, with a view to bring about uniformity in securities markets, the KYC
form in Annexure-2 above and supporting documents shall also be used by
Depository Participants, Mutual Funds, Portfolio Managers, Collective
Investment Schemes and Venture Capital Funds. The KYC form shall be filled
by an investor at the account opening stage while dealing with any of the
above intermediaries. Additional details specific to the area of activity of the
intermediary being obtained now but not covered in the KYC form shall also
be obtained from the investors in Part II of the account opening form.
14.9. The additional information (Part II) shall be prescribed by Depositories for
their depository participants and by Association of Mutual Funds in India
(AMFI) for all mutual funds. The Portfolio Managers, Venture Capital Funds,
and Collective Investment Schemes shall capture the additional information
specific to their area of activities, as considered appropriate by them. The
intermediaries shall also continue to abide by Circulars issued by SEBI from
time to time for prevention of money laundering.
23
भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
15. Requirements relating to dealings between a Client and a Stock Broker (Trading
Members included)15
15.1. Running Account Authorization
15.1.1. Unless otherwise specifically agreed to by a Client, the settlement of
funds/securities shall be done within 24 hours of the payout. However, a
client may specifically authorize the stock broker to maintain a running
account subject to the following conditions:
a. The authorization shall be signed by the client only and not by any
authorised person on his behalf or any holder of the Power of
Attorney.
b. The authorisation shall be dated and shall contain a clause that the
clients may revoke the authorisation at any time. The stock brokers,
while sending periodical statement of accounts to the clients, shall
mention therein that their running account authorisation would
continue until it is revoked by the clients.
c. For the clients having outstanding obligations on the settlement date,
the stock broker may retain the requisite securities/funds towards
such obligations and may also retain the funds expected to be
required to meet margin obligations for next 5 trading days,
calculated in the manner specified by the exchanges.
d. The actual settlement of funds and securities shall be done by the
broker, at least once in 90 days / 30 days, depending on the
preference of the client. While settling the account, the broker shall
send to the client a ‘statement of accounts’ containing an extract from
the client ledger for funds and an extract from the register of
securities displaying all receipts/deliveries of funds/securities. The
statement shall also explain the retention of funds/securities and the
details of the pledge, if any.
e. The client shall bring any dispute arising from the statement of
account or settlement so made to the notice of the broker preferably
within 7 working days from the date of receipt of funds/securities or
statement, as the case may be.
f. Such periodic settlement of running account may not be necessary:
i. for clients availing margin trading facility as per SEBI circular.
ii. for funds received from the clients towards collaterals/margin in
the form of bank guarantee (BG)/Fixed Deposit receipts (FDR).
g. The stock broker shall transfer the funds / securities lying in the
credit of the client within one working day of the request if the same
are lying with him and within three working days from the request if
15 Reference: Circular MIRSD/SE/CIR-19/2009 dated December 03, 2009,
Circular SEBI/MIRSD/CIR/01/2011 dated May 13, 2011 and
Circular SEBI/HO/MIRSD/MIRSD2/CIR/P/2016/95 dated September 26, 2016.
24
भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
the same are lying with the Clearing Member/Clearing Corporation.
h. There shall be no inter-client adjustments for the purpose of
settlement of the ‘running account’.
i. These conditions shall not apply to institutional clients settling trades
through custodians. The existing practice may continue for them.
15.2. Authorization for Electronic Contract Notes
15.2.1. The stock broker may issue electronic contract notes (ECN) if specifically
authorized by the client subject to the following conditions:
a. The authorization shall be in writing and be signed by the client only
and not by any authorised person on his behalf or holder of the Power
of Attorney.
b. The email id shall not be created by the broker. The client desirous of
receiving ECN shall create/provide his own email id to the stock
broker.
c. The authorization shall have a clause to the effect that that any change
in the email-id shall be communicated by the client through a physical
letter to the broker. In respect of internet clients, the request for
change of email id may be made through the secured access by way of
client specific user id and password.
15.3. The stock broker shall have documentary evidence of financial details provided
by the clients who opt to deal in the derivative segment. In respect of other
clients, the stock broker shall obtain the documents in accordance with its risk
management system.
15.4. There shall be a mandatory document dealing with policies and procedures for
each of the following under appropriate headings:
15.4.1. refusal of orders for penny stocks
15.4.2. setting up client’s exposure limits
15.4.3. applicable brokerage rate
15.4.4. imposition of penalty/delayed payment charges by either party,
specifying the rate and the period (This must not result in funding by the
broker in contravention of the applicable laws)
15.4.5. the right to sell clients’ securities or close clients’ positions, without
giving notice to the client, on account of non-payment of client’s dues
(This shall be limited to the extent of settlement/margin obligation)
25
भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
15.4.6. shortages in obligations arising out of internal netting of trades
15.4.7. conditions under which a client may not be allowed to take further
position or the broker may close the existing position of a client
15.4.8. temporarily suspending or closing a client’s account at the client’s
request, and
15.4.9. deregistering a client
15.5. All the documents in both the mandatory and the non-mandatory parts shall
be printed in minimum font size of 11.
15.6. A copy of all the documents executed by client shall be given to him, free of
charge, within 7 days from the date of execution of documents by the client.
The stock broker shall take client’s acknowledgement for receipt of the same.
15.7. The stock brokers having own web-sites shall display all the documents
executed by a client, client’s position, margin and other related information,
statement of accounts, etc. in the web-site and allow secured access by way of
client-specific user id and password.
15.8. The stock broker shall frame the policy regarding treatment of inactive
accounts which should, inter-alia, cover aspects of time period, return of client
assets and procedure for reactivation of the same. It shall display the same on
its web site, if any.
15.9. As on 31st March of every year, a statement of balance of Funds and Securities
in hard form and signed by the broker shall be sent to all the clients.
16. SARAL Account Opening Form for Resident Individuals16
16.1. A majority of new investors in the securities market begin with participation in
the cash segment without obtaining various other facilities such as internet
trading, margin trading, derivative trading and use of power of attorney.
16.2. With a view to encourage their participation, it is, therefore, decided that such
individual investors can open a trading account and demat account by filling
up a simplified Account Opening Form ('AOF') termed as 'SARAL AOF' given
at Annexure-7. This form will be separately available with the intermediaries
and can also be downloaded from the Exchanges' and Depositories' website.
The investors who open account through SARAL AOF will also have the
option to obtain other facilities, whenever they require, on furnishing of
16 Reference: Circular CIR/MIRSD/1/2015 dated March 04, 2015.
26
भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
additional information as per prescribed regulations/circulars.
16.3. The standard set of documents viz. Rights and Obligations document, Uniform
Risk Disclosure Document and Guidance Note and documentary proof related
to identity and address as specified by SEBI shall continue to remain
applicable. It is further clarified that the provisions laid down under the PML
Act, PML Rules, SEBI Master Circular on AML dated December 31, 2010 and
SEBI Circular on AML dated March 12, 2014 shall also continue to remain
applicable for set of individual investors mentioned in paragraph 16.2 above.
16.4. For these set of individual investors, the requirement of submission of ‘proof of
address’ is as follows:
16.4.1. Henceforth, individual investor may submit only one documentary proof
of address (either residence/correspondence or permanent) while
opening a trading account and / or demat account or while undergoing
updation.
16.4.2. In case the proof of address furnished by the said investor is not the
address where the investor is currently residing, the intermediary may
take a declaration of the residence/correspondence address on which all
correspondence will be made by the intermediary with the investor. No
proof is required to be submitted for such correspondence/residence
address. In the event of change in this address due to relocation or any
other reason, investor may intimate the new address for correspondence
to the intermediary within two weeks of such a change. The residence/
correspondence address and any such change thereof may be verified by
the intermediary through ‘positive confirmation’ such as (i)
acknowledgment of receipt Welcome Kit/ dispatch of contract notes /
any periodical statement, etc. (ii) telephonic conversation; (iii) visits, etc.
17. The Securities and Exchange Board of India (KYC Registration Agency)
Regulations, 201117
17.1. To avoid duplication of KYC process by the client with every intermediary, a
mechanism for centralization of the KYC records in the securities market has
been developed.
17.2. An intermediary shall perform the initial KYC of its clients and upload the
17 Reference: Circular CIR/MIRSD/22/2011 dated October 25, 2011,
Circular MIRSD/CIR-23/2011 dated December 02, 2011,
Circular MIRSD/CIR-26 dated December 23, 2011,
SEBI (KYC Registration Agency) Amendment Regulation 2013 vide Notification no. LAD-
NRO/GN/2012-13/35/6998 dated March 22, 2013 and
Circular CIR/MIRSD/4/2013 dated March 28, 2013.
27
भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
details on the system of the KRA. When the client approaches another
intermediary, the intermediary can verify and download the client’s details
from the system of the KRA. As a result, once the client has done KYC with a
SEBI registered intermediary, he need not undergo the same process again
with another intermediary.
17.3. Accordingly, SEBI has formulated the KYC Registration Agency (KRA)
Regulations, which have been notified vide notification no. LAD-
NRO/GN/2011-12/29/36772 dated December 2, 2011. The Regulations cover
the registration of KRAs, functions and responsibilities of the KRAs and
intermediaries, code of conduct, data security, etc.
17.4. Guidelines for Intermediaries
17.4.1. The intermediary shall perform the initial KYC/due diligence of the
client, upload the KYC information with proper authentication on the
system of the KRA, furnish the scanned images of the KYC documents to
the KRA, and retain the physical KYC documents:
Provided that in the case of clients of a mutual fund, the Registrar to an
Issue and Share Transfer Agent appointed by the mutual fund may
perform the initial KYC/due diligence of the client, upload the KYC
information with proper authentication on the system of the KRA, and
furnish the scanned images of KYC documents to the KRA.
17.4.2. The intermediary or the mutual fund, as the case may be, shall furnish the
physical KYC documents or authenticated copies thereof to the KRA,
whenever so desired by the KRA.
17.4.3. In case a client’s scanned images of KYC documents sent by the
intermediary to KRA are not complete, the KRA shall inform the same to
the intermediary who shall forward the required information /
documents promptly to KRA.
17.4.4. The intermediary shall carry out KYC when the client chooses to trade/
invest / deal through it.
17.4.5. The intermediaries shall maintain electronic records of KYCs of clients
and keeping physical records would not be necessary.
17.4.6. The intermediary shall promptly provide KYC related information to
KRA, as and when required.
17.4.7. The intermediary shall have adequate internal controls to ensure the
security / authenticity of data uploaded by it.
28
भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
17.5. Guidelines for KRAs
17.5.1. KRA system shall provide KYC information in data and image form to
the intermediary.
17.5.2. KRA shall send a letter to the client within 10 working days of the receipt
of the initial/updated KYC documents from intermediary, confirming the
details thereof and maintain the proof of dispatch.
17.5.3. KRA(s) shall develop systems, in co-ordination with each other, to
prevent duplication of entry of KYC details of a client and to ensure
uniformity in formats of uploading / modification / downloading of
KYC data by the intermediary.
17.5.4. KRA shall maintain an audit trail of the upload / modifications /
downloads made in the KYC data, by the intermediary in its system.
17.5.5. KRA shall ensure that a comprehensive audit of its systems, controls,
procedures, safeguards and security of information and documents is
carried out annually by an independent auditor. The Audit Report along
with the steps taken to rectify the deficiencies, if any, shall be placed
before its Board of Directors. Thereafter, the KRA shall send the Action
Taken Report to SEBI within 3 months.
17.5.6. KRA systems shall clearly indicate the status of clients falling under PAN
exempt categories viz. investors residing in the state of Sikkim, UN
entities / multilateral agencies exempt from paying taxes / filing tax
returns in India.
17.5.7. A client can start trading / investing/ dealing with the intermediary and
its group / subsidiary / holding company as soon as the initial KYC is
done and other necessary information is obtained while the remaining
process of KRA is in progress.
17.6. In-Person Verification (IPV)
17.6.1. In line with the uniformity brought out in the KYC procedure across
intermediaries, the IPV requirements for all the intermediaries have now
been streamlined and harmonized, as follows:
a. It shall be mandatory for intermediaries viz. stock brokers, depository
participants, mutual funds, portfolio managers, venture capital funds,
collective investment schemes to carry out IPV of their clients.
b. The intermediary shall ensure that the details like name of the person
29
भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
doing IPV, his designation, organization with his signatures and date
are recorded on the KYC form at the time of IPV.
c. The IPV carried out by one SEBI registered intermediary can be relied
upon by another intermediary.
d. In case of Stock brokers, their sub-brokers or Authorised Persons
(appointed by the stock brokers after getting approval from the
concerned Stock Exchanges in terms of provisions specified in para 34
below on Market Access through Authorised Persons) can perform
the IPV.
e. The subsidiaries of Stock Exchanges, acting as stock brokers, may rely
upon the ‘in-person’ verification done by their sub-brokers (who are
also registered with SEBI as stock brokers of the parent Stock
Exchange) for their respective clients. However, the ultimate
responsibility for ‘in-person’ verification would remain with the
subsidiaries and they shall obtain the necessary IPV documents for
their records.
f. In case of Mutual Funds, their Asset Management Companies (AMCs)
and the distributors who comply with the certification process of
National Institute of Securities Market (NISM) or Association of
Mutual Funds (AMFI) and have undergone the process of ‘Know
Your Distributor (KYD)’, can perform the IPV. However, in case of
applications received by the mutual funds directly from the clients
(i.e. not through any distributor), they may also rely upon the IPV
performed by the scheduled commercial banks.
18. Operationalisation of Central KYC Records Registry (CKYCR)18
18.1. Government of India has authorized the Central Registry of Securitization and
Asset Reconstruction and Security interest of India (CERSAI), set up under
subsection (1) of Section 20 of Securitisation and Reconstruction of Financial
Assets and Enforcement of Security Interest Act, 2002, to act as, and to perform
the functions of, the Central KYC Records Registry under the PML Rules 2005,
including receiving, storing, safeguarding and retrieving the KYC records in
digital form of a “client”, as defined in clause (ha) sub-section (1) of Section 2 of
the Prevention of Money Laundering Act, 2002
18.2. As per the 2015 amendment to PML (Maintenance of Records) Rules, 2005 (the
rules), every reporting entity shall capture the KYC information for sharing
with the Central KYC Records Registry in the manner mentioned in the Rules,
as per the KYC template for “individuals” finalised by CERSAI.
18.3. The “live run” of the CKYCR started with effect from July 15, 2016 in a phased
manner beginning with new “individual accounts”. Further, “Test
18 Reference: Circular CIR/MIRSD/66/2016 dated July 21, 2016 and Circular
CIR/MIRSD/120/2016 dated November 10, 2016.
30
भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
Environment” has also been made available by CERSAI for the use of the
reporting entities.
18.4. In the first phase, the registered intermediaries shall upload the KYC data with
CKYCR, in respect of all individual accounts opened on or after August 1, 2016,
wherever KYC is required to be carried out as per the circulars issued by SEBI
from time to time and accordingly, shall take steps to prepare their systems for
uploading the KYC data.
18.5. Government of India, vide its letter dated October 04, 2016, directed the
following with regard to KYC details of existing and new individual clients:
18.5.1. Registered intermediaries have to update their IT systems as well as
register all new accounts of individuals in accordance with the CKYCR
template, mandatorily by October 31, 2016.
18.5.2. Mutual funds and Intermediaries other than mutual funds may follow
the following time lines in respect of uploading KYC data of the existing
individual clients with CKYCR.
18.5.3. Mutual funds may ensure 30% completion of uploading of existing KYC
data by November 30, 2016, another 30% of KYC data by January 31, 2017
and the rest 40% data by March 31, 2017.
18.5.4. Intermediaries other than mutual funds may ensure 50% completion of
uploading of existing KYC data by November 30, 2016 and the remaining
50% of KYC data by December 31, 2016.
18.6. In case of mutual funds, compliance of the above shall be monitored by the
Boards of Asset Management Companies and the Trustees and in case of other
intermediaries by their Board of Directors.
19. AADHAAR19
19.1. Aadhaar Letter issued by Unique Identification Authority of India (UIDAI)
shall be admissible as Proof of Address in addition to it being recognized as
Proof of Identity.
19.2. e-KYC service launched by UIDAI shall be accepted as a valid process for KYC
verification. The information containing relevant client details and photograph
made available from UIDAI as a result of e-KYC process shall be treated as
19 Reference: Circular CIR/MIRSD/09/2012 dated August 13, 2012,
Circular CIR/MIRSD/09/2013 dated October 08, 2013 and
Circular CIR/MIRSD/29/2016 dated January 22, 2016.
31
भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
sufficient Proof of Identity and Address of the client. However, the client shall
have to authorize the intermediary to access his data through UIDAI system.
19.3. The Hon'ble Supreme Court, in Writ Petition (Civil) No. 494 of 2012 in the
matter of Justice K.S. Puttaswamy (Retd.) & Another vs Union of India &
Others, vide order dated August 11, 2015 and October 15, 2015 directed that the
usage of the Aadhaar card as issued by the Unique Identification Authority of
India (UIDAI) is voluntary. In view of the said orders, the usage of Aadhaar
card is optional and purely on a voluntary basis, subject to the final judgment
of the Hon’ble Supreme Court in the aforesaid petition.
19.4. For accessing the details enabling client identification and authentication from
UIDAI based on client authorisation, on voluntary basis, intermediaries who
utilize the services of KYC Service Agencies (KSAs) would be registered as
KYC User Agencies (KUA) with UIDAI.
19.5. For entering into account based relationship, the client may provide the
following information to the intermediary:
19.5.1. Name
19.5.2. AADHAAR Number
19.5.3. Permanent Account Number (PAN)
19.6. The above information can be provided by the client electronically including
through any web enabled device.
19.7. The intermediary shall perform verification of the client with UIDAI through
biometric authentication (fingerprint or iris scanning). Mutual Funds can also
perform verification of the client with UIDAI through One Time password
(OTP) received on client’s mobile number or on e-mail address registered with
UIDAI provided, the amount invested by the client does not exceed Rs. 50,000
per financial year per Mutual Fund and payment for the same is made through
electronic transfer from the client’s bank account registered with that Mutual
Fund.
19.8. PAN of such client is to be verified from the income tax website.
19.9. After due validation of Aadhaar number provided by the client, the
intermediary (acting as KUA) shall receive the KYC information about the
client from UIDAI through KSA.
19.10. The information downloaded from UIDAI shall be considered as sufficient
information for the purpose of KYC verification. The intermediary shall
upload this KYC information on the KRA system in terms of KRA
Regulations.
32
भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
19.11. In case material difference is observed either in the name (as observed in the
PAN vis-a-visAadhaar) or photograph in Aadhaar is not clear, the
intermediary shall carry out additional due diligence and maintain a record of
the additional documents sought pursuant to such due diligence.
19.12. The records of KYC information so received shall be maintained by the
intermediary as per the SEBI Act, Regulations and various circulars issued
thereunder.
20. Guidelines on Identification of Beneficial Ownership20
20.1. SEBI Master Circular No. CIR/ISD/AML/3/2010 dated December 31, 2010
has mandated all registered intermediaries to obtain, as part of their Client
Due Diligence policy, sufficient information from their clients in order to
identify and verify the identity of persons who beneficially own or control the
securities account. The beneficial owner has been defined in the circular as the
natural person or persons who ultimately own, control or influence a client
and/or persons on whose behalf a transaction is being conducted, and
includes a person who exercises ultimate effective control over a legal person
or arrangement.
20.2. SEBI has also prescribed uniform Know Your Client (KYC) requirements for
the securities markets vide circular nos. CIR/MIRSD/16/2011 dated August
22, 2011 and MIRSD/SE/Cir-21/2011 dated October 5, 2011. The SEBI KYC
Registration Agency (KRA) Regulations, 2011 have been notified and
guidelines have been issued under these regulations from time to time.
20.3. Further, the Prevention of Money Laundering Rules, 2005 also require that
every banking company, financial institution and intermediary, as the case
may be, shall identify the beneficial owner and take all reasonable steps to
verify his identity. The Government of India in consultation with the
regulators has now specified a uniform approach to be followed towards
determination of beneficial ownership. Accordingly, the intermediaries shall
comply with the following guidelines.
20.3.1. For clients other than individuals or trusts - Where the client is a person
other than an individual or trust, viz., company, partnership or
unincorporated association/body of individuals, the intermediary shall
identify the beneficial owners of the client and take reasonable measures
to verify the identity of such persons, through the following information:
a. The identity of the natural person, who, whether acting alone or
together, or through one or more juridical person, exercises control
through ownership or who ultimately has a controlling ownership
20 Reference: Circular CIR/MIRSD/2/2013 dated January 24, 2013.
33
भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
interest.
Explanation: Controlling ownership interest means ownership
of/entitlement to:
i. more than 25% of shares or capital or profits of the juridical
person, where the juridical person is a company;
ii. more than 15% of the capital or profits of the juridical person,
where the juridical person is a partnership; or
iii. more than 15% of the property or capital or profits of the juridical
person, where the juridical person is an unincorporated
association or body of individuals.
b. In cases where there exists doubt under clause 20.3.1(a) above as to
whether the person with the controlling ownership interest is the
beneficial owner or where no natural person exerts control through
ownership interests, the identity of the natural person exercising
control over the juridical person through other means.
Explanation: Control through other means can be exercised through
voting rights, agreement, arrangements or in any other manner.
c. Where no natural person is identified under clauses 20.3.1(a) or
20.3.1(b) above, the identity of the relevant natural person who holds
the position of senior managing official.
20.3.2. For client which is a trust - Where the client is a trust, the intermediary
shall identify the beneficial owners of the client and take reasonable
measures to verify the identity of such persons, through the identity of
the settler of the trust, the trustee, the protector, the beneficiaries with
15% or more interest in the trust and any other natural person exercising
ultimate effective control over the trust through a chain of control or
ownership.
20.3.3. Exemption in case of listed companies -Where the client or the owner of
the controlling interest is a company listed on a stock exchange or is a
majority-owned subsidiary of such a company, it is not necessary to
identify and verify the identity of any shareholder or beneficial owner of
such companies.
20.3.4. Applicability for foreign investors - Intermediaries dealing with foreign
investors’ viz., Foreign Institutional Investors, Sub Accounts and
Qualified Foreign Investors, may be guided by the clarifications issued
vide SEBI circular CIR/MIRSD/11/2012 dated September 5, 2012, for the
purpose of identification of beneficial ownership of the client.
34
भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
III. SUPERVISION & OVERSIGHT
21. Oversight of Members (Stock Brokers/Trading Members/Clearing Members of
any Segment of Stock Exchanges and Clearing Corporations)21
21.1. Inspection of Members by Stock Exchanges / Clearing Corporations
21.1.1. The Stock Exchange or the Clearing Corporation, as the case may be,
shall, in consultation with SEBI, formulate a policy for annual inspection
of their members in various segments and follow up action thereon. The
policy shall also cover various kinds of risks posed to the investors and
market at large on account of the activities/business conduct of their
members.
21.1.2. The Stock Exchange or the Clearing Corporation, as the case may be, shall
conduct inspection of their members in various segments in terms of the
above policy and in case of members who hold multiple memberships of
the exchanges, the Stock Exchanges shall establish an information sharing
mechanism with one another on the important outcome of inspection in
order to improve the effectiveness of supervision.
21.1.3. The inspection shall cover:
a. Compliance with the relevant provisions of the Act, Rules and
Regulations made there under, Rules and Regulation of the Stock
Exchange / Clearing Corporation and the circulars issued by SEBI
and Stock Exchanges / Clearing Corporations from time to time, and
b. Efficacy of the investor grievance redressal mechanism and discharge
of various obligations towards clients, for the preceding one year
unless a longer period is warranted in the circumstances.
21.1.4. An illustrative list of common violations/deficiencies observed by SEBI in
its inspections of members is enclosed as Annexure. The Stock Exchanges
and Clearing Corporations are advised to bring this list to the notice of
members with an advice to them to avoid these violations/deficiencies.
21.1.5. The Stock Exchange or the Clearing Corporation, as the case may be, shall
initiate all the follow up action – remedial, penal and disciplinary -
required on inspection findings, within 6 months from the conclusion of
the inspection.
21 Reference: Circular SEBI/MIRSD/MASTER CIR-04/2010 dated March 17, 2010 and Circular
CIR/MIRSD/13/2012 dated December 07, 2012.
35
भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
21.2. Internal Audit
21.2.1. The member shall carry out complete internal audit on a half yearly basis
by an independent qualified Chartered Accountant, Company Secretary
or Cost and Management Accountant who is in practice and does not
have any conflict of interest.
21.2.2. The audit shall cover, inter alia,
a. the existence, scope and efficiency of the internal control system,
b. compliance with the provisions of the SEBI Act, 1992, Securities
Contracts (Regulation) Act 1956, SEBI (Intermediaries) Regulations,
2008, SEBI (Stock Brokers and Sub-Brokers) Regulations, 1992,
circulars issued by SEBI from time to time, Bye Laws and Regulations
and circulars issued by the Stock Exchange / Clearing Corporation,
c. data security and insurance in respect of operations, and
d. efficacy of the investor grievance redressal mechanism and discharge
of various obligations towards clients.
21.2.3. The internal auditor shall submit the audit report to the member, who
shall place it before its Board of Directors/Proprietor/Partners and shall
forward the same along with para-wise comments to the respective Stock
Exchange/ Clearing Corporation within two months22 from the end of the
half year period.
21.2.4. The Stock Exchange/Clearing Corporation shall analyze the audit reports
so received and take appropriate follow up action.
21.2.5. The Stock Exchange/Clearing Corporation shall initiate appropriate
actions – remedial, penal or disciplinary - against the members where
deficiencies are noticed in audit reports or where audit report has not
been received, and inform the details of action taken to SEBI, within six
months from the end of the half year period.
21.3. Default in case of Multiple Membership
21.3.1. Whenever a member of any segment is declared defaulter, the concerned
Stock Exchange/Clearing Corporation shall immediately declare it a
defaulter in all its segments. It shall also immediately inform all other
Stock Exchanges/Clearing Corporations the details of the defaulter
member such as name of the member, the names of the
proprietors/partners/promoters/dominant shareholders, as applicable.
22 Words “three months” replaced with “two months” in view of Para 4.5.1 of Annexure of SEBI
circular SEBI/HO/MIRSD/MIRSD2/CIR/P/2016/95 dated September 26, 2016.
36
भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
21.3.2. Immediately on receipt of the information about default of a member, the
Stock Exchange / Clearing Corporation shall declare the said member
defaulter on all its segments.
21.3.3. The Stock Exchanges / Clearing Corporations shall take appropriate
action against the associates of defaulter member. For this purpose, the
term ‘associate’ shall include a person:
a. who, directly or indirectly, by itself, or in combination with other
persons, exercises control over the member, whether individual, body
corporate or firm or holds substantial share of not less than 15% in the
capital of such entities; or
b. in respect of whom the member, individual or body corporate or firm,
directly or indirectly, by itself or in combination with other persons,
exercises control; or
c. whose director or partner is also a director or partner of the member,
body corporate or the firm, as the case may be.
Explanation: The expression “control" shall have the same meaning as
defined under clause (e) of Regulation 2 of the SEBI (Substantial
Acquisition of Shares and Takeovers) Regulations, 2011.23
ANNEXURE24
The common irregularities observed in the Stock Brokers/trading members
books are bought to the notice of all. They are as follows:
S. No. Description
I Relating to KYC
1. ‘In person verification’ not done while opening the account. Photo
copy of KYC &Rights and Obligations document are not provided to
clients; if provided proof of delivery/dispatch is not maintained.
2. Adding clauses in Rights and Obligations document which are
contrary to the clauses as prescribed by SEBI. Voluntary clauses are
not highlighted as ‘voluntary’ and signatures of clients taken on all
the documents.
23 Words “clause (c) of Regulation 2 of the SEBI (Substantial Acquisition of Shares and Takeovers)
Regulations, 1997” replaced with “clause (e) of Regulation 2 of the SEBI (Substantial Acquisition of
Shares and Takeovers) Regulations, 2011” in view of SEBI (Substantial Acquisition of Shares and
Takeovers) Regulations, 1997 being repealed and SEBI (Substantial Acquisition of Shares and
Takeovers) Regulations, 1997 being in force as on date.
24 Para VI(37) of Annexure of Circular SEBI/MIRSD/MASTER CIR-04/2010 dated March 17,
2010, deleted in view of Notification LAD-NRO/GN/2011-12/03/12650 dated April 19, 2011.
37
भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
II Relating to Contract notes
3. Contract notes are not bearing serial numbers, SEBI registration
numbers, Order no. & time. Contract notes are not issued in the
prescribed format/not issued within 24 hours of trade execution/not
signed properly by the broker or his authorized representatives.
4. Duplicates/counterfoils/acknowledged copies of the contract notes
issued not being maintained or maintained with inadequate details.
5. Not issuing contracts in the prescribed format while acting as
principal.
6. Appropriate stamp duty not paid and charging Securities Transaction
Tax (STT) on non equity funds transactions by the brokers.
7. Brokerage is not shown separately on contract notes. The correct rate
at which the transaction was executed is not passed on to the client.
8. Charges other than brokerage and statutory charges levied on the
clients which are not specifically agreed upon by the clients or
charging more than the limits prescribed.
9. In case the Electronic Contract Notes (ECN) are issued, the same are
not made available on brokers’ websites/ sending ECN on single
email-id for a group of clients/not maintaining ECN logs for ECN
sent to the clients.
III Relating to Investor services
10. Deficiency in service to the clients.
11. Non maintenance of investor grievance register and lack of proper
system for receipt and reconciliation of investor grievances/not
taking adequate steps for redressal of grievances of investors within
one month from the date of receipt of the complaint.
12. Non maintenance of client database or details captured wrongly in
the database.
13. There are delays between pay-out by the exchange to their members
and the transmission of shares/money received in such pay-out to
their clients by brokers without any record of reasons for such delay.
14. Non dissemination of email ID created for receiving investor
38
भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
grievances to the investors.
15. Freezing of accounts of clients without giving adequate reason.
16. Providing multiple client codes to one client/using same PAN no. for
more than one client.
17. Frequent trade modification/client code modification done in client
account
18. Daily margin statement and quarterly statements not sent to clients
19. Relationship managers acting as portfolio managers by entering into
verbal agreement with clients for trading on their behalf.
IV Relating to funds and securities
20. Unauthorized trading activities carried out in client’s account.
21. Not having separate account for clients' funds/securities or having
separate accounts for clients but not segregating clients'
funds/securities from its own funds/securities.
22. The brokers are found involved in funding activities - with the
exception of those in connection with or incidental to or
consequential upon the securities business.
23. Non collection of margin from clients/wrong reporting of collection
of margins to exchanges/clearing members.
24. Accepting cash from the clients. Accepting/giving third party
payments/receipts.
25. The details of shares pledged not being informed to client25.
V Relating to terminals
26. Not putting the unique client code (UCC) of clients while placing
orders in the trading system.
27. The broker granting the trading terminals at places other than that
25 Words “Pledging client’s securities without explicit authorization from client” in Para IV(25) of
Annexure of Circular SEBI/MIRSD/MASTER CIR-04/2010 dated March 17, 2010, deleted in
view of Para 2(c) of SEBI circular CIR/HO/MIRSD/MIRSD2/CIR/P/2017/64 dated June 22,
2017.
39
भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
specified by SEBI e.g. registered office, branch office or registered
sub-brokers’ offices.
28. Terminals operated by personnel without having proper
qualification/ persons operating the terminal are not
employees/remisiers/sub-brokers of stock brokers.
VI Others
29. Non-maintenance or improper maintenance of Books of Accounts
which are required to be maintained as per Rule 15 of SC (R) Rules,
1957 and Regulation 17 of SEBI (Brokers and Sub-Brokers)
Regulations 1992.
30. Non-compliance with provisions relating to spot/negotiated deals.
31. Instances of the broker/dealers/others connected with the broker,
involved in front running, circular trading, creating false markets,
misuse of the exchange mechanism for securing financing
transactions, entering fictitious transactions and illegal transactions.
32. Non submission of audit report/internal audit reports within the
prescribed time limit.
33. Dealing with unregistered sub-brokers/acting through brokers of
other exchanges for its clients without registering as a sub-broker of
these brokers.
34. Involved in business other than the securities business in violation of
applicable laws.
35. Non payment/ inadequate payment of SEBI registration fees by the
stock brokers and also by their sub-brokers.
36. Not complying with the provisions of advertisements/internet based
trading
37. Non appointment of compliance officer.
38. Non- compliance with trading restrictions imposed by Stock
Exchanges
39. Trading in unlisted securities and in securities prior to their
admission to dealings by Exchanges
40
भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
40. Not reporting off-the-floor transactions (e.g.) (a) The transactions
with stock brokers of other exchanges (b) Principal to principal
transactions with clients (c) Transactions done after the trading hours.
41. Not informing the investors/general public about cancellation of
registration of its sub-broker(s)
42. Non-formation of policies related to internal controls,
employee/insider trading, Prevention of Money Laundering (PML)
etc. If policies are formulated, they are not implemented.
43. Delivery vs payment (DvP) trades are done in other than those
circumstances as prescribed.
22. Policy of Annual Inspection of Members by Stock Exchanges/Clearing
Corporations26
22.1. Policy for annual inspection of members, as decided in consultations with
Stock Exchanges/Clearing Corporations, is prescribed in Annexure below.
ANNEXURE
1. The criteria for selection of members for annual inspection are as follows:
1.1. Stock Brokers servicing investors, getting disabled on account of funds
shortages on more than 3 times in a month shall be inspected irrespective of the
fact of when they were last inspected.
1.2. Stock Brokers servicing investors, having overnight disablement on account of
margin shortage for more than 2 days shall be inspected irrespective of the fact
of when they were last inspected.
1.3. Top 25 stock brokers paying high and recurring penalties for non-reporting or
short reporting of margin/Client Code modification/CTCL mismatch fines or
any other similar high risk compliance issue shall be inspected irrespective of
when they were last inspected.
1.4. Top 25 stock brokers in terms of investor complaints and arbitration cases filed
by investors shall be inspected irrespective of the fact of when they were last
inspected.
1.5. Stock Brokers having adverse observations in the internal audit report on high
risk issues like wrong reporting of margins, transfer of trades, pledging of
26 Reference: Circular CIR/HO/MIRSD/MIRSD2/CIR/P/2017/73 dated June 30, 2017.
41
भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
client securities, dealing with unregistered intermediaries etc., shall be
inspected irrespective of the fact of when they were last inspected.
1.6. Subsidiaries of Regional Stock Exchanges shall be inspected every year.
1.7. Stock Exchange shall frame internal policy for selection of stock brokers for
inspection based on inputs/alerts from Risk Based Supervision.
1.8. Besides the above, the special purpose/limited inspections shall be carried out
based on any triggers like patterns found during investor complaint
resolution/Arbitration, complaints on specific malpractices of a broker or
references from various authorities. The inspection shall be irrespective of the
fact of when the last inspection was carried out.
1.9. Apart from the above few stock brokers shall be selected by the Stock
Exchanges on a random basis for inspection.
1.10. Stock Brokers who do not fall under any of the above category shall be
inspected by the Stock Exchanges at least once in three years.
1.11. Stock Brokers selected on the above category shall be inspected for all segments
and also for clearing activity if the stock broker is undertaking clearing for
other stock brokers.
1.12. Inspections of Professional Clearing Members shall be conducted by Clearing
Corporations once in two years.
2. Clearing activity undertaken by stock brokers for other stock brokers shall be
inspected by Clearing Corporations. Other activities of stock brokers shall be
inspected by Stock Exchanges. If Stock Exchanges and Clearing Corporations so
desire, they can conduct joint inspections of stock brokers. Where Clearing
Corporation has not been set up, Stock Exchange shall inspect all activities of stock
brokers including activity of clearing for other stock brokers.
3. The Stock Exchanges/Clearing Corporations are advised to continuously assess the
risks posed by their members and review/revise the policy of annual inspection, as
and when required, in consultation with SEBI.
4. The Stock Exchanges shall establish an information sharing mechanism with one
another on the important outcome of inspection of members who hold multiple
memberships of the exchanges in order to improve the effectiveness of supervision
and shall also bring cases of repetitive and / or serious violations to the notice of
SEBI.
42
भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
23. Enhanced Supervision of Stock Brokers / Depository Participants27
23.1. SEBI constituted a committee on “Enhanced Supervision of Stock Brokers”,
which included representatives from Stock Exchanges, Depositories and
Brokers. With a view to implement the recommendations, the guidelines in
Annexure below have been issued. These guidelines cover the following broad
areas:
23.1.1. Uniform nomenclature to be followed by stock brokers for
Naming/Tagging of Bank and Demat Accounts and the reporting of such
accounts to the Stock Exchanges/Depositories.
23.1.2. Monitoring of Clients’ Funds lying with the stock broker by the Stock
Exchanges, through a sophisticated alerting and reconciliation
mechanism, to detect any misutilisation of clients’ fund.
23.1.3. Changes in the existing system of internal audit for stock
brokers/depository participants viz. appointment, rotation of Internal
Auditors, formulation of objective sample criteria, monitoring of quality
of Internal Audit Reports, timeline for submissions of Internal Audit
Reports, etc.
23.1.4. Monitoring of Financial Strength of Stock Brokers by Stock Exchanges so
as to detect any signs of deteriorating financial health of stock brokers
and serve as an early warning system to take preemptive and remedial
measures.
23.1.5. Imposition of uniform penal action on stock brokers/depository
participants by the Stock Exchanges/Depositories in the event of non-
compliance with specified requirements.
23.1.6. Other Requirements:
a) Uploading client's funds and securities balances by Stock Brokers to
Stock Exchange System and onwards transmission of the same to the
clients for better transparency.
b) Clarification on Running Account Settlement
c) Providing PAN details of Directors, Key Management Personnel and
Dealers, to Stock Exchanges and any change thereof.
23.2. The provisions of enhanced supervision circular is not applicable to Regional
27 Reference: Circular SEBI/HO/MIRSD/MIRSD2/CIR/P/2016/95 dated September 26, 2016,
Circular CIR/HO/MIRSD/MIRSD2/CIR/P/2017/64 dated June 22, 2017,
Circular CIR/HO/MIRSD/MIRSD2/CIR/PB/2017/107 dated September 25, 2017 and
Circular SEBI/HO/MIRSD/MIRSD2/CIR/P/2017/123 dated November 29, 2017.
43
भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
Commodity Exchanges till further notice.
ANNEXURE
1. Naming/Tagging of Bank and Demat Accounts by Stock Broker
1.1. Bank accounts and Demat accounts maintained by all stock brokers shall have
appropriate nomenclature to reflect the purpose for which those bank/demat
accounts are being maintained.
1.2. The nomenclature for bank accounts and demat accounts to be followed is given
as under:
1.2.1. Bank account(s) which hold clients funds shall be named as "Name of
Stock Broker - Client Account".
1.2.2. Demat account(s) which hold clients' securities shall be named as "Name
of Stock Broker- Client Account".
1.2.3. Demat account(s), maintained by the stock broker for depositing securities
collateral with the Clearing Corporation, shall be named as "Name of
Stock Broker-Collateral Account".
1.2.4. Demat account(s) held for the purpose of settlement would be named as
“Name of Stock Broker - Pool account".
1.2.5. Bank account(s) held for the purpose of settlement would be named as
“Name of Stock Broker - Settlement Account".
1.3. Naming proprietary bank/demat accounts of the stock broker as 'Stock Broker-
Proprietary Account' is voluntary. It is however clarified that bank/demat
account which do not fall under the above clauses from 1.2.1 to 1.2.5 would be
deemed to be proprietary.
2. Reporting of Bank and Demat accounts maintained by Stock Broker:
2.1. The stock brokers shall inform the Stock Exchanges of existing and new bank
account(s) in the following format:
Name and Name of Account IFSC Name of Purpose of Date of
address of the Number Code Account Account Opening
Bank Branch (Own/Client/
Settlement)
44
भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
2.1.1. Stock Broker which is also Bank, may be required to report to the Stock
Exchanges only those bank accounts that are used for their stock broking
activities.
2.2. The stock brokers shall inform the Stock Exchanges of existing and new demat
account(s) in the following format:
Name of Account DP Name of PAN Sub-type/ tag of Date of
DP Number/ ID Account Demat Account Opening
Client ID Holder (Proprietary/
Client/ Pool/
Collateral)
2.3. Stock Exchanges and/or Depositories, as the case may be, shall ensure the
following:
2.3.1. All new bank and demat accounts opened by the stock brokers shall be
named as per the above given nomenclature and the details shall be
communicated to the Stock Exchanges within one week of the opening of
the account.
2.3.2. In case of closure of any of the reported bank and demat accounts, the
same shall be communicated to the Stock Exchanges within one week of
its closure.
2.3.3. Depositories shall ensure that once the nomenclature for a particular
demat account has been assigned by the stock broker, then the same shall
not be modified.
2.3.4. Any non-compliance/non-reporting in this regard by the stock broker
shall attract penal action as per the provisions of Stock Exchanges.
2.3.5. Based on the list of stock brokers (including PANs) provided by the
respective Stock Exchanges, Depositories shall also provide stock broker-
wise details of all the demat accounts opened by a stock broker to the
concerned Stock Exchanges to facilitate reconciliation with the data
submitted by the stock broker.
2.4. In line with the prevalent regulatory requirement, it is reiterated that;
2.4.1. Stock Broker shall not use client funds and securities for proprietary
purposes including settlement of proprietary obligations.
2.4.2. Transfer of funds between "Name of Stock Broker - Client Account" and
45
भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
"Name of Stock Broker - Settlement Account" and client's own bank
accounts is permitted. Transfer of funds from "Name of Stock Broker -
Client Account" to "Name of Stock Broker - Proprietary Account" is
permitted only for legitimate purposes, such as, recovery of brokerage,
statutory dues, funds shortfall of debit balance clients which has been met
by the stock broker, etc. For such transfer of funds, stock broker shall
maintain daily reconciliation statement clearly indicating the amount of
funds transferred.
2.4.3. Transfer of securities between "Name of the Stock Broker - Client
Account” and individual client's BO account, “Name of the Stock Broker –
Pool Account" and “Name of the Stock Broker – Collateral Account" is
permitted. Transfer of securities between ”Name of the Stock Broker -
Client Account” to ”Name of the Stock Broker - Proprietary Account” is
permitted only for legitimate purposes such as, implementation of any
Government/Regulatory directions or orders, in case of erroneous
transfers pertaining to client's securities, for meeting legitimate dues of the
stock broker, etc. For such transfer of securities, stock broker shall
maintain a stock transfer register clearly indicating the day-wise details of
securities transferred.
2.4.4. The Stock Exchanges shall monitor compliance with the above
requirements, during inspections and the same shall be reviewed by the
internal auditor of the broker during the half yearly internal audits.
2.5. As per existing norms, a stock broker is entitled to have a lien on client's
securities to the extent of the client's indebtedness to the stock broker and the
stock broker may pledge those securities. Pledge of such securities is permitted,
only if, the same is done through Depository system in compliance with
Regulation 58 of the SEBI (Depositories and Participants) Regulations, 1996. To
strengthen the existing mechanism, the stock brokers shall ensure the following:
2.5.1. Securities of only those clients can be pledged who have a debit balance in
their ledger.
2.5.2. Funds raised against such pledged securities for a client shall not exceed
the debit balance in the ledger of that particular client.
2.5.3. Funds raised against such pledged securities shall be credited only to the
bank account named as "Name of the Stock Broker - Client Account".
2.5.4. The securities to be pledged shall be pledged from BO account tagged as
"Name of the Stock Broker - Client Account".
2.5.5. Stock Brokers shall send a statement reflecting the pledge and funding to
46
भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
the clients as and when their securities are pledged/unpledged as given
below:
A B C D E F G H
Da Cli Led Collateral of client available with
te ent ger Broker
Co debi
de t at
the
end
of
trad
e
day
**
ISIN Previ Total Total Total Pled Pled Borro Deta
/ ous Quan Valu Value ged ged wing ils of
Secu day’s tity e (Adju Quan valu Pled
rity closi (Tota sted tity e gee
Nam ng l for
e price Quan applic
tity * able
Previ haircu
ous t)
day
closi
ng
price
)
**Ledger debit would be after adjusting for open bills of clients, uncleared cheques deposited by
clients and uncleared cheques issued to clients
2.6. Stock Brokers shall not grant further exposure to the clients when debit balances
arise out of client's failure to pay the required amount and such debit balances
continues beyond the fifth trading day, as reckoned from date of pay-in, except,
in accordance with the margin trading facility provided vide SEBI circular
CIR/MRD/DP/54/2017 dated June 13, 2017 or as may be issued from time to
47
भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
time.
3. Monitoring of Clients’ Funds lying with the Stock Broker by the Stock Exchanges
3.1. Stock Exchanges shall put in place a mechanism for monitoring clients’ funds
lying with the stock broker to generate alerts on any misuse of clients’ funds by
stock brokers, as per the guidelines stipulated in para 3.2 & 3.3 below.
3.2. The uploading of the following data by the stock broker to the Stock Exchanges
shall be on weekly basis i.e. stock brokers shall submit the data as on last trading
day of every week on or before the next three trading days. Further, the Stock
Broker shall not be required to upload data with respect to custodian settled
clients.
A- Aggregate of fund balances available in all Client Bank Accounts, including
the Settlement Account, maintained by the stock broker across Stock
Exchanges.
B- Aggregate value of collateral deposited with Clearing Corporation and/or
clearing member (in cases where the trades are settled through clearing
member) in form of Cash and Cash Equivalents (Fixed deposit (FD), Bank
guarantee (BG), etc.) (across Stock Exchanges). Only funded portion of the BG,
i. e. the amount deposited by stock broker with the bank to obtain the BG,
shall be considered as part of B.
C- Aggregate value of Credit Balances of all clients as obtained from trial balance
across Stock Exchanges (after adjusting for open bills of clients, uncleared
cheques deposited by clients and uncleared cheques issued to clients and the
margin obligations).
D- Aggregate value of Debit Balances of all clients as obtained from trial balance
across Stock Exchanges (after adjusting for open bills of clients, uncleared
cheques deposited by clients, uncleared cheques issued to clients and the
margin obligations).
E- Aggregate value of proprietary non-cash collaterals i.e. securities which have
been deposited with the Clearing Corporation and/or clearing member
(across Stock Exchanges).
F- Aggregate value of Non-funded part of the BG across Stock Exchanges.
P- Aggregate value of Proprietary Margin Obligation across Stock Exchanges.
MC- Aggregate value of Margin utilized for positions of Credit Balance Clients
across Stock Exchanges.
48
भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
MF- Aggregate value of Unutilized collateral lying with the Clearing Corporation
and/or clearing member across Stock Exchanges.
3.3. Based on the aforesaid information submitted by the stock broker, Stock
Exchanges shall put in place a mechanism for monitoring of clients’ funds lying
with the stock brokers on the principles enumerated below:
3.3.1. Funds of credit balance clients used for settlement obligation of debit
clients or for own purpose:
Principle:
The total available funds i.e. cash and cash equivalents with the stock
broker and with the Clearing Corporation/clearing member (A + B)
should always be equal to or greater than Clients’ funds as per ledger
balance (C).
Stock Exchanges shall calculate the difference i.e. G as follows –
G = (A+B) - C
If difference G is negative, then the total available fund is less than the
ledger credit balance of clients. The value of G may indicate utilization of
clients' funds for other purposes i.e. funds of credit balance clients are
being utilized either for settlement obligations of debit balance clients or
for the stock brokers' own purposes. The negative value of G acts as an
alert to the Stock Exchanges.
Thereafter, the absolute value of G shall be compared with debit balance
of all clients as per client ledger D as follows:
If the absolute value of (G) is lesser than |D|, then the stock broker has
possibly utilised funds of credit balance clients towards settlement
obligations of debit balance clients to the extent of value of G.
If the absolute value of (G) is greater than |D|, then the stock broker has
possibly utilised a part of funds of credit balance clients towards
settlement obligations of debit balance clients and remaining part for his
own purposes. In such cases the amount of client funds used for own
purpose is calculated as follows:
H= |G|- |D|
3.3.2. Funds of clients used for Margin obligation of proprietary trading:
Stock Exchanges shall thereafter, verify whether the proprietary margin
49
भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
obligations (across Stock Exchanges) is less than the own funds and
securities lying with the Stock Exchanges as collateral deposit, as follows:
Principle:
The sum of Proprietary funds and securities i.e. (G + E + F) lying with the
Clearing Corporation/clearing member should be greater than or equal to
Proprietary margin obligations (P).
If value of G is positive (i.e. A+B > C), then proprietary funds are lying
with the Clearing Corporation/clearing member and/or client bank
accounts along with the clients funds to the extent of positive value of G.
The sum of the proprietary funds (positive value of G), the value of
proprietary securities (E) and the non-funded portion of bank guarantee
(F) available in the Stock Exchanges is compared with the Proprietary
margin obligations (P).
If P > (G+E+F), then Stock Exchange shall calculate the difference I, which
is the amount of proprietary margin obligation funded from clients assets.
I = P - (G+E+F)
If G is negative, then, value of G is considered as 0, as there is no
proprietary funds lying with the Stock Exchange.
The value of I indicates the extent of funds and securities of clients which
is possibly utilised towards proprietary margin obligations. This value of I
acts as an alert to the Stock Exchanges on the possible mis-utilisation of
clients' assets towards proprietary margin obligations.
3.3.3. Funds of credit balance clients used for Margin obligations of debit
balance clients and proprietary trading:
Stock Exchanges shall thereafter, verify whether the clients funds lying
with the Clearing Corporation/clearing member are utilised towards
margin obligations of debit balance clients and proprietary margin
obligations.
Principle:
The clients' funds lying with the Clearing Corporation/clearing member
should be less than or equal to sum of credit clients' margin obligations
(MC) and free collateral deposits available with the Clearing
Corporation/clearing member (MF).
50
भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
If value of G is negative (i.e. A+B < C), then fund lying with the Clearing
Corporation/ clearing member (B) is entirely clients' fund. In such cases, B
is compared with Margin obligations of credit balance clients and the free
deposits available with the Clearing Corporation/ clearing member. The
value of J is calculated as under:
J = B - (MC + MF)
If value of G is positive (i.e. A+B > C), then fund lying with the Clearing
Corporation/clearing member (B) may contain proprietary and clients'
fund. Hence, the value of clients funds lying with the Clearing
Corporation/ clearing member i.e. (C-A) shall be considered in the place
of B.
In such cases, (C-A) is compared with Margin obligations of credit balance
clients and the free deposits available with the Clearing
Corporation/clearing member. The value of J, which is clients' funds
utilised towards margin obligations of debit balance clients and
proprietary margin obligations, is calculated as under:
J = (C - A) - (MC + MF)
The value of J, if positive, indicates the extent of clients' funds utilised
towards margin obligations of debit balance clients and proprietary
margin obligations. This value of J acts as an alert to the Stock Exchanges
on the possible misutilisation of clients' funds towards margin obligations
of debit balance clients and proprietary margin obligations.
3.4. Based on the alerts generated, Stock Exchange shall, inter-alia, seek clarifications,
carry out inspections and initiate appropriate actions to protect the clients’ funds
from being misused. Stock Exchanges shall also maintain records of such
clarifications sought and details of such inspections. The aforesaid calculations
are illustrated in tabular format in Table 1, 2 & 3 given at the end of the
Annexure.
3.5. Stock Exchanges shall carry out the monitoring of clients’ funds for all stock
brokers, except for those who are carrying out only proprietary trading and/or
only trading for institutional clients.
3.6. Stock Brokers shall ensure due compliance in submitting the information to the
Exchanges within the stipulated time.
51
भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
4. Internal Audit of Stock Broker
4.1. SEBI has mandated half yearly internal audit for stock brokers/clearing
members. The following additional requirements in relation to internal auditors
shall become applicable:
4.2. Appointment and Rotation of Internal auditors
4.2.1. Stock Exchanges shall ensure that;
4.2.1.1. Stock Broker obtains from the internal auditor the following details
and shares the same with the Stock Exchange:
a. Declaration stating that the internal auditor or its
directors/partners have no interest in or relation with the stock
broker concerned other than the proposed internal audit
assignment, and
b. Details of the internal auditor viz., Name, Address, PAN,
Designation of Auditor, Name & Address of the Audit Firm,
registration number of the Auditor and the Audit firm, any
regulatory action taken against internal
auditor/partner/director, if any, etc.
4.2.1.2. No stock broker shall appoint or re-appoint—
a. an individual as internal auditor for more than one term of five
consecutive years;
and
b. an audit firm as internal auditor for more than two terms of five
consecutive years.
Provided that—
4.2.1.3. An individual internal auditor who has completed his term under
clause 4.2.1.2 (a) above shall not be eligible for re-appointment as
internal auditor for the same stock broker for five years from the
completion of his term.
4.2.1.4. An audit firm which has completed its term under clause 4.2.1.2 (b)
above, shall not be eligible for re-appointment as internal auditor for
the same stock broker for five years from the completion of such
term; Provided further that as on the date of appointment no audit
firm having a common partner or partners to the other audit firm,
whose tenure has expired in a stock broker immediately preceding
the financial year, shall be appointed as internal auditor for the same
52
भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
stock broker for a period of five years.
4.2.1.5. The block of five years shall start from FY 2016-17.
4.3. Formulation of objective sample criteria for Internal Audit
4.3.1. The Stock Exchanges shall, in consultation with each other, develop for
each theme/area of the internal audit, a pre-defined objective sample
criteria, which shall mention not only the sample size but also the method
used for arriving at the sample size. For example, with respect to
verification of compliance with KYC norms, instead of the current practice
of selecting a minimum number of KYCs, the sample selected may be a
certain percentage of the top clients in each client category (Corporate,
Partnership, Individual, Trust, Others) based on total turnover on the
Stock Exchange and whose account has been opened during the audit
period. For each theme/area of audit, internal audit report shall clearly
specify the sample size verified, number of instances where adverse
observations have been made as also the details of the adverse
observations.
4.4. Monitoring of quality of Internal Audit Reports
4.4.1. The Stock Exchange shall every year identify a certain number of internal
auditors based on criteria, such as, number and size of stock brokers
audited, discrepancy in findings of auditor vis-à-vis Stock Exchange
inspection, regulatory actions taken against the
auditor/partners/directors, etc. A certain number of stock brokers who
have been audited by these identified internal auditors shall be selected
for inspection by the Stock Exchanges. The selection of these stock brokers
shall be on the basis of the Supervisory Risk Rating Score derived from the
Risk Based Supervisory System. Further, the sample and period of
inspection shall be the same as that used for internal audit.
4.4.2. In cases where material deviations are observed between the findings of
the internal audit report and the Stock Exchange inspection report, the
Stock Exchanges shall caution the stock broker to reconsider the
appointment of that particular internal auditor. The same shall also be
brought to notice of all the stock brokers who are audited by that
particular internal auditor. The Stock Exchange shall also bring the
deviations to the notice of the internal auditor. The Stock Exchange
inspections shall be so planned that at least one client (i.e. stock broker) of
each internal auditor is covered at least once in three years28.
28 Words “five years” replaced with “three years” in view of Para 1(j) of Annexure of SEBI Circular
CIR/HO/MIRSD/MIRSD2/CIR/P/2017/73 dated June 30, 2017.
53
भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
4.5. Submissions of Internal Audit Report
4.5.1. Stock Brokers shall ensure that the internal audit reports are submitted to
the Exchanges within two months of the end of respective half years for
which the audit is being conducted. The due date for submissions shall be
as under:
S. No. Period of Audit Due date for submission
1 For half year ending September 30th November 30th
2 For half year ending March 31st May 31st
4.6. Other requirements
4.6.1. The Stock Exchanges shall provide a mechanism to enable the internal
auditor to report directly to the Stock Exchanges in the event of non-
cooperation by the stock broker.
4.6.2. Stock Exchanges shall ensure that, the Internal Auditors also monitor the
corrective steps taken by the stock brokers to rectify the deficiencies
observed in the inspection carried out by SEBI/Stock Exchanges and the
compliance thereof. The compliance status shall be made as part of the
internal audit report.
5. Monitoring of Financial Strength of Stock Brokers
5.1. The Stock Exchanges shall monitor the following financial indicators and ratios
of stock brokers.
5.1.1. Financial Indicators:
a. Percentage change in net worth over last year/last submission.
b. Percentage change in reserves and surplus or in accumulated losses
over last year.
c. Percentage change in advance/margin/collaterals from customers
over last year/submission.
d. Percentage change in inter corporate deposits given over last
year/submission.
5.1.2. Financial Ratios:
a. (Total outside liabilities i.e. all liabilities of a broker except those owed
to his shareholders) / (Net worth).
b. (Value of Investments or advances or loans to group companies or
associates or firms or entities) / (Net worth).
c. (Value of maximum outstanding inter corporate debt during the year)
54
भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
/ (Net worth).
d. (Value of maximum outstanding inter corporate debt during the year)
/ (Share capital).
5.2. Stock Brokers shall submit financial statements to Stock Exchanges in the same
format as prescribed under Companies Act, 2013 irrespective of whether they fall
under the purview of Companies Act, 2013 or not. The due date for submission
of the aforesaid financial statements to Stock Exchanges shall be the same as
prescribed under Companies Act, 2013 for submission to Registrar of Companies.
5.3. No stock broker shall appoint or re-appoint—
5.3.1. an individual as statutory auditor for more than one term of five
consecutive years;
and
5.3.2. an audit firm as statutory auditor for more than two terms of five
consecutive years:
Provided that –
5.4. An individual statutory auditor who has completed his term under clause 5.3.1
above shall not be eligible for re-appointment as statutory auditor in the same
stock broker for five years from the completion of his term.
5.5. A statutory audit firm which has completed its term under clause 5.3.2 above,
shall not be eligible for re-appointment as statutory auditor in the same stock
broker for five years from the completion of such term.
5.6. Provided further that as on the date of appointment no statutory audit firm
having a common partner or partners to the other audit firm, whose tenure has
expired in a stock broker immediately preceding the financial year, shall be
appointed as statutory auditor of the same stock broker for a period of five years.
6. Standard Operating Procedures for Stock Brokers/Depository Participants -
Actions to be contemplated by Stock Exchanges/Depositories for any event based
discrepancies
6.1. As per existing norms, Stock Exchanges /Depositories are required to monitor
their members/depository participants. It has been decided that the Stock
Exchanges and Depositories shall frame various event based monitoring criteria
based on market dynamics and market intelligence. An illustrative list of such
monitoring criterias are given below:
6.1.1. Monitoring criteria for Stock Brokers
55
भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
a. Failure to furnish Networth certificate to Stock Exchange within 60
days for half year ending September 30th and half year ending March
31st.
b. Failure to furnish Internal Audit report to Stock Exchanges for half
year ending September 30th by November 30th and half year ending
March 31st by May 31st.
c. Failure to furnish Annual Audited Accounts by September 30th of the
relevant year.
d. Failure to co-operate with the Stock Exchange for conducting
inspection by not submitting all the information/records sought
within 45 days from the due date specified in the letter of intimation.
e. Failure to submit data for the half yearly Risk Based Supervision
within the time specified by Stock Exchange.
f. Failure to assign appropriate Bank and Demat nomenclature within
the time specified and to report the same to the Stock Exchanges.
g. Failure to report new bank and demat accounts opened by the stock
broker to exchanges within the time specified for reporting of such
accounts.
h. Complaints pending for more than 30 days and total value of which is
more than 50 per cent of the Networth of the Broker.
i. If, at any point of time, Net worth of the Broker is negative or lower
than 75 per cent of the requirement.
j. In case stock broker shares incomplete/wrong data or fails to submit
data on time.
k. Failure to submit financial statements as per timeline prescribed under
Companies Act, 2013.
6.1.2. Monitoring criteria for Depository Participants
a. Failure to furnish Networth certificate to Depository for year ending
March 31st by September 30th.
b. Failure to furnish Internal Audit report to Depository for half year
ending September 30th by November 15th and half year ending March
31st by May 15th.
c. Failure to co-operate with the Depository for conducting inspection by
not submitting all the information/records sought within 45 days from
the due date specified in the letter of intimation.
d. Failure to submit data for the half yearly Risk Based Supervision
within the time specified by Depositories.
e. Failure to furnish half yearly compliance certificate/report to
Depository for half year ending June 30th by July 30th and half year
ending December 31st by January 31st.
f. Failure to furnish monthly Investor grievance report by 10th day of
next month.
g. In case depository participant shares incomplete/wrong data or fails
56
भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
to submit data on time.
h. Failure to submit financial statements as per timeline prescribed by the
Depositories.
6.1.3. The Stock Exchanges and Depositories shall jointly frame uniform penal
action on stock brokers and depository participants respectively, in the
event of noncompliance with the illustrative criteria listed above.
Provided further that Stock Exchanges and Depositories may also frame
more stringent criteria than as mentioned above.
7. Uploading clients' fund balance and securities balance by the Stock Brokers on
Stock Exchange system
7.1. The Stock Exchanges shall put in place a mechanism and ensure that stock
brokers upload the following data on a monthly basis for every client onto each
Stock Exchange system where the broker is a member:
7.1.1. Exchange-wise end of day fund balance as per the client ledger,
consolidated across all segments and also net funds payable or receivable
by the broker to/from the client across all Exchanges.
7.1.2. End of day securities balances ISIN wise (as on last trading day of the
month) and End of day securities balances (as on last trading day of the
month) consolidated ISIN wise (i.e., total number of ISINs and total
number of securities across all ISINs).
7.1.3. ISIN wise number of securities pledged, if any, and the funds raised from
the pledging of such securities and consolidated number of securities
pledged (i.e., total number of ISINs and total number of securities across
all ISINs), if any and the funds raised from the pledging of such securities.
7.1.4. The data at Para 7.1.1, 7.1.2 and 7.1.3 pertains to the last trading day of the
month. The stock broker shall submit the aforesaid data within seven
calendar days of the last trading day of the month.
7.1.5. Stock Broker shall not be required to upload the data for the following
clients onto the Stock Exchange system:
a. Custodian settled clients
b. Client with zero funds and securities zero balances and also not traded
in the last 12 months.
7.2. Each Stock Exchange shall in turn forward –
7.2.1. Information at Para 7.1.1, 7.1.2 and 7.1.3 to clients via Email on the email
IDs uploaded by the stock broker to the exchange for their clients.
57
भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
7.2.2. Information at Para 7.1.1, 7.1.2 (only consolidated data) and 7.1.3 (only
consolidated data) to clients via SMS on mobile numbers uploaded by the
stock broker to the Exchange for their clients.
8. Running Account Settlement
8.1. The stock broker shall ensure that;
8.1.1. There must be a gap of maximum 90/30 days (as per the choice of client
viz. Quarterly/Monthly) between two running account settlements.
8.1.2. For the purpose of settlement of funds, the mode of transfer of funds shall
be by way of electronic funds transfer viz., through National Electronic
Funds Transfer (NEFT), Real Time Gross Settlement (RTGS), etc.
8.1.3. The required bank details for initiating electronic fund transfers shall be
obtained from new clients and shall be updated for existing clients. Only
in cases where electronic payment instructions have failed or have been
rejected by the bank, then the stock broker may issue a physical payment
instrument.
8.1.4. Statement of accounts containing an extract from client ledger for funds &
securities along with a statement explaining the retention of
funds/securities shall be sent within five days from the date when the
account is considered to be settled.
9. Providing PAN Number
9.1. The stock brokers shall provide Permanent Account Numbers of all their
Directors, Key Management Personnel and dealers to the Stock Exchanges. Any
change in the aforesaid details/information shall be intimated to the Stock
Exchanges within seven days of such change.
Table 1
RECONCILIATION - Funds of credit balance clients used for settlement obligation of
debit balance clients or for own purpose:
Funds Available in client Clients' Difference Calculate only if G is negative
bank accounts and Funds as
cash/cash equivalent per the
deposits with Clearing client
Corporation/ clearing ledger
member - across all Stock across all
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भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
Exchanges Stock
Exchanges
Total of Collateral Total Total Amount Amount
end of deposited Credit debit of funds of fund
the day with Balance of balance of one used for
balance Clearing all clients (after client own
in all Corporation/ (after adjusting used for purpose
Client clearing adjusting for open another (only if
Bank member in for open bills and client absolute
Accounts form of Cash bills and uncleared value G
and Cash uncleared cheques) is
Equivalents* cheques) greater
than
debit
balance
clients)
A B C G=(A+B)- D G, if H = |G|
C |G|< - |D|
|D|
* Cash equivalents contains other components of collateral deposited by the stock broker,
such as, FD, bank Guarantee etc. excluding the Non- cash component. If G is negative,
then there is utilization of clients' funds for other purposes i.e. either funds of credit
balance clients are being utilized for settlement obligations of debit balance clients or for
the stock brokers' own purposes. The difference has following two components:
Component I: Use of fund of one client for giving exposure to another client
Component II: Use of client fund for own purposes by stock broker
Amount of funds of one client used for settlement obligation another client = Total Debit
balances of all Clients (after adjusting for open bills and uncleared cheques)
Misuse of client’s fund for own purpose = Absolute value of G - Total Debit balances of
all clients (after adjusting for open bills and uncleared cheques)
Table 2
RECONCILIATION - Funds of clients used for Margin obligation of proprietary trading:
G(if positive) - Value of Own Non funded Proprietary Difference
own money Securities portion of the margin
Deposited as Bank Guarantee Obligation
Collateral with (F) - across all across all Stock
Clearing Stock Exchanges Exchanges
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भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
Corporation/
Clearing member
- across all Stock
Exchanges
G (from the E F P I = P -
reconciliation (G+E+F)
stage I -
positive value)
Proprietary Obligation mentioned in column P shall be the sum of cash margin
obligations and derivative margin obligations for proprietary trading as on reporting
day.
Table 3
RECONCILIATION - Funds of credit balance clients used for Margin obligations of
debit balance clients and proprietary trading:
Total of end Total Collateral Margin Free/unblocked Difference
of the day Credit deposited utilized for Collateral
balance in all Balance of with positions deposited with
Client Bank all clients Clearing of Credit Clearing
Accounts (after Corporation/ Balance Corporation/
across all adjusting clearing Clients (all clearing
Stock for open member in exchanges) member (MF)
Exchanges bills and form of Cash
uncleared and Cash
cheques)- Equivalents
across all across all
Stock Stock
Exchanges Exchanges
A (from the C B MC MF B-(MC+M
reconciliation F) Or (C-
stage 1 - A)-
positive (MC+MF)
value)
60
भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
24. Annual System Audit of Stock Brokers / Trading Members29
24.1. System audit guidelines for Stock Brokers / Trading members prescribed
below includes System Audit Process, Auditor Selection Norms and Terms of
Reference (TOR).
24.2. The Stock Exchanges should ensure that system audit of stock brokers /
trading members is conducted in accordance with the prescribed guidelines.
24.3. Exchanges are advised to keep track of findings of system audits of all brokers
on quarterly basis and ensure that all major audit findings, specifically in
critical areas, are rectified / complied in a time bound manner failing which
follow up inspection of such brokers may be taken up for necessary corrective
steps / actions thereafter, if any.
24.4. Stock Exchange should report all major non-compliances / observations of
system auditors, broker wise, on a quarterly basis to SEBI.
Stock Broker System Audit Framework
1. Audit Process
1.1. System Audit of stock brokers should be conducted with the following periodicity:
1.1.1. Annual system audit is prescribed for stock brokers who satisfy any of the following criteria:
a. Stock Brokers who use [Computer-to-Computer Link (CTCL) or Intermediate Messaging
Layer (IML)] (or other similar trading facilities) / Internet Based Trading (IBT)/ Direct
Market Access (DMA)/ Securities Trading using Wireless Technology (STWT) / Smart Order
Routing (SOR) and have presence in more than 10 locations or number of terminals are more
than 50.
b. Stock Brokers who are depository participants or are involved in offering any other financial
services.
1.1.2. Half yearly system audit has been prescribed for stock brokers who use Algorithmic Trading or
provide their clients with the facility of Algorithmic Trading as per SEBI Circular
CIR/MRD/16/2013 dated May 21, 2013.
1.1.3. For all other stock brokers, system audit shall be conducted once in two years.
1.2. Such audit shall be conducted in accordance with the Norms, Terms of Reference (ToR) and Guidelines
issued by SEBI and / or by Stock Exchanges. Separate ToRs are specified for the following categories of
brokers:
29 Reference: Circular CIR/MRD/DMS/34/2013 dated November 06, 2013.
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भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
1.2.1. Type I Broker: Brokers who trade through exchange provided terminals such as NSE’s NEAT,
BSE’s BOLT, MCX-SX’s TWS, etc. (ToR attached as Annexure I below);30
1.2.2. Type II Broker: Brokers who trade through API based trading terminals like [CTCL or IML] or
IBT/DMA/STWT or SOR facility and who may also be TYPE I Brokers. (ToR attached as
Annexure II below)
1.2.3. Type III Broker: Brokers who use Algorithmic Trading facility to trade and who may also be
TYPE II Brokers. (ToR attached as Annexure III below)
1.3. Stock brokers shall select auditors as per the selection norms provided in the guidelines and directions
issued by Stock Exchanges and SEBI from time to time. The Auditor may perform a maximum of 3
successive audits of the stock broker.
1.4. The Stock Exchanges shall periodically review ToR of such system audit and, if required, shall suitably
revise the ToR after taking into consideration developments that have taken place in the securities
market since the last review of ToR, observations reported in the audit reports of the stock brokers and
directions issued by SEBI from time to time in this regard.
1.5. The auditor in its report shall specify compliance / non-compliance status with regard to areas
mentioned in ToR. Observations on minor / major deviations as well as qualitative comments for scope
for improvement shall also be specified in the report. The auditor shall also take into consideration the
observations / issues mentioned in the previous audit reports and cover open items in the report. The
audit report submitted by the auditor should be forwarded to the Stock Exchange by the Stock Broker
along with management comments, within 1 month of submission of report by the auditor.
1.6. Stock Exchange shall ensure that the management of the stock broker provides their comment about the
non-compliance / non-conformities (NCs) and observations mentioned in the report. For each NC,
specific time-bound (within 3 months of submission of report by the exchange) corrective action must
be taken and reported to the Stock Exchange. The auditor should indicate if a follow-on audit is
required to review the status of NCs.
1.7. In order to ensure that the corrective actions are taken by the stock broker, follow-on audit, if any, shall
be scheduled by the stock broker within 6 months of submission of the audit report by the system
auditor.
1.8. The system auditors should follow the reporting standard as specified in Annexure IV of this
Framework for the executive summary of the System Audit report to highlight the major findings of the
System Audit.
30 Vide Letter MRD/DMS/OW/9500/2015 dated March 31, 2015, SEBI informed Stock Exchanges
that System Audit requirement for Type I brokers may be kept on hold till further
communication from SEBI.
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भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
2. Auditor Selection Norms
2.1. The Auditor shall have minimum 3 years of experience in IT audit of securities market participants e.g.
Stock Exchanges, Clearing Corporation, Depositories, stock brokers, depository participants etc. The
audit experience should cover all the major areas mentioned under Terms of Reference (ToR) of the
system audit specified by SEBI / Stock Exchange.
2.2. It is recommended that resources employed shall have relevant industry recognized certifications e.g.
D.I.S.A. (ICAI) Qualification, CISA (Certified Information System Auditor) from ISACA, CISM
(Certified Information Securities Manager) from ISACA, CISSP (Certified Information Systems Security
Professional) from International Information Systems Security Certification Consortium, commonly
known as (ISC)².
2.3. The Auditor should have experience of IT audit/governance frameworks and processes conforming to
industry leading practices like CobiT.
2.4. The Auditor shall not have any conflict of interest in conducting fair, objective and independent audit
of the stock broker. Further, the directors / partners of Auditor firm shall not be related to any stock
broker including its directors or promoters either directly or indirectly.
2.5. The Auditor shall not have any cases pending against its previous audited companies/firms, which fall
under SEBI’s jurisdiction, which point to its incompetence and/or unsuitability to perform the audit
task.
Annexure I
3. Terms of Reference (ToR) for Type I Broker
The system auditor shall at the minimum cover the following areas:
3.1. System controls and capabilities
3.1.1. Order Tracking – The system auditor should verify system process and controls at exchange
provided terminals with regard to order entry, capturing of IP address of order entry terminals,
modification / deletion of orders, status of the current order/outstanding orders and trade
confirmation.
3.1.2. Order Status/ Capture – Whether the system has capability to generate / capture order id, time
stamping, order type, scrip details, action, quantity, price and validity etc.
3.1.3. Rejection of orders – Whether system has capability to reject orders which do not go through
order level validation at the end of the stock broker and at the servers of respective Stock
Exchanges.
3.1.4. Communication of Trade Confirmation / Order Status – Whether the system has capability to
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भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
timely communicate to Client regarding the Acceptance/ Rejection of an Order / Trade via
various media including e-mail; facility of viewing trade log.
3.1.5. Client ID Verification – Whether the system has capability to recognize only authorized Client
Orders and mapping of Specific user Ids to specific predefined location for proprietary orders.
3.2. Risk Management System (RMS)
3.2.1. Online risk management capability – The system auditor should check whether the system of
online risk management (including upfront real-time risk management) is in place for all orders
placed through exchange provided terminals.
3.2.2. Trading Limits –Whether a system of pre-defined limits / checks such as Order Quantity and
Value Limits, Symbol wise User Order / Quantity limit, User / Branch Order Limit, Order Price
limit, etc) are in place and only such orders which are within the parameters specified by the
RMS are allowed to be pushed into exchange trading engines. The system auditor should check
that no user or branch in the system is having unlimited limits on the above parameters.
3.2.3. Order Alerts and Reports –Whether the system has capability to generate alerts when orders
that are placed are above the limits and has capability to generate reports relating to Margin
Requirements, payments and delivery obligations.
3.2.4. Order Review –Whether the system has capability to facilitate review of such orders were not
validated by the system.
3.2.5. Back testing for effectiveness of RMS – Whether the system has capability to identify trades
which have exceeded the pre-defined limits (Order Quantity and Value Limits, Symbol wise User
Order / Quantity limit, User / Branch Order Limit, Order Price limit) and also exceed
corresponding margin availability of clients. Whether deviations from such pre-defined limits are
captured by the system, documented and corrective steps taken.
3.2.6. Log Management – Whether the system maintains logs of alerts / changes / deletion /
activation / deactivation of client codes and logs of changes to the risk management parameters
mentioned above. Whether the system allows only authorized users to set the risk parameter in
the RMS.
3.3. Password Security
3.3.1. Organization Access Policy – Whether the organization has a well documented policy that
provides for a password policy as well as access control policy for the exchange provided
terminals.
3.3.2. Authentication Capability – Whether the system authenticates user credentials by means of a
password before allowing the user to login, and whether there is is a system for authentication of
orders originating from Internet Protocol by means of two-factor authentication, including Public
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भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
Key Infrastructure (PKI) based implementation of digital signatures.
3.3.3. Password Best Practices – Whether there is a system provision for masking of password, system
prompt to change default password on first login, disablement of user id on entering multiple
wrong passwords (as defined in the password policy document), periodic password change
mandate and appropriate prompt to user, strong parameters for password, deactivation of
dormant user id, etc.
3.4. Session Management
3.4.1. Session Authentication – Whether the system has provision for Confidentiality, Integrity and
Availability (CIA) of the session and the data transmitted during the session by means of
appropriate user and session authentication mechanisms like SSL etc.
3.4.2. Session Security – Whether there is availability of an end-to-end encryption for all data
exchanged between client and broker systems. or other means of ensuring session security.
3.4.3. Inactive Session – Whether the system allows for automatic trading session logout after a system
defined period of inactivity.
3.4.4. Log Management – Whether the system generates and maintain logs of Number of users,
activity logs, system logs, Number of active clients.
3.5. Network Integrity
3.5.1. Seamless connectivity – Whether stock broker has ensured that a backup network link is
available in case of primary link failure with the exchange.
3.5.2. Network Architecture – Whether the web server is separate from the Application and Database
Server.
3.5.3. Firewall Configuration – Whether appropriate firewall is present between stock broker's trading
setup and various communication links to the exchange. Whether the firewall is appropriately
configured to ensure maximum security.
3.6. Access Controls
3.6.1. Access to server rooms – Whether adequate controls are in place for access to server rooms and
proper audit trails are maintained for the same.
3.6.2. Additional Access controls – Whether the system provides for any authentication mechanism to
access to various components of the exchange provided terminals. Whether additional password
requirements are set for critical features of the system. Whether the access control is adequate
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भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
3.7. Backup and Recovery
3.7.1. Backup and Recovery Policy – Whether the organization has a well documented policy on
periodic backup of data generated from the broking operations.
3.7.2. Log generation and data consistency - Whether backup logs are maintained and backup data is
tested for consistency.
3.7.3. System Redundancy – Whether there are appropriate backups in case of failures of any critical
system components.
3.8. BCP/DR (Only applicable for Stock Brokers having BCP / DR site)
3.8.1. BCP / DR Policy – Whether the stock broker has a well documented BCP/ DR policy and plan.
The system auditor should comment on the documented incident response procedures.
3.8.2. Alternate channel of communication – Whether the stock broker has provided its clients with
alternate means of communication including channel for communication in case of a disaster.
Whether the alternate channel is capable of authenticating the user after asking for additional
details or OTP (One-Time-Password).
3.8.3. High Availability – Whether BCP / DR systems and network connectivity provide high
availability and have no single point of failure for any critical operations as identified by the
BCP/DR policy.
3.8.4. Connectivity with other FMIs – The system auditor should check whether there is an alternative
medium to communicate with Stock Exchanges and other FMIs.
3.9. Segregation of Data and Processing facilities – The system auditor should check and comment on the
segregation of data and processing facilities at the stock broker in case the stock broker is also running
other business.
3.10. Back office data
3.10.1. Data consistency – The system auditor should verify whether aggregate client code data
available at the back office of broker matches with the data submitted / available with the Stock
Exchanges through online data view / download provided by exchanges to members.
3.10.2. Trail Logs – The system auditor should specifically comment on the logs of Client Code data to
ascertain whether editing or deletion of records have been properly documented and recorded
and does not result in any irregularities.
3.11. IT Infrastructure Management (including use of various Cloud computing models such as
Infrastructure as a service (IaaS), Platform as a service (PaaS), Software as a service (SaaS), Network as
a service (NaaS))
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भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
3.11.1. IT Governance and Policy – The system auditor should verify whether the relevant IT
Infrastructure-related policies and standards exist and are regularly reviewed and updated.
Compliance with these policies is periodically assessed.
3.11.2. IT Infrastructure Planning – The system auditor should verify whether the plans/policy for the
appropriate management and replacement of aging IT infrastructure components have been
documented, approved, and implemented. The activities, schedules and resources needed to
achieve objectives related to IT infrastructure have been integrated into business plans and
budgets.
3.11.3. IT Infrastructure Availability (SLA Parameters) – The system auditor should verify whether the
broking firm has a process in place to define its required availability of the IT infrastructure, and
its tolerance to outages. In cases where there is huge reliance on vendors for the provision of IT
services to the brokerage firm the system auditor should also verify that the mean time to
recovery (MTTR) mentioned in the Service Level Agreement (SLA) by the service provider
satisfies the requirements of the broking firm.
3.11.4. IT Performance Monitoring (SLA Monitoring) – The system auditor should verify that the
results of SLA performance monitoring are documented and are reported to the management of
the broker.
3.12. Exchange specific exceptional reports – The additional checks recommended by a particular exchange
need to be looked into and commented upon by the system auditor over and above the ToR of the
system audit.
Annexure II
4. ToR for Type II Broker
The system auditor shall at the minimum cover the following areas:
4.1. System controls and capabilities (CTCL / IML terminals and servers)
4.1.1. Order Tracking – The system auditor should verify system process and controls at CTCL / IML
terminals and CTCL/ IML servers covering order entry, capturing of IP address of order entry
terminals, modification / deletion of orders, status of current order/outstanding orders and
trade confirmation.
4.1.2. Order Status/ Capture – Whether the system has capability to generate / capture order id, time
stamping, order type, scrip details, action, quantity, price and validity, etc.
4.1.3. Rejection of orders – Whether system has capability to reject orders which do not go through
order level validation at CTCL servers and at the servers of respective Stock Exchanges.
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भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
4.1.4. Communication of Trade Confirmation / Order Status – Whether the system has capability to
timely communicate to Client regarding the Acceptance/ Rejection of an Order / Trade via
various media including e-mail; facility of viewing trade log.
4.1.5. Client ID Verification – Whether the system has capability to recognize only authorized Client
Orders and mapping of Specific user Ids to specific predefined location for proprietary orders.
4.1.6. Order type distinguishing capability – Whether system has capability to distinguish the orders
originating from (CTCL or IML) / IBT/ DMA / STWT.
4.2. Software Change Management - The system auditor should check whether proper procedures have
been followed and proper documentation has been maintained for the following:
4.2.1. Processing / approval methodology of new feature request or patches.
4.2.2. Fault reporting / tracking mechanism and process for resolution.
4.2.3. Testing of new releases / patches / modified software / bug fixes.
4.2.4. Version control- History, Change Management process, approval etc.
4.2.5. Development / Test / Production environment segregation.
4.2.6. New release in production – promotion, release note approvals.
4.2.7. Production issues / disruptions reported during last year, reasons for such disruptions and
corrective actions taken.
4.2.8. User Awareness.
The system auditor should check whether critical changes made to the (CTCL or IML) / IBT / DMA /
STWT/ SOR are well documented and communicated to the Stock Exchange.
4.3. Risk Management System (RMS)
4.3.1. Online risk management capability – The system auditor should check whether system of
online risk management including upfront real-time risk management, is in place for all orders
placed through (CTCL or IML) / IBT / DMA / STWT.
4.3.2. Trading Limits – Whether a system of pre-defined limits /checks such as Order Quantity and
Value Limits, Symbol wise User Order / Quantity limit, User / Branch Order Limit, Order Price
limit, etc., are in place and only such orders which are within the parameters specified by the
RMS are allowed to be pushed into exchange trading engines. The system auditor should check
that no user or branch in the system is having unlimited limits on the above parameters.
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भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
4.3.3. Order Alerts and Reports – Whether the system has capability to generate alerts when orders
that are placed are above the limits and has capability to generate reports relating to margin
requirements, payments and delivery obligations.
4.3.4. Order Review – Whether the system has capability to facilitate review of such orders that were
not validated by the system.
4.3.5. Back testing for effectiveness of RMS – Whether system has capability to identify trades which
have exceeded the pre-defined limits (Order Quantity and Value Limits, Symbol wise User Order
/ Quantity limit, User / Branch Order Limit, Order Price limit) and also exceed corresponding
margin availability of clients. Whether deviations from such pre-defined limits are captured by
the system, documented and corrective steps taken.
4.3.6. Log Management – Whether the system maintains logs of alerts / changes / deletion /
activation / deactivation of client codes and logs of changes to the risk management parameters
mentioned above. Whether the system allows only authorized users to set the risk parameter in
the RMS.
4.4. Smart order routing (SOR) - The system auditor should check whether proper procedures have been
followed and proper documentation has been maintained for the following:
4.4.1. Best Execution Policy – System adheres to the Best Execution Policy while routing the orders to
the exchange.
4.4.2. Destination Neutral – The system routes orders to the recognized Stock Exchanges in a neutral
manner.
4.4.3. Class Neutral – The system provides for SOR for all classes of investors.
4.4.4. Confidentiality - The system does not release orders to venues other than the recognized Stock
Exchange.
4.4.5. Opt–out – The system provides functionality to the client who has availed of the SOR facility, to
specify for individual orders for which the clients do not want to route order using SOR.
4.4.6. Time stamped market information – The system is capable of receiving time stamped market
prices from recognized Stock Exchanges from which the member is authorized to avail SOR
facility.
4.4.7. Audit Trail - Audit trail for SOR should capture order details, trades and data points used as a
basis for routing decision.
4.4.8. Server Location – The system auditor should check whether the order routing server is located in
India.
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भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
4.4.9. Alternate Mode - The system auditor should check whether an alternative mode of trading is
available in case of failure of SOR Facility.
4.5. Password Security
4.5.1. Organization Access Policy – Whether organization has a well documented policy that provides
for a password policy as well as access control policy for exchange provided terminals and for
API based terminals.
4.5.2. Authentication Capability – Whether the system authenticates user credentials by means of a
password before allowing the user to login, and whether there is a system for authentication of
orders originating from Internet Protocol by means of two-factor authentication, including Public
Key Infrastructure (PKI) based implementation of digital signatures.
4.5.3. Password Best Practices – Whether there is a system provision for masking of password, system
prompt to change default password on first login, disablement of user id on entering multiple
wrong passwords (as defined in the password policy document), periodic password change
mandate and appropriate prompt to user, strong parameters for password, deactivation of
dormant user id, etc.
4.6. Session Management
4.6.1. Session Authentication – Whether system has provision for Confidentiality, Integrity and
Availability (CIA) of the session and the data transmitted during the session by means of
appropriate user and session authentication mechanisms like SSL etc.
4.6.2. Session Security – Whether there is availability of an end-to-end encryption for all data
exchanged between client and broker systems or other means of ensuring session security.
Whether session login details are stored on the devices used for IBT and STWT.
4.6.3. Inactive Session – Whether the system allows for automatic trading session logout after a system
defined period of inactivity.
4.6.4. Log Management – Whether the system generates and maintains logs of Number of users,
activity logs, system logs, Number of active clients.
4.7. Database Security
4.7.1. Access – Whether the system allows CTCL or IML database access only to authorized users /
applications.
4.7.2. Controls – Whether the CTCL or IML database server is hosted on a secure platform, with
Username and password stored in an encrypted form using strong encryption algorithms.
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भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
4.8. Network Integrity
4.8.1. Seamless connectivity – Whether the stock broker has ensured that a backup network link is
available in case of primary link failure with the exchange.
4.8.2. Network Architecture – Whether the web server is separate from the Application and Database
Server.
4.8.3. Firewall Configuration – Whether appropriate firewall is present between stock broker's trading
setup and various communication links to the exchange. Whether the firewall is appropriately
configured to ensure maximum security.
4.9. Access Controls
4.9.1. Access to server rooms – Whether adequate controls are in place for access to server rooms and
proper audit trails are maintained for the same.
4.9.2. Additional Access controls – Whether the system provides for two factor authentication
mechanism to access to various CTCL or IML components. Whether additional password
requirements are set for critical features of the system. Whether the access control is adequate.
4.10. Backup and Recovery
4.10.1. Backup and Recovery Policy – Whether the organization has a well documented policy on
periodic backup of data generated from the broking operations.
4.10.2. Log generation and data consistency - Whether backup logs are maintained and backup data is
tested for consistency.
4.10.3. System Redundancy – Whether there are appropriate backups in case of failures of any critical
system components.
4.11. BCP/DR (Only applicable for Stock Brokers having BCP / DR site)
4.11.1. BCP / DR Policy – Whether the stock broker has a well documented BCP/ DR policy and plan.
The system auditor should comment on the documented incident response procedures.
4.11.2. Alternate channel of communication – Whether the stock broker has provided its clients with
alternate means of communication including channel for communication in case of a disaster.
Whether the alternate channel is capable of authenticating the user after asking for additional
details or OTP (One-Time-Password).
4.11.3. High Availability – Whether BCP / DR systems and network connectivity provide high
availability and have no single point of failure for any critical operations as identified by the
BCP/ DR policy.
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भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
4.11.4. Connectivity with other FMIs – The system auditor should check whether there is an alternative
medium to communicate with Stock Exchanges and other FMIs.
4.12. Segregation of Data and Processing facilities – The system auditor should check and comment on the
segregation of data and processing facilities at the stock broker in case the stock broker is also running
other business.
4.13. Back office data
4.13.1. Data consistency – The system auditor should verify whether aggregate client code data
available at the back office of broker matches with the data submitted / available with the Stock
Exchanges through online data view / download provided by exchanges to members.
4.13.2. Trail Logs – The system auditor should specifically comment on the logs of Client Code data to
ascertain whether editing or deletion of records have been properly documented and recorded
and does not result in any irregularities.
4.14. User Management
4.14.1. User Management Policy – The system auditor should check whether the stock broker has a well
documented policy that provides for user management and the user management policy
explicitly defines user, database and application Access Matrix.
4.14.2. Access to Authorized users – The system auditor should check whether the system allows access
only to the authorized users of the CTCL or IML System. Whether there is a proper
documentation of the authorized users in the form of User Application approval, copies of User
Qualification and other necessary documents.
4.14.3. User Creation / Deletion – The system auditor should check whether new users ids were created
/ deleted as per CTCL or IML guidelines of the exchanges and whether the user ids are unique in
nature.
4.14.4. User Disablement – The system auditor should check whether non-complaint users are disabled
and appropriate logs (such as event log and trade logs of the user) are maintained.
4.15. IT Infrastructure Management (including use of various Cloud computing models such as
Infrastructure as a service (IaaS), Platform as a service (PaaS), Software as a service (SaaS), Network as
a service (NaaS))
4.15.1. IT Governance and Policy – The system auditor should verify whether the relevant IT
Infrastructure-related policies and standards exist and are regularly reviewed and updated.
Compliance with these policies is periodically assessed.
4.15.2. IT Infrastructure Planning – The system auditor should verify whether the plans/policy for the
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Securities and Exchange Board of India
appropriate management and replacement of aging IT infrastructure components have been
documented, approved, and implemented. The activities, schedules and resources needed to
achieve objectives related to IT infrastructure have been integrated into business plans and
budgets.
4.15.3. IT Infrastructure Availability (SLA Parameters) – The system auditor should verify whether the
broking firm has a process in place to define its required availability of the IT infrastructure, and
its tolerance to outages. In cases where there is huge reliance on vendors for the provision of IT
services to the brokerage firm the system auditor should also verify that the mean time to
recovery (MTTR) mentioned in the Service Level Agreement (SLA) by the service provider
satisfies the requirements of the broking firm.
4.15.4. IT Performance Monitoring (SLA Monitoring) – The system auditor should verify that the
results of SLA performance monitoring are documented and are reported to the management of
the broker.
4.16. Exchange specific exceptional reports – The additional checks recommended by a particular exchange
need to be looked into and commented upon by the System Auditor over and above the ToR of the
System audit.
4.17. Software Testing Procedures - The system auditor should check whether the stock broker has
complied with the guidelines and instructions of SEBI / Stock Exchanges with regard to testing of
software and new patches, including the following:
4.17.1. Test Procedure Review – The system auditor should evaluate whether the procedures for system
and software testing were proper and adequate.
4.17.2. Documentation – The system auditor should verify whether the documentation related to testing
procedures, test data, and resulting output were adequate and follow the organization's
standards.
4.17.3. Test Cases – The system auditor should review the internal test cases and comment upon the
adequacy of the same with respect to the requirements of the Stock Exchange and SEBI.
Annexure III
5. ToR for Type III Broker
The system auditor shall at the minimum cover the following areas:
5.1. System controls and capabilities (CTCL/IML Terminals and servers)
5.1.1. Order Tracking – The system auditor should verify system process and controls at CTCL / IML
terminals and CTCL/ IML servers covering order entry, capturing IP address of order entry,
modification / deletion of orders, status of current order/outstanding orders and trade
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भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
confirmation.
5.1.2. Order Status/ Capture – Whether the system has capability to generate / capture order id, time
stamping, order type, scrip details, action, quantity, price and validity etc.
5.1.3. Rejection of orders – Whether the system has capability to reject orders which do not go through
order level validation at CTCL servers and at the servers of respective exchanges.
5.1.4. Communication of Trade Confirmation / Order Status – Whether the system has capability to
timely communicate to client regarding the Acceptance/ Rejection of an Order / Trade via
various media including e-mail; facility of viewing trade log.
5.1.5. Client ID Verification – Whether the system has capability to recognize only authorized Client
Orders and mapping of Specific user Ids to specific predefined location for proprietary orders.
5.1.6. Order type distinguishing capability – Whether the system has capability to distinguish the
orders originating from (CTCL or IML) / IBT / DMA / STWT / SOR / Algorithmic Trading.
5.2. Software Change Management - The system auditor should check whether proper procedures have
been followed and proper documentation has been maintained for the following:
5.2.1. Processing / approval methodology of new feature request or patches.
5.2.2. Fault reporting / tracking mechanism and process for resolution.
5.2.3. Testing of new releases / patches / modified software / bug fixes.
5.2.4. Version control- History, Change Management process, approval etc.
5.2.5. Development / Test / Production environment segregation.
5.2.6. New release in production – promotion, release note approvals.
5.2.7. Production issues / disruptions reported during last year, reasons for such disruptions and
corrective actions taken.
5.2.8. User Awareness.
The system auditor should check whether critical changes made to the (CTCL or IML) / IBT / DMA /
STWT/ SOR are well documented and communicated to the Stock Exchange.
5.3. Risk Management System (RMS)
5.3.1. Online risk management capability – The system auditor should check whether the online risk
management including upfront real-time risk management, is in place for all orders placed
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भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
through (CTCL or IML) / IBT/ DMA / SOR / STWT / Algorithmic Trading.
5.3.2. Trading Limits – Whether a system of pre-defined limits / checks such as Order Quantity and
Value Limits, Symbol wise User Order / Quantity limit, User / Branch Order Limit, Order Price
limit, etc., are in place and only such orders which are within the parameters specified by the
RMS are allowed to be pushed into exchange trading engines. The system auditor should check
that no user or branch in the system is having unlimited limits on the above parameters.
5.3.3. Order Alerts and Reports – Whether the system has capability to generate alerts when orders
that are placed are above the limits and has capability to generate reports relating to margin
requirements, payments and delivery obligations.
5.3.4. Order Review – Whether the system has capability to facilitate review of such orders that were
not validated by the system.
5.3.5. Back testing for effectiveness of RMS – Whether the system has capability to identify trades
which have exceeded the pre-defined limits (Order Quantity and Value Limits, Symbol wise User
Order / Quantity limit, User / Branch Order Limit, Order Price limit) and also exceed
corresponding margin availability of clients. Whether deviations from such pre-defined limits
should be captured by the system, documented and corrective steps taken.
5.3.6. Log Management – Whether the system maintains logs of alerts / changes / deletion /
activation / deactivation of client codes and logs of changes to the risk management parameters
mentioned above. Whether the system allows only authorized users to set the risk parameter in
the RMS.
5.4. Smart order routing (SOR) - The system auditor should check whether proper procedures have been
followed and proper documentation has been maintained for the following:
5.4.1. Best Execution Policy – System adheres to the Best Execution Policy while routing the orders to
the exchange.
5.4.2. Destination Neutral – The system routes orders to the recognized Stock Exchanges in a neutral
manner.
5.4.3. Class Neutral – The system provides for SOR for all classes of investors.
5.4.4. Confidentiality - The system does not release orders to venues other than the recognized Stock
Exchange.
5.4.5. Opt–out – The system provides functionality to the client who has availed of the SOR facility, to
specify for individual orders for which the clients do not want to route order using SOR.
5.4.6. Time stamped market information – The system is capable of receiving time stamped market
prices from recognized Stock Exchanges from which the member is authorized to avail SOR
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भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
facility.
5.4.7. Audit Trail - Audit trail for SOR should capture order details, trades and data points used as a
basis for routing decision.
5.4.8. Server Location – The system auditor should check whether the order routing server is located in
India.
5.4.9. Alternate Mode - The system auditor should check whether an alternative mode of trading is
available in case of failure of SOR Facility.
5.5. Algorithmic Trading - The system auditor should check whether proper procedures have been
followed and proper documentation has been maintained for the following:
5.5.1. Change Management – Whether any changes (modification/addition) to the approved algos
were informed to and approved by Stock Exchange. The inclusion / removal of different
versions of algos should be well documented.
5.5.2. Online Risk Management capability - The CTCL or IML server should have capacity to monitor
orders / trades routed through algo trading and have online risk management for all orders
through Algorithmic trading and ensure that Price Check, Quantity Check, Order Value Check,
Cumulative Open Order Value Check are in place.
5.5.3. Risk Parameters Controls – The system should allow only authorized users to set the risk
parameter. The System should also maintain a log of all the risk parameter changes made.
5.5.4. Information / Data Feed – The auditor should comment on the various sources of information /
data for the algo and on the likely impact (run away /loop situation) of the failure one or more
sources to provide timely feed to the algorithm. The system auditor should verify that the algo
automatically stops further processing in the absence of data feed.
5.5.5. Check for preventing loop or runaway situations – The system auditor should check whether
the brokers have real time monitoring systems to identify and shutdown/stop the algorithms
which have not behaved as expected.
5.5.6. Algo / Co-location facility Sub-letting – The system auditor should verify if the algo / co-
location facility has not been sub-letted to any other firms to access the exchange platform.
5.5.7. Audit Trail – The system auditor should check the following areas in audit trail:
a. Whether the audit trails can be established using unique identification for all algorithmic
orders and comment on the same.
b. Whether the broker maintains logs of all trading activities.
c. Whether the records of control parameters, orders, traders and data emanating from trades
executed through algorithmic trading are preserved/ maintained by the stock broker.
d. Whether changes to the control parameters have been made by authorized users as per the
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भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
Access Matrix. The system auditor should specifically comment on the reasons and frequency
for changing of such control parameters. Further, the system auditor should also comment on
the possibility of such tweaking leading to run away/loop situation.
e. Whether the system captures the IP address from where the algo orders are originating.
5.5.8. Systems and Procedures – The system auditor should check and comment on the procedures,
systems and technical capabilities of stock broker for carrying out trading through use of
Algorithms. The system auditor should also identify any misuse or unauthorized access to
algorithms or the system which runs these algorithms.
5.5.9. Reporting to Stock Exchanges – The system auditor should check whether the stock broker is
informing the Stock Exchange regarding any incidents where the algos have not behaved as
expected. The system auditor should also comment upon the time taken by the stock broker to
inform the Stock Exchanges regarding such incidents.
5.6. Password Security
5.6.1. Organization Access Policy – The system auditor should whether the stock broker has a well
documented policy that provides for a password policy as well as access control policy for
exchange provided terminals and for API based terminals.
5.6.2. Authentication Capability – Whether the system authenticates user credentials by means of a
password before allowing the user to login. Whether there is a system for authentication of
orders originating from Internet Protocol by means of two-factor authentication, including Public
Key Infrastructure (PKI) based implementation of digital signatures.
5.6.3. Password Best Practices – Whether there is a system should for masking of password, system
prompt to change default password on first login, disablement of user id on entering multiple
wrong passwords (as defined in the password policy document), periodic password change
mandate and appropriate prompt to user, strong parameters for password, deactivation of
dormant user id, etc.
5.7. Session Management
5.7.1. Session Authentication – Whether the system has provision for Confidentiality, Integrity and
Availability (CIA) of the session and the data transmitted during the session by means of
appropriate user and session authentication mechanisms like SSL etc.
5.7.2. Session Security – Whether there is availability of an end-to-end encryption for all data
exchanged between client and broker system or other means of ensuring session security.
Whether session login details are stored on the devices used for IBT and STWT.
5.7.3. Inactive Session – Whether the system allows for automatic trading session logout after a system
defined period of inactivity.
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भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
5.7.4. Log Management – Whether the system generates and maintains logs of number of users,
activity logs, system logs, number of active clients.
5.8. Database Security
5.8.1. Access – Whether the system allows CTCL or IML database access only to authorized users /
applications.
5.8.2. Controls – Whether the CTCL or IML database server is hosted on a secure platform, with
username and password stored in an encrypted form using strong encryption algorithms.
5.9. Network Integrity
5.9.1. Seamless connectivity – Whether the stock broker has ensured that a backup network link is
available in case of primary link failure with the exchange.
5.9.2. Network Architecture – Whether the web server is separate from the Application and Database
Server.
5.9.3. Firewall Configuration – Whether appropriate firewall are present between the stock broker's
trading setup and various communication links to the exchange. Whether the firewalls should be
appropriately configured to ensure maximum security.
5.10. Access Controls
5.10.1. Access to server rooms – Whether adequate controls are in place for access to server rooms,
proper audit trails should be maintained for the same.
5.10.2. Additional Access controls - Whether the system should provide for two factor authentication
mechanism to access to various CTCL or IML components. Whether additional password
requirements are set for critical features of the system. Whether the access control is adequate.
5.11. Backup and Recovery
5.11.1. Backup and Recovery Policy – Whether the organization has a well documented policy on
periodic backup of data generated from the broking operations.
5.11.2. Log generation and data consistency – Whether backup logs are maintained and backup data
should be tested for consistency.
5.11.3. System Redundancy – Whether there are appropriate backups in case of failures of any critical
system components
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भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
5.12. BCP/DR (Only applicable for Stock Brokers having BCP / DR site)
5.12.1. BCP / DR Policy – Whether the stock broker has a well documented BCP / DR policy and plan.
The system auditor should comment on the documented incident response procedures.
5.12.2. Alternate channel of communication – Whether the stock broker has provided its clients with
alternative means of communication including channel for communication in case of a disaster.
Whether the alternate channel is capable of authenticating the user after asking for additional
details or OTP (One-Time-Password).
5.12.3. High Availability – Whether BCP / DR systems and network connectivity provide high
availability and have no single point of failure for any critical operations as identified by the BCP
/ DR policy.
5.12.4. Connectivity with other FMIs – The system auditor should check whether there is an alternative
medium to communicate with Stock Exchanges and other FMIs.
5.13. Segregation of Data and Processing facilities – The system auditor should check and comment on the
segregation of data and processing facilities at the stock broker in case the stock broker is also running
other business.
5.14. Back office data
5.14.1. Data consistency – The system auditor should verify whether aggregate client code data
available at the back office of broker matches with the data submitted / available with the Stock
Exchanges through online data view / download provided by exchanges to members.
5.14.2. Trail Logs – The system auditor should specifically comment on the logs of Client Code data to
ascertain whether editing or deletion of records have been properly documented and recorded
and does not result in any irregularities.
5.15. User Management
5.15.1. User Management Policy – The system auditor should verify whether the stock broker has a well
documented policy that provides for user management and the user management policy
explicitly defines user, database and application access matrix.
5.15.2. Access to Authorized users – The system auditor should verify whether the system allows access
only to the authorized users of the CTCL or IML system. Whether there is a proper
documentation of the authorized users in the form of user application approval, copies of user
qualification and other necessary documents.
5.15.3. User Creation / Deletion – The system auditor should verify whether new users ids should be
created / deleted as per CTCL or IML guidelines of the exchanges and whether the user ids are
unique in nature.
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भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
5.15.4. User Disablement – The system auditor should verify whether non-complaint users are disabled
and appropriate logs such as event log and trade logs of the user should be maintained.
5.16. IT Infrastructure Management (including use of various Cloud computing models such as
Infrastructure as a service (IaaS), Platform as a service (PaaS), Software as a service (SaaS), Network as
a service (NaaS))
5.16.1. IT Governance and Policy – The system auditor should verify whether the relevant IT
Infrastructure-related policies and standards exist and are regularly reviewed and updated.
Compliance with these policies is periodically assessed.
5.16.2. IT Infrastructure Planning – The system auditor should verify whether the plans/policy for the
appropriate management and replacement of aging IT infrastructure components have been
documented, approved, and implemented. The activities, schedules and resources needed to
achieve objectives related to IT infrastructure have been integrated into business plans and
budgets.
5.16.3. IT Infrastructure Availability (SLA Parameters) – The system auditor should verify whether the
broking firm has a process in place to define its required availability of the IT infrastructure, and
its tolerance to outages. In cases where there is huge reliance on vendors for the provision of IT
services to the brokerage firm the system auditor should also verify that the mean time to
recovery (MTTR) mentioned in the Service Level Agreement (SLA) by the service provider
satisfies the requirements of the broking firm.
5.16.4. IT Performance Monitoring (SLA Monitoring) – The system auditor should verify that the
results of SLA performance monitoring are documented and are reported to the management of
the broker.
5.17. Exchange specific exceptional reports – The additional checks recommended by a particular exchange
need to be looked into and commented upon by the system auditor over and above the ToR of the
system audit.
5.18. Software Testing Procedures - The system auditor shall audit whether the stock broker has complied
with the guidelines and instructions of SEBI / Stock Exchanges with regard to testing of software and
new patches including the following:
5.18.1. Test Procedure Review – The system auditor should review and evaluate the procedures for
system and program testing. The system auditor should also review the adequacy of tests.
5.18.2. Documentation – The system auditor should review documented testing procedures, test data,
and resulting output to determine if they are comprehensive and if they follow the organization's
standards.
5.18.3. Test Cases – The system auditor should review the test cases and comment upon the adequacy of
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भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
the same with respect to the requirements of the Stock Exchange and various SEBI Circulars.
Annexure IV
Executive Summary Reporting Format
For Preliminary Audit
Audit Obse Descr Depart Statu Risk Audit Audi Root Impact Sugge Deadlin Ve Cl
Date rvati iption ment s / Ratin TOR ted cause Analy sted e for the rifi osi
on of Natu gs of Clause by Anal sis Correc Correcti ed ng
Findi re of Findi ysis tive ve By da
ng Find ngs action Action te
ings
Description of relevant Table heads
1. Audit Date – This indicates the date of conducting the audit
2. Description of Findings/ Observations – Description of the findings in sufficient detail, referencing any
accompanying evidence (e.g. copies of procedures, interview notes, screen shots etc.)
3. Status/ Nature of Findings - the category can be specified for example:
a. Non Compliant
b. Work In progress
c. Observation
d. Suggestion
4. Risk Rating of Findings – A rating has to been given for each of the observations based on their impact and
severity to reflect the risk exposure, as well as the suggested priority for action.
Rating Description
HIGH Weakness in control those represent exposure to the organization or risks
that could lead to instances of non compliance with the requirements of
TORs. These risks need to be addressed with utmost priority.
MEDIUM Potential weakness in controls, which could develop into an exposure or
issues that represent areas of concern and may impact internal controls.
These should be addressed reasonably promptly.
LOW Potential weaknesses in controls, which in combination with other
weakness can develop into an exposure. Suggested improvements for
situations not immediately/directly affecting controls.
5. Audit TOR Clause – The TOR clause corresponding to this observation.
6. Root cause Analysis –A detailed analysis on the cause of the nonconformity
7. Impact Analysis – An analysis of the likely impact on the operations/ activity of the organization.
8. Suggested Corrective Action –The action to be taken by the broker to correct the nonconformity.
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भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
For Follow on / Follow up System Audit
Preli S. Prelimin Prelim Prelim Current Current Revised Deadlin Verifi Closing
minar No. ary inary inary Finding Status Correct e for the ed By date
y Observa Status Correc ive Revised
Audit tion tive Action Correcti
Date Number Action ve
Action
Description of relevant Table heads
1. Preliminary Status – The original finding as per the preliminary System Audit Report.
2. Preliminary Corrective Action – The original corrective action as prescribed in the preliminary System
Audit report.
3. Current Finding – The current finding w.r.t. the issue.
4. Current Status – Current status of the issue viz Compliant, Non Compliant, Work In Progress (WIP).
5. Revised Corrective Action – The revised corrective action prescribed w.r.t. the Non Compliant / WIP
issues.
*****
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भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
IV. DEALINGS WITH CLIENT
25. Regulation of Transactions Between Clients and Brokers31
25.1. It shall be compulsory for all Member brokers to keep the money of the clients
in a separate account and their own money in a separate account. No payment
for transactions in which the Member broker is taking a position as a principal
will be allowed to be made from the client’s account. The above principles and
the circumstances under which transfer from client’s account to Member
broker’s account would be allowed are enumerated below.
25.1.1. Member Broker to keep accounts: Every member broker shall keep such
books of accounts, as will be necessary, to show and distinguish in
connection with his business as a member:
a. Moneys received from or on account of each of his clients and
b. the moneys received and the moneys paid on Member’s own account
25.1.2. Obligation to pay money into "clients’ accounts". Every member broker
who holds or receives money on account of a client shall forthwith pay
such money to current or deposit account at bank to be kept in the name
of the member in the title of which the word "clients" shall appear
(hereinafter referred to as "clients account"). Member broker may keep
one consolidated clients account for all the clients or accounts in the name
of each client, as he thinks fit. Provided that when a Member broker
receives a cheque or draft representing in part money belonging to the
client and in part money due to the Member, he shall pay the whole of
such cheque or draft into the clients account and effect subsequent
transfer as laid down below in para 25.1.4(b).
25.1.3. What moneys to be paid into "clients account". No money shall be paid
into clients account other than
a. money held or received on account of clients.
b. such money belonging to the Member as may be necessary for the
purpose of opening or maintaining the account.
c. money for replacement of any sum which may by mistake or accident
have been drawn from the account in contravention of 25.1.4 given
below.
d. a cheque or draft received by the Member representing in part money
belonging to the client and in part money due to the Member.
25.1.4. What moneys to be withdrawn from "clients account". No money shall be
drawn from clients account other than
31 Reference: Circular SMD/SED/CIR/93/23321 dated November 18, 1993.
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भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
a. money properly required for payment to or on behalf of clients or for
or towards payment of a debt due to the Member from clients or
money drawn on client’s authority, or money in respect of which
there is a liability of clients to the Member, provided that money so
drawn shall not in any case exceed the total of the money so held for
the time being for such each client;
b. such money belonging to the Member as may have been paid into the
client account under 25.1.3(b) or 25.1.3(d) given above;
c. money which may by mistake or accident have been paid into such
account in contravention of para 25.1.3 above.
25.1.5. Right to lien, set-off etc., not affected. Nothing in this para 25.1 shall
deprive a Member broker of any recourse or right, whether by way of
lien, set-off, counter-claim charge or otherwise against moneys standing
to the credit of clients account.
25.2. It shall be compulsory for all Member brokers to keep separate accounts for
client’s securities and to keep such books of accounts, as may be necessary, to
distinguish such securities from his/their own securities. Such accounts for
client’s securities shall, inter-alia provide for the following:
25.2.1. Securities received for sale or kept pending delivery in the market.
25.2.2. Securities fully paid for, pending delivery to clients.
25.2.3. Securities received for transfer or sent for transfer by the Member, in the
name of client or his nominee(s).
25.2.4. Securities that are fully paid for and are held in custody by the Member
as security/margin etc. Proper authorization from client for the same
shall be obtained by Member.
25.2.5. Fully paid for client’s securities registered in the name of Member, if any,
towards margin requirements etc.
25.2.6. Securities given on Vyaj-badla. Member shall obtain authorization from
clients for the same.
25.3. Member Brokers shall make payment to their clients or deliver the securities
purchased within 24 hours of pay-out unless the client has requested
otherwise32.
32 Words “two working days” replaced with “24 hours” in view of Para 12 of Annexure-A of SEBI
circular MIRSD/SE/CIR-9/2009 dated December 03, 2009.
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भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
25.4. Member brokers shall issue the contract note for purchase/sale of securities to
a client within 24 hours of the execution of the contract.
25.5. In case of purchases on behalf of clients, Member brokers shall be a liberty to
close out the transactions by selling the securities, in case the client fails to
make the full payment to the Member Broker for the execution of the contract
within two days of contract note having been delivered for cash shares and
seven days for specified shares or before pay-in day (as fixed by Stock
Exchange for the concerned settlement period), whichever is earlier; unless the
client already has an equivalent credit with the Member. The loss incurred in
this regard, if any, will be met from the margin money of that client.
25.6. In case of sales on behalf of clients, Member broker shall be at liberty to close
out the contract by effecting purchases if the client fails to deliver the securities
sold with valid transfer documents within 48 hours of the contract note having
been delivered or before delivery day (as fixed by Stock Exchange authorities
for the concerned settlement period), whichever is earlier. Loss on the
transaction, if any, will be deductible from the margin money of that client.
26. Collateral deposited by Clients with Brokers33
26.1. For brokers to maintain proper records of client collateral and to prevent
misuse of client collateral, it is advised that:
26.1.1. Brokers should have adequate systems and procedures in place to ensure
that client collateral is not used for any purposes other than meeting the
respective client’s margin requirements / pay-ins. Brokers should also
maintain records to ensure proper audit trail of use of client collateral.
26.1.2. Brokers should further be able to produce the aforesaid records during
inspection. The records should include details of:
a. Receipt of collateral from client and acknowledgement issued to client
on receipt of collateral.
b. Client authorization for deposit of collateral with the exchange /
Clearing Corporation / clearing house towards margin.
c. Record of deposit of collateral with Stock Exchange / Clearing
Corporation / Clearing House.
d. Record of return of collateral to client.
e. Credit of corporate action benefits to clients.
26.1.3. The records should be periodically reconciled with the actual collateral
deposited with the broker.
33 Reference: Circular MRD/DoP/SE/CIR-11/2008 dated April 17, 2008.
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भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
26.1.4. Brokers should issue a daily statement of collateral utilization to
clients which shall include, inter-alia, details of collateral deposited,
collateral utilised and collateral status (available balance / due from
client) with break up in terms of cash, Fixed Deposit Receipts (FDRs),
Bank Guarantee and securities.
26.2. In case of complaints against brokers related to misuse of collateral deposited
by clients, exchanges should look into the allegations, conduct inspection of
broker if required and based on its findings take necessary action.
26.3. In case client collateral is found to be mis-utilised, the broker would attract
appropriate deterrent penalty for violation of norms provided under Securities
Contract Regulation Act, SEBI Act, SEBI Regulations and circulars, Exchange
Byelaws, Rules, Regulations and circulars.
27. Severance of connections with other businesses34
27.1. Rule 8(1)(f) and Rule 8(3)(f) of the Securities Contract (Regulation) Rules, 1957,
requires that members of a Stock Exchange, whether individual, partnership or
corporate, shall not engage in any business other than that of securities. Stock
Exchanges should be ensured that the applicants do not attract the above stated
rule.
28. Applicability of Rule 8(1)(f) and 8(3)(f) of the Securities Contract (Regulation)
Rules, 195735
28.1. Borrowing and lending of funds, by a trading member, in connection with or
incidental to or consequential upon the securities business, would not be
disqualified under Rule 8(1)(f) and 8(3)(f) of the Securities Contract
(Regulation) Rules, 1957.
29. Mode of payment and delivery36
29.1. Brokers and sub-brokers should not accept cash from the client whether against
obligations or as margin for purchase of securities and / or give cash against
sale of securities to the clients.
29.2. All payments shall be received / made by the brokers from / to the clients
strictly by account payee crossed cheques / demand drafts or by way of direct
credit into the bank account through EFT, or any other mode allowed by RBI.
The brokers shall accept cheques drawn only by the clients and also
34 Reference: Circular SMD/VRN/1476/95 dated April 27, 1995.
35 Reference: Circular SMD/POLICY/CIR-6/97 dated May 07, 1997.
36 Reference: Circular SEBI/MRD/SE/CIR-33/2003/27/08 dated August 27, 2003.
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भारतीय प्रततभूतत और वितिमय बोर्ड
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issue cheques in favour of the clients only, for their transactions. However, in
exceptional circumstances the broker or sub-broker may receive the amount in
cash, to the extent not in violation of the Income Tax requirement as may be in
force from time to time.
29.3. Similarly, in the case of securities also giving / taking delivery of securities in
“demat mode” should be directly to / from the “beneficiary accounts” of the
clients except delivery of securities to a recognized entity under the approved
scheme of the Stock Exchange and / or SEBI.
30. Pre- funded instruments / Electronic fund transfers37
30.1. To address the concerns regarding flow of third party funds / unidentified
money, following guidelines shall be followed:
30.1.1. If the aggregate value of pre-funded instruments is Rs 50,000/- or more,
per day per client, the stock brokers may accept the instruments only if
the same are accompanied by the name of the bank account holder and
number of the bank account debited for the purpose, duly certified by the
issuing bank. The mode of certification may include the following:
a. Certificate from the issuing bank on its letterhead or on a plain paper
with the seal of the issuing bank.
b. Certified copy of the requisition slip (portion which is retained by the
bank) to issue the instrument.
c. Certified copy of the passbook/bank statement for the account
debited to issue the instrument.
d. Authentication of the bank account-number debited and name of the
account holder by the issuing bank on the reverse of the instrument.
30.1.2. Maintain an audit trail of the funds received through electronic fund
transfers to ensure that the funds are received from their clients only.
31. Disclosure of proprietary trading by Broker to Client38
31.1. With a view to increase the transparency in the dealings between the broker
and the client, every broker shall disclose to his client whether he does client
based business or proprietary trading as well.
31.2. The broker shall disclose this information upfront to his new clients at the time
of entering into the Know Your Client agreement.
31.3. In case of a broker who at present does not trade on proprietary account,
37 Reference: Circular CIR/MIRSD/03/2011 dated June 09, 2011.
38 Reference: Circular SEBI/MRD/SE/CIR-42/2003 dated November 19, 2003.
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भारतीय प्रततभूतत और वितिमय बोर्ड
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chooses to do so at a later date, he shall be required to disclose this to his clients
before carrying out any proprietary trading.
32. “Pro – account” trading terminal39
32.1. During the course of inspections carried out by SEBI and Stock Exchanges of
the books of accounts and other documents of members, following
observations were made:
32.1.1. Certain members are putting large number of orders on pro-account from
various locations rather than using “pro-account” at the terminals located
at the corporate office from where the owner / directors normally
function.
32.1.2. These trades executed from various locations under “pro-account” are,
many a time, transferred subsequently to the respective clients in the back
office of the members.
32.2. The aforementioned practices clearly violate the requirement of putting the
orders of clients under the appropriate client code through trading terminals.
32.3. With a view to check such misuse of the above facility, if any, Stock Exchanges
are directed to ensure the following:-
32.3.1. Facility of placing orders on “pro-account” through trading terminals
shall be extended only at one location of the members as specified /
required by the members.
32.3.2. Trading terminals located at places other than the above location shall
have a facility to place orders only for and on behalf of a client by
entering client code details as required / specified by the Exchange /
SEBI.
32.3.3. In case any member requires the facility of using “pro-account” through
trading terminals from more than one location, such member shall be
required to submit an undertaking to the Stock Exchange stating the
reason for using the “pro-account” at multiple locations and the Stock
Exchange may, on case to case basis after due diligence, consider
extending the facility of allowing use of “pro-account” from more than
one location.
39 Reference: Circular SEBI/MRD/SE/CIR-32/2003/27/08 dated August 27, 2003
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भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
33. Review of norms relating to trading by Members/ Sub-Brokers40
33.1. During the course of inspections carried out by SEBI of the books of accounts
and other documents of members/sub-brokers, following observation was
made:
33.1.1. Certain members/sub-brokers are dealing through a large number of
other stock brokers/sub-brokers of the same exchange/other exchange
for their proprietary trades as well as trades on behalf of clients.
33.2. Trading through large number of brokers/sub-brokers raises serious issues of
regulatory concerns including taking excessive exposure, executing pro
account trading from multiple locations in violation of provisions specified in
para 32.3 above (Pro-account Trading Terminal), possibility of over leveraging
and default etc.
33.3. With a view to address these concerns, Stock Exchanges are directed to ensure
the following:
33.3.1. A stock broker/ sub-broker of an exchange cannot deal with
brokers/sub-brokers of the same exchange either for proprietary trading
or for trading on behalf of clients, except with the prior permission of the
exchange. The Stock Exchanges while giving such permission, shall
consider the reasons stated by the brokers/sub-brokers for dealing with
brokers/sub-brokers of the same exchange and after carrying out due
diligence allow such brokers/sub-brokers to deal with only one stock
broker/sub-broker of the same exchange.
33.3.2. A stock broker/sub-broker of an exchange can deal with only one
broker/sub-broker of another exchange for proprietary trading after
intimating the names of such stock broker/sub-broker to his parent Stock
Exchange.
33.3.3. As per Regulation 15(1) (e) of the SEBI (Stock Brokers and Sub-Brokers)
Regulations, 1992 a sub-broker shall not be affiliated to more than one
stock broker of one Stock Exchange. It is reiterated that a stock broker of
an exchange can deal with only one broker of another exchange on behalf
of clients after obtaining necessary registration as a sub-broker.
40 Reference: Circular SEBI/MIRSD/CIR-06/2004 January 13, 2004
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भारतीय प्रततभूतत और वितिमय बोर्ड
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34. Market Access through Authorised Persons41
The framework governing the market access through authorised persons is
prescribed below. This framework provides the minimum requirements and the
Stock Exchanges and stock brokers may prescribe additional requirements, as they
may deem appropriate, in the interest of investors and market.
Regulatory Framework for Market Access through Authorised Persons
34.1. Who is an “Authorised Person”?
Any person - individual, partnership firm, LLP or body corporate – who is
appointed as such by a stock broker (including trading member) and who
provides access to trading platform of a Stock Exchange as an agent of the
stock broker.
34.2. Appointment of Authorised Person
A stock broker may appoint one or more authorised person(s) after obtaining
specific prior approval from the Stock Exchange concerned for each such
person. The approval as well as the appointment shall be for specific segment
of the exchange.
34.3. Procedure for Appointment
34.3.1. Stock Broker shall select a person in compliance with the criteria laid
down by the Exchange and this framework for appointment as an
authorized person and forward the application of the person to Stock
Exchange for approval.
34.3.2. On receipt of the aforesaid application, the Stock Exchange
a. may accord approval on satisfying itself that the person is eligible for
appointment as authorized person, or
b. may refuse approval on satisfying itself that the person is not eligible
for appointment as authorized person.
34.4. Eligibility Criteria
34.4.1. An individual is eligible to be appointed as authorised person if he:
a. is a citizen of India;
b. is not less than 18 years of age;
41 Reference: Circular MIRSD/DR-1/CIR-16/09 dated November 06, 2009 and Circular
SEBI/CIR/MIRSD/AP/8/2010 dated July 23, 2010.
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भारतीय प्रततभूतत और वितिमय बोर्ड
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c. has not been convicted of any offence involving fraud or dishonesty;
d. has good reputation and character;
e. has passed at least 10th standard or equivalent examination from an
institution recognized by the Government; and
34.4.2. A partnership firm, LLP or a body corporate is eligible to be appointed as
authorized person
a. if all the partners or directors, as the case may be, comply with the
requirements contained in clause 34.4.1 above.
b. the object clause of the partnership deed or of the Memorandum of
Association contains a clause permitting the person to deal in
securities business.
34.4.3. The person shall have the necessary infrastructure like adequate office
space, equipment and manpower to effectively discharge the activities on
behalf of the stock broker.
34.4.4. The approved users and/or sales personnel of Authorised Persons shall
have the necessary certification of the respective segments at all points of
time.
34.5. Conditions of Appointment
34.5.1. The following are the conditions of appointment of an authorised person:
a. The stock broker shall be responsible for all acts of omission and
commission of the authorized person.
b. All acts of omission and commission of the authorized person shall be
deemed to be those of the stock broker.
c. The authorized person shall not receive or pay any money or
securities in its own name or account. All receipts and payments of
securities and funds shall be in the name or account of stock broker.
d. The authorised person shall receive his remuneration - fees, charges,
commission, salary, etc. - for his services only from the stock broker
and he shall not charge any amount from the clients.
e. A person shall not be appointed as authorized person by more than
one stock broker on the same Stock Exchange.
f. A partner or director of an authorised person shall not be appointed
as an authorised person on the same Stock Exchange.
g. The stock broker and authorised person shall enter into written
agreement(s) in the form(s) specified by Exchange. The agreement
shall inter-alia cover scope of the activities, responsibilities,
confidentiality of information, commission sharing, termination
clause, etc.
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भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
34.6. Withdrawal of Approval
34.6.1. Approval given to an authorised person may be withdrawn by the Stock
Exchange:
a. on receipt of a request to that effect from the stock broker concerned
or the authorised person, subject to compliance with the requirements
prescribed by the Stock Exchange, or
b. on being satisfied that the continuation of authorised person is
detrimental to the interest of investors or securities market or the
authorised person at a subsequent date becomes ineligible under
clause 34.4 above.
34.7. Obligations of Stock Broker
34.7.1. The stock broker shall be responsible for all acts of omission and
commission of his authorised person(s) and/or their employees,
including liabilities arising there from.
34.7.2. If any trading terminal is provided by the stock broker to an authorised
person, the place where such trading terminal is located shall be treated
as branch office of the stock broker.
34.7.3. Stock Broker shall display at each branch office additional information
such as particulars of authorised person in charge of that branch, time
lines for dealing through authorised person, etc., as may be specified by
the Stock Exchange.
34.7.4. Stock Broker shall notify changes, if any, in the authorised person to all
registered clients of that branch at least thirty days before the change.
34.7.5. Stock Broker shall conduct periodic inspection of branches assigned to
authorised persons and records of the operations carried out by them.
34.7.6. The client shall be registered with stock broker only. The funds and
securities of the clients shall be settled directly between stock broker and
client and all documents like contract note, statement of funds and
securities would be issued to client by stock broker. Authorised person
may provide administrative assistance in procurement of documents and
settlement but shall not issue any document to client in its own name. No
fund/securities of clients shall go to account of authorized person.
34.7.7. On noticing irregularities, if any, in the operations of authorised person,
stock broker shall seek withdrawal of approval, withhold all moneys due
to authorised person till resolution of investor problems, alert investors in
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भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
the location where authorised person operates, file a complaint with the
police, and take all measures required to protect the interest of investors
and market.
34.8. Obligations of Exchange
34.8.1. The Stock Exchange shall maintain a database of all the authorised
persons which shall include the following:
a. PAN Number of authorised person and in case of partnership or body
corporate, PAN Number of all the partners or directors as the case
may be.
b. Details of the broker with whom the authorised person is registered.
c. Locations of branch assigned to authorised person(s).
d. Number of terminals and their details, given to each authorised
person.
e. Withdrawal of approval of authorised person.
f. Change in status or constitution of authorised person.
g. Disciplinary action taken by the Exchange against the authorised
person.
All the above details, except (a) above, shall be made available on web
site of the Stock Exchange.
34.8.2. While conducting the inspection of the stock broker, the Stock Exchange
shall also conduct inspection of branches where the terminals of
authorised persons are located and records of the operations carried out
by them.
34.8.3. Dispute between a client and an authorised person shall be treated as
dispute between the client and the stock broker and the same shall be
redressed by the Stock Exchange accordingly.
34.8.4. In case of withdrawal of approval of authorised person due to
disciplinary action, the Stock Exchange shall issue a press release and
disseminate the names of such authorised persons on its website citing
the reason for cancellation.
35. SMS and e-mail alerts to investors by Stock Exchanges42
Stock Exchanges shall send details of the transactions to the investors, by the end of
trading day, through SMS and E-mail alerts. This would be subject to the following
guidelines:
42 Reference: Circular CIR/MIRSD/15/2011 dated August 02, 2011 and SEBI communication
SE/10118 dated October 12, 1992.
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भारतीय प्रततभूतत और वितिमय बोर्ड
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35.1. Applicability –
35.1.1. These guidelines are applicable to equity - cash and derivative - segments
of the Stock Exchanges.
35.2. Uploading of mobile number and E-mail address by stock brokers
35.2.1. Stock Exchanges shall provide a platform to stock brokers to upload the
details of their clients, preferably, in sync with the UCC updation
module.
35.2.2. Stock Brokers shall upload the details of clients, such as, name, mobile
number, address for correspondence and E-mail address.
35.2.3. Stock Brokers shall ensure that the mobile numbers/E-mail addresses of
their employees/sub-brokers/remisiers/authorized persons are not
uploaded on behalf of clients.
35.2.4. Stock Brokers shall ensure that separate mobile number/E-mail address
is uploaded for each client. However, under exceptional circumstances,
the stock broker may, at the specific written request of a client, upload the
same mobile number/E-mail address for more than one client provided
such clients belong to one family. ‘Family’ for this purpose would mean
self, spouse, dependent children and dependent parents.
35.3. Verification by the Stock Exchanges
35.3.1. After uploading of details by the stock brokers, the Stock Exchanges shall
take necessary steps to verify the details by any mode as considered
appropriate by them which may include the following:
a. By way of sending SMS and E-mail directly to the investors at the
numbers/E-mail address uploaded by the stock brokers.
b. By way of sending letters to the address of the investors uploaded by
the stock brokers.
35.4. Sending of alerts by the Stock Exchanges
35.4.1. Upon receipt of confirmation from the investors, the Stock Exchanges
shall commence sending the transaction details generated based on
investors’ Permanent Account Number, directly to them.
35.5. Handling of discrepancies, if any
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भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
35.5.1. If any discrepancy is observed by the Stock Exchanges in the details
uploaded by the stock brokers including non-confirmation by investors,
bounced E-mails, undelivered SMS/letters, etc., the Stock Exchanges shall
inform the respective stock broker.
35.6. Meeting out the expenses for providing SMS and E-mail alerts
35.6.1. The Stock Exchanges may use the amount set aside from the listing fees
(20% of the listing fees) for providing services to the investing public, to
meet the expenses for providing this facility.
36. Prevention of Unauthorised Trading by Stock Brokers43
36.1. SEBI in the past has taken several steps to tackle the menace of “Unauthorized
Trades” viz Periodic Running Account Settlement, Post transactions
SMS/email by Stock Exchanges/Depositories, Ticker on broker/DP websites
etc. It was observed that in spite of measures taken, a considerable proportion
of investor complaints is of the nature of “Unauthorized Trades”.
36.2. To further strengthen regulatory provisions against un-authorized trades and
also to harmonise the requirements across markets, it has now been decided
that all brokers shall execute trades of clients only after keeping evidence of the
client placing such order, it could be, inter alia, in the form of:
a. Physical record written & signed by client,
b. Telephone recording,
c. Email from authorized email id,
d. Log for internet transactions,
e. Record of SMS messages,
f. Any other legally verifiable record.
36.3. When a dispute arises, the broker shall produce the above mentioned records
for the disputed trades. However, for exceptional cases such as technical failure
etc. where broker fails to produce order placing evidences, the broker shall
justify with reasons for the same and depending upon merit of the same, other
appropriate evidences like post trade confirmation by client, receipt/payment
of funds/ securities by client in respect of disputed trade, etc. shall also be
considered.
36.4. Further, wherever the order instructions are received from clients through the
telephone, the stock broker shall mandatorily use telephone recording system
to record the instructions and maintain telephone recordings as part of its
records.
43 Reference: Circular SEBI/HO/MIRSD/DOP1/CIR/P/2018/54 dated March 22, 2018.
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भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
36.5. The Brokers are required to maintain the records specified at Para 36.2 above
for a minimum period for which the arbitration accepts investors’ complaints
as notified from time to time currently three years. However, in cases where
dispute has been raised, such records shall be kept till final resolution of the
dispute.
36.6. If SEBI desires that specific records be preserved then such records shall be
kept till further intimation by SEBI.
37. Execution of Power of Attorney (PoA) by the Client in favour of the Stock Broker/
Stock Broker and Depository Participant44
37.1. A Power of Attorney (PoA) is executed by the client in favour of the stock
broker /stock broker and depository participant to authorize the broker to
operate the client’s demat account and bank account to facilitate the delivery of
shares and pay – in/ pay – out of funds.
37.2. Generally, the PoA is taken from the clients who want to avail internet based
trading services. For offering internet based trading services, a Stock Broker
requires necessary authorizations for seamless trading, collection of margins as
well as settlement of funds and securities. Further, some of the Stock Brokers
also obtain authorizations from their clients to offer non-internet based
services.
37.3. It came to SEBI’s notice that the clients are compelled to give irrevocable power
of attorney to manage client’s demat account and bank account so that the
client is able to pay funds or deliver shares to its broker on time. In some cases,
the PoA even allows a broker to open and close accounts on behalf of the client
and to trade on client’s account without the consent of the client.
37.4. In order to standardize the norms to be followed by stock brokers/ stock
broker and depository participants while obtaining PoA from the clients,
guidelines as set out in the Annexure shall be made applicable to stock
brokers/ stock broker and depository participants.
37.5. Standardizing the norms for PoA must not be construed as making the PoA a
condition precedent or mandatory for availing broking or depository
participant services. PoA is merely an option available to the client for
instructing his broker or depository participant to facilitate the delivery of
shares and pay-in/pay-out of funds etc. No stock broker or depository
participant shall deny services to the client if the client refuses to execute a PoA
in their favour. However, internet based trading is exempted from this clause.
44 Reference: Circular CIR/MRD/DMS/13/2010 dated April 23, 2010 and
CIR/MRD/DMS/28/2010 dated August 31, 2010.
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भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
37.6. Stock Broker/ DP may revoke those authorizations that are inconsistent with
the present guidelines by communicating the inconsistent clauses to the
existing clients. In the event, the deleted clauses are not accepted by the client,
Stock Broker/ DP may be required to either obtain fresh PoA or close the
account. In case of any addition to the existing PoA, Stock Broker / DP shall be
required to obtain a new PoA from clients.
ANNEXURE
1. PoA favouring Stock Brokers
1.1. PoA executed in favour of a stock broker by the client should be limited to
the following:
1.1.1. Securities
a) Transfer of securities held in the beneficial owner account(s) of the
client(s) towards Stock Exchange related margin / delivery
obligations arising out of trades executed by the Client(s) on the
Stock Exchange through the same stock broker. Margin / Delivery
obligations shall also include settlement obligations, if any.
b) Pledge the securities in favour of stock broker for the limited
purpose of meeting the margin requirements of the client(s) in
connection with the trades executed by the clients on the Stock
Exchange through the same stock broker. Necessary audit trail
should be available with the stock broker for such transactions.
c) To apply for various products like Mutual Funds, Public Issues
(shares as well as debentures), rights, offer of shares, tendering
shares in open offers, redemptions etc. pursuant to the
instructions of the Client(s). However, a proper audit trail should
be maintained by the stock broker to prove that the necessary
application/act was made/done pursuant to receipt of instruction
from Client.
1.1.2. Funds
Transfer of funds from the bank account(s) of the clients for the
following:
a. For meeting the settlement obligations of the client(s)/ margin
requirements of the client(s) in connection with the trades
executed by the clients on the Stock Exchange through the same
stock broker.
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भारतीय प्रततभूतत और वितिमय बोर्ड
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b. For recovering any outstanding amount due from the client(s)
arising out of clients trading activities on the Stock Exchanges
through the same stock broker.
c. For meeting obligations arising out of the client subscribing to
such other products/facilities/services through the stock broker
like Mutual Funds, Public Issues (shares as well as debentures),
rights, offer of shares in etc.
d. Towards monies/fees/charges, etc. due to the stock broker
/depository participant/ principal payable by virtue of the client
using/subscribing to any of the facilities/services availed by the
client at his/her instance.
Necessary audit trail should be available with the stock broker for
such transactions.
2. PoA favouring Stock Brokers and Depository Participants
2.1. PoA executed in favour of a stock broker and Depository Participant by the
client should:
2.1.1. Identify/provide the particulars of the beneficial owner account(s)
and the bank account(s) of the client(s) that the stock broker is entitled
to operate.
2.1.2. Provide the list of clients’ & brokers’ Bank accounts & demat accounts
where funds and securities can be moved. Such bank & demat
accounts should be accounts of related party only. The list of clients’
and brokers’ Bank account and demat accounts may be updated /
amended by proper communication without executing a new PoA
every time. Copies of such communication may be preserved as
annexure to PoA.
2.1.3. Be executed in the name of the concerned SEBI registered entity only
and not in the name of any employee or representative of the stock
broker /depository participant.
2.1.4. Not provide the authority to transfer the rights in favour of any
assignees of the stock broker/depository participant.
2.1.5. Be executed and stamped as per the rules / law prevailing in the
place where the PoA is executed or the place where the PoA is kept as
a record, as applicable.
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भारतीय प्रततभूतत और वितिमय बोर्ड
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2.1.6. Contain a clause by which the stock broker would return to the
client(s), the securities or fund that may have been received by it
erroneously or those securities or fund that it was not entitled to
receive from the client(s).
2.1.7. Be revocable at any time. However, such revocation shall not be
applicable for any outstanding settlement obligation arising out of the
trades carried out prior to receiving request for revocation of PoA.
Further, the PoA revocation requests should be dated and time
stamped by the brokers for ensuring proper audit trail.
2.1.8. Be executed by all the joint holders (in case of a demat account held
jointly). If the constitution of the account is changed for whatever
reason, a new PoA should be executed.
2.1.9. Authorize the stock broker/depository participant to send
consolidated summary of Client's scrip-wise buy and sell positions
taken with average rates to the client by way of SMS / email on a
daily basis, notwithstanding any other document to be disseminated
as specified by SEBI from time to time.
3. General Guidelines
3.1. The POA shall not facilitate the stock broker to do the following:
3.1.1. Off-market trades between parties other than the related parties as
mentioned in the PoA.
3.1.2. Transfer of funds from the bank account(s) of the Clients for trades
executed by the clients through another stock broker.
3.1.3. Open a broking / trading facility with any stock broker or for opening
a beneficial owner account with any depository participant.
3.1.4. Execute trades in the name of the client(s) without the client(s)
consent.
3.1.5. Prohibit issue of Delivery Instruction Slips (DIS) to beneficial owner
(client).
3.1.6. Prohibit client(s) from operating the account.
3.1.7. Merging of balances (dues) under various accounts to nullify debit in
any other account.
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भारतीय प्रततभूतत और वितिमय बोर्ड
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3.1.8. Open an email ID/ email account on behalf of the client(s) for
receiving statement of transactions, bills, contract notes etc. from
stock broker / depository participant.
3.1.9. Renounce liability for any loss or claim that may arise due to any
blocking of funds that may be erroneously instructed by the stock
broker to the designated bank.
4. Stock Broker / Depository Participant should ensure that:
4.1. A duplicate/ certified true copy of the PoA is provided to the Client(s) after
execution.
4.2. In case of merger/ demerger of the stock broker/depository participant with
another entity/ into another entity, the scheme of merger/ demerger should
be approved by High Court and one month prior intimation given to the
client about the corporate restructuring to facilitate investor/ client to
continue or discontinue with the broker.
38. Modification of Client Codes of Non-institutional Trades executed on Stock
Exchanges (All Segments)45
38.1. Stock Exchanges may allow modifications of client codes of non-institutional
trades only to rectify a genuine error in entry of client code at the time of
placing / modifying the related order.
38.2. If a Stock Exchange wishes to allow trading members to modify client codes of
non-institutional trades, it shall
38.2.1. lay down strict objective criteria, with the approval of its Governing
Board, for identification of genuine errors in client codes which may be
modified, and disclose the same to market in advance,
38.2.2. set up a mechanism to monitor that the trading members modify client
codes only as per the strict objective criteria, and
38.2.3. ensure that modification of client codes is covered in the internal audit of
trading members.
45 Reference: Circular CIR/DNPD/6/2011 dated July 05, 2011 and Circular
CIR/MRD/DP/29/2014 dated October 21, 2014.
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भारतीय प्रततभूतत और वितिमय बोर्ड
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38.3. Notwithstanding the above,
38.3.1. The Stock Exchanges shall levy a penalty from trading members and
credit the same to its Investor Protection Fund as under:
‘a’ as % of ‘b’ Penalty as % of ‘a’
≤ 5 1
> 5 2
Where
a = Value (turnover) of non-institutional trades where client codes have been
modified by a trading member in a segment during a month.
b = Value (turnover) of non-institutional trades of the trading member in the
segment during the month.
38.3.2. The Stock Exchange shall conduct a special inspection of the trading
member to ascertain whether the modifications of client codes are being
carried on as per the strict objective criteria set by the Stock Exchange, as
directed in Para 38.2 above, if ‘a’ as % of ‘b’, as defined above, exceeds 1%
during a month and take appropriate disciplinary action, if any
deficiency is observed.
38.4. Shifting of trades to the error account of broker would not be treated as
modification of client code, provided the trades in error account are
subsequently liquidated in the market and not shifted to some other code.
38.5. Further, brokers shall disclose the codes of accounts which are classified as
‘error accounts’ to the Stock Exchanges. Each broker should have a well-
documented error policy approved by the management of the broker. Stock
Exchanges shall periodically review the trades flowing to the error accounts of
the brokers.
38.6. Waiver of Penalty
38.6.1. Stock exchanges may waive penalty for a client code modification where
stock broker is able to produce evidence to the satisfaction of the stock
exchange to establish that the modification was on account of a genuine
error.
38.6.2. Not more than one such waiver per quarter may be given to a stock
broker for modification in a client code. Explanation: If penalty wavier
has been given with regard to a genuine client code modification from
client code AB to client code BA, no more penalty waivers shall be
allowed to the stock broker in the quarter for modifications related to
client codes AB and BA.
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भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
38.7. Proprietary trades shall not be allowed to be modified as client trade and vice
versa
38.8. Stock exchanges shall submit a report to SEBI every quarter regarding all such
client code modifications where penalties have been waived.
38.9. Stock exchanges shall undertake stringent disciplinary actions against stock
brokers who undertake frequent client code modifications.
39. Margin Trading Facility46
39.1. Equity Shares that are classified as 'Group I security' shall be eligible for
margin trading facility. Group I securities are liquid securities which are traded
at least 80% of the days over the previous six months and impact cost for which
over the previous six months is less than or equal to 1%. (For securities that
have been listed for less than six months, the trading frequency and the impact
cost shall be computed using the entire trading history of the scrip)
39.2. Margin Requirement
39.2.1. In order to avail margin trading facility, initial margin required shall be
as under:
Category of Stock Applicable margin
Group I stocks available for trading in VaR + 3 times of applicable ELM(*)
the F & O Segment
Group I stocks other than F&O stocks VaR + 5 times of applicable ELM(*)
(*) For aforesaid purpose the applicable VaR and ELM shall be as in the cash
segment for a particular stock.
39.2.2. The initial margin payable by the client to the stock broker shall be in the
form of cash, cash equivalent or Group I equity shares, with appropriate
haircut as specified by SEBI.
39.2.3. The stock brokers shall be required to comply with the following
conditions:
a. The stocks deposited as collateral with the stock broker for availing
margin trading facility (Collaterals) and the stocks purchased under
the margin trading facility (Funded stocks) shall be identifiable
46 Reference: Circular CIR/MRD/DP/54/2017 dated June 13, 2017 and Circular
CIR/MRD/DP/86/2017 dated August 01, 2017.
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भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
separately and no comingling shall be permitted for the purpose of
computing funding amount;
b. Collateral and Funded stocks shall be marked to market on a daily
basis;
c. In case of increase in the value of Collaterals, stock brokers may have
the option of granting further exposure to their clients subject to
applicable haircuts;
d. However, no such exposure shall be permitted on the increased value
of funded stocks.
39.2.4. Stock Brokers shall ensure maintenance of the aforesaid margin at all
times during the period that the margin trading facility is being availed
by the client. In case of short fall, stock broker shall make necessary
margin calls.
39.2.5. The exchange/stock broker, based on the risk assessment, shall have the
discretion to impose/collect higher margin than the margin specified in
para 39.2.1 above.
39.3. Liquidation of Securities by the stock broker in case of default by the client
39.3.1. The stock broker shall list out situations/conditions in which the
securities may be liquidated and such situations/conditions shall be
included in the “Rights and Obligations Document”. The broker shall
liquidate the securities, if the client fails to meet the margin call to comply
with the conditions as mentioned in this circular or specified in the
"Rights and Obligations Document" specified by exchange.
39.3.2. However, the broker shall not liquidate or use in any manner the
securities of the client in any situation other than the conditions
stipulated at para 39.3.1 above.
39.4. Eligibility requirements for stock brokers to provide Margin Trading Facility to
clients
39.4.1. Only corporate stock brokers with a net worth of at least Rs.3.00 crore
shall be eligible to offer margin trading facility to their clients.
39.4.2. The “net worth” for the purpose of margin trading facility shall be as
specified in SEBI (Stock Brokers and Sub-Brokers) Regulations, 1992.
39.4.3. The stock brokers shall submit to the Stock Exchange a half-yearly
certificate, as on 31st March and 30th September of each year, from an
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भारतीय प्रततभूतत और वितिमय बोर्ड
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auditor confirming the net worth. Such a certificate shall be submitted not
later than 30th April and 31st October of every year.
39.5. Source of Funds
39.5.1. For the purpose of providing the margin trading facility, a stock broker
may use own funds or borrow funds from scheduled commercial banks
and/or NBFCs regulated by RBI. Stock Brokers may borrow funds by
way of issuance of Commercial Paper (CP) and by way of unsecured long
term loans from their promoters and directors. The borrowing by way of
issuance of CPs shall be subject to compliance with appropriate RBI
Guidelines. The borrowing by way of unsecured long term loans from the
promoters and directors shall be subject to the appropriate provisions of
Companies Act.
39.5.2. A stock broker shall not be permitted to borrow funds from any other
source, except the sources stated at para 39.5.1 above
39.5.3. The stock broker shall not use the funds of any client for providing the
margin trading facility to another client, even if the same is authorized by
the first client.
39.6. Leverage and Exposure Limits
39.6.1. At any point of time, the total indebtedness of a stock broker for the
purpose of margin trading shall not exceed 5 times of its net worth,
calculated as per para 39.4.2 above.
39.6.2. The maximum allowable exposure of the broker towards the margin
trading facility shall be within the self imposed prudential limits and
shall not, in any case, exceed the borrowed funds and 50% of his “net
worth”.
39.6.3. While providing the margin trading facility, the broker shall ensure that:
a) exposure to any single client at any point of time shall not exceed 10%
of the broker’s maximum allowable exposure, as specified in para
39.6.2 above.
b) exposure towards stocks purchased under margin trading facility and
collateral kept in the form of stocks are well diversified. Stock Brokers
shall have appropriate Board approved policy in this regard.
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भारतीय प्रततभूतत और वितिमय बोर्ड
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39.7. Disclosure Requirement
39.7.1. The stock broker shall disclose to the Stock Exchanges details on gross
exposure towards margin trading facility including name of the client,
Category of holding (Promoter/promoter group or Non-promoter),
clients' Permanent Account Number ("PAN"), name of the scrips
(Collateral stocks and Funded stocks) and if the stock broker has
borrowed funds for the purpose of providing margin trading facility,
name of the lender and amount borrowed, on or before 12 noon on the
following trading day. The format for this disclosure by the stock broker
to the stock exchange is enclosed at Annexure.
39.7.2. The Stock Exchanges shall disclose on their websites the scrip wise gross
outstanding in margin accounts with all brokers to the market. Such
disclosure regarding margin trading done on any day shall be made
available after the trading hours, on the following day, through its
website.
39.7.3. The Stock Exchanges shall put in place a suitable mechanism to capture
and maintain all relevant details including member-wise, client-wise,
scrip-wise information regarding outstanding positions in margin trading
facility and also source of funds of the stock brokers, on the exchange
both on daily as well as on cumulative basis.
39.8. Rights and Obligations for Margin Trading
39.8.1. The Stock Exchanges shall frame a Rights and Obligations document
laying down the rights and obligations of stock brokers and clients for the
purpose of margin trading facility. The Rights and Obligations document
shall be mandatory and binding on the Broker/Trading Member and the
clients for executing trade in the Margin Trading framework.
39.8.2. The broker/exchange may modify the Rights and Obligations document
only for stipulating any additional or more stringent conditions, provided
that no such modification shall have the effect of diluting any of the
conditions laid down in the circular or in the Rights and Obligations
document.
39.9. Maintenance of Records
39.9.1. The stock broker shall maintain separate client-wise ledgers for funds and
securities of clients availing margin trading facility.
39.9.2. The stock broker shall maintain a separate record of details of the funds
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used and sources of funds for the purpose of margin trading.
39.9.3. The books of accounts, maintained by the broker, with respect to the
margin trading facility offered by it, shall be audited on a half yearly
basis. The stock broker shall submit an auditor’s certificate to the
exchange within one month from the date of the half year ending 31st
March and 30th September of a year certifying, inter alia, the extent of
compliance with the conditions of margin trading facility. This certificate
is in addition to the certificate on net worth specified in para 39.4.2 above.
39.10. Other Conditions
39.10.1. A broker shall take adequate care and exercise due diligence before
providing margin trading facility to any client.
39.10.2. Any disputes arising between the client and the stock broker in
connection with the margin trading facility shall have the same
treatment as normal trades and should be covered under the investor
grievance redressal mechanism, arbitration mechanism of the Stock
Exchange.
39.10.3. SGF and IPF shall be available for transactions done on the exchange,
whether through normal or margin trading facility. However, any losses
suffered in connection with the margin trading facility availed by the
client from the stock broker shall not be covered under IPF.
39.10.4. The stock brokers wishing to extend margin trading facility to their
clients shall be required to obtain prior permission from the exchange
where the margin trading facility is proposed to be offered. The
exchange shall have right to withdraw this permission at a later date,
after giving reasons for the same.
ANNEXURE
Format of the Daily Reporting by the members to the Exchange on the amount
financed by them under the Margin Trading Facility
Name of the member
Clearing No.
Name Category of Holding PAN Name of Stock Qty Amount
of (Promoter/Promoter Stock Exchange Financed Financed
Client Group or Non (Collateral (Number (In
Promoter or Funded of lakhs)
Stock) shares)
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भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
S. No. Particulars (Rs in Lakhs)
1 Total outstanding on the beginning of the day
2 Add: Fresh exposure taken during the day
3 Less: Exposure liquidated during the day
4 Net outstanding at the end of the day
Source of Funds
1 Out of net worth
2 Out of borrowed funds
3 If borrowed, name of lenders and amount
borrowed to be specified separately
Note: Disclosure is required to be made on or before 12 noon on the following
trading day.
*****
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भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
V. TECHNOLOGY RELATED
40. Electronic Contract Note47
40.1. Brokers are allowed to issue contract notes authenticated by means of digital
signatures provided that the broker has obtained digital signature certificate
from Certifying Authority under the IT Act, 2000.
40.2. Contract notes can be issued by the brokers in electronic form authenticated by
means of digital signatures.
40.3. All the members of stock exchanges who are desirous of issuing Electronic
Contract Notes (ECNs) to their clients shall comply with the following
conditions:
40.3.1. Authorization for Electronic Contract Notes - The stock broker may issue
electronic contract notes (ECN) if specifically authorized by the client
subject to the following conditions:
a. The authorization shall be in writing and be signed by the client only
and not by any authorised person on his behalf or holder of the Power
of Attorney.
b. The email id shall not be created by the broker. The client desirous of
receiving ECN shall create/provide his own email id to the stock
broker.
c. The authorization shall have a clause to the effect that that any change
in the email-id shall be communicated by the client through a physical
letter to the broker. In respect of internet clients, the request for
change of email id may be made through the secured access by way of
client specific user id and password.
40.3.2. Issuing ECNs when specifically consented
a. The digitally signed ECNs may be sent only to those clients who
have opted to receive the contract notes in an electronic form, either
in the Member – Client agreement / Tripartite agreement or by a
separate letter. The mode of confirmation shall be as per the
agreement entered into with the clients.
47 Reference: Circular SMDRP/POLICY/CIR-56/00 dated December 15, 2000,
Circular SEBI/SMD/SE/15/2003/29/04 dated April 29, 2003,
Circular MRD/DoP/SE/CIR-20/2005 dated September 08, 2005 and
Circular MIRSD/SE/CIR-19/2009 dated December 03, 2009.
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भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
40.3.3. Where to send ECNs
a. The usual mode of delivery of ECNs to the clients shall be through
e-mail. For this purpose, the client shall provide an appropriate e-
mail account to the member which shall be made available at all
times for such receipts of ECNs.
40.3.4. Requirement of digital signature
a. All ECNs sent through the e-mail shall be digitally signed,
encrypted, non-tamperable and shall comply with the provisions of
the IT Act, 2000. In case the ECN is sent through e-mail as an
attachment, the attached file shall also be secured with the digital
signature, encrypted and non-tamperable.
40.3.5. Requirements for acknowledgement, proof of delivery, log report etc.
a. Acknowledgement
i. The acknowledgement of the e-mail shall be retained by the
member in a soft and non-tamperable form.
b. Proof of delivery
i. The proof of delivery i.e., log report generated by the system at
the time of sending the contract notes shall be maintained by the
member for the specified period under the extant regulations of
SEBI/stock exchanges and shall be made available during
inspection, audit, etc.
ii. The member shall clearly communicate to the client in the
agreement executed with the client for this purpose that non-
receipt of bounced mail notification by the member shall amount
to delivery of the contract note at the e-mail ID of the client.
c. Log Report for rejected or bounced mails
i. The log report shall also provide the details of the contract notes
that are not delivered to the client/e-mails rejected or bounced
back.
ii. Also, the member shall take all possible steps (including settings
of mail servers, etc) to ensure receipt of notification of bounced
mails by the member at all times within the stipulated time
period under the extant regulations of SEBI/stock exchanges.
40.3.6. When to issue or send in Physical mode
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भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
a. Issue in Physical mode
i. In the case of those clients who do not opt to receive the contract
notes in the electronic form, the member shall continue to send
contract notes in the physical mode to such clients.
b. Send in Physical mode
i. Wherever the ECNs have not been delivered to the client or has
been rejected (bouncing of mails) by the e-mail ID of the client, the
member shall send a physical contract note to the client within the
stipulated time under the extant regulations of SEBI/stock
exchanges and maintain the proof of delivery of such physical
contract notes.
40.3.7. General requirements
a. ECNs through website
i. In addition to the e-mail communication of the ECNs in the
manner stated above, in order to further strengthen the electronic
communication channel, the member shall simultaneously publish
the ECN on his designated website in a secured way and enable
relevant access to the clients.
b. Access to the website
i. In order to enable clients to access the ECNs posted in the
designated website in a secured way, the member shall allot a
unique user name and password for the purpose, with an option
to the client to access the same and save the contract note
electronically or take a print out of the same.
c. Preservation/Archive of electronic documents
i. The member shall retain/archive such electronic documents as
per the extant rules/regulations/circulars/guidelines issued by
SEBI/Stock Exchanges from time to time.
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भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
41. Conditions to be met by Broker for providing Internet Based Trading Service48
41.1. Internet Based trading can take place through order routing systems, which
will route client orders, to exchange trading systems, for execution of trades on
the existing stock exchanges. SEBI Registered Brokers can introduce the service
after obtaining permission from respective Stock Exchanges. Exchanges while
giving permission will be required to ensure minimum conditions specified in
the report which is available on the SEBI’s web site. The salient conditions to be
met are:
41.2. Application for permission by Brokers
41.2.1. SEBI registered Stock Brokers interested in providing Internet based
trading services will be required to apply to the respective stock exchange
for a formal permission. The stock exchange should grant approval or
reject the application as the case may be, and communicate its decision to
the member within 30 calendar days of the date of completed application
submitted to the exchange.
41.2.2. The stock exchange, before giving permission to brokers to start Internet
based services shall ensure the fulfilment of the following minimum
conditions:
a. Networth Requirement
i. The broker must have a minimum net worth of Rs.50 lacs if the
broker is providing the Internet based facility on his own.
However, if some brokers collectively approach a service provider
for providing the internet trading facility, net worth criteria as
stipulated by the stock exchange will apply. The net worth will be
computed as follows:
 Capital +Free reserves
 Less non-allowable assets viz.,
i. Fixed assets
ii. Pledged securities
iii. Member’s card
iv. Non-allowable securities (unlisted securities)
v. Bad deliveries
vi. Doubtful debts and advances*
vii. Prepaid expenses, losses
viii. Intangible assets
48 Reference: Circular SMDRP/POLICY/CIR-06/2000 dated January 31, 2000 and Circular
FITTC/DC/CIR-1/98 dated June 16, 1998.
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भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
ix. 30% of marketable securities
*Explanation – includes debts/advances overdue for more than
three months or given to associates.
b. Operational and System Requirements
i. Operational Integrity: The Stock Exchange must ensure that the
system used by the broker has provision for security, reliability
and confidentiality of data through use of encryption technology.
(Basic minimum security standards are specified in following
paras). The Stock Exchange must also ensure that records
maintained in electronic form by the broker are not susceptible to
manipulation.
ii. System Capacity: The Stock Exchange must ensure that the
brokers maintain adequate backup systems and data storage
capacity. The Stock Exchange must also ensure that the brokers
have adequate system capacity for handling data transfer, and
arranged for alternative means of communications in case of
Internet link failure.
iii. Qualified Personnel: The Stock Exchange must lay down the
minimum qualification for personnel to ensure that the broker has
suitably qualified and adequate personnel to handle
communication including trading instructions as well as other
back office work which is likely to increase because of higher
volumes.
iv. Written Procedures: Stock Exchange must develop uniform
written procedures to handle contingency situations and for
review of incoming and outgoing electronic correspondence.
v. Signature Verification/ Authentication: It is desirable that
participants use authentication technologies. For this purpose it
should be mandatory for participants to use certification agencies
as and when notified by Government / SEBI. They should also
clearly specify when manual signatures would be required.
c. Client Broker Relationship
i. Know Your Client: The Stock Exchange must ensure that brokers
comply with all requirements of "Know Your Client" and have
sufficient, verifiable information about clients, which would
facilitate risk evaluation of clients.
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भारतीय प्रततभूतत और वितिमय बोर्ड
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ii. Broker-Client Agreement: Brokers must enter into an agreement
with clients spelling out all obligations and rights. This agreement
should also include inter alia, the minimum service standards to
be maintained by the broker for such services specified by
SEBI/Exchanges for the Internet based trading from time to time.
iii. Exchanges will prepare a model agreement for this purpose. The
broker agreement with clients should not have any clause that is
less stringent/contrary to the conditions stipulated in the model
agreement.
iv. Investor Information: The broker web site providing the internet
based trading facility should contain information meant for
investor protection such as rules and regulations affecting client
broker relationship, arbitration rules, investor protection rules etc.
The broker web site providing the Internet based trading facility
should also provide and display prominently, hyper link to the
web site/ page on the web site of the relevant stock exchange(s)
displaying rules/ regulations/circulars. Ticker/quote/order book
displayed on the web-site of the broker should display the time
stamp as well as the source of such information against the given
information.
v. Order/Trade Confirmation: Order/Trade confirmation should
also be sent to the investor through email at client’s discretion at
the time period specified by the client in addition to the other
mode of display of such confirmations on real time basis on the
broker web site. The investor should be allowed to specify the
time interval on the web site itself within which he would like to
receive this information through email. Facility for reconfirmation
of orders which are larger than that specified by the member’s risk
management system should be provided on the internet based
system.
vi. Handling Complaints by Investors: Exchanges should monitor
complaints from investors regarding service provided by brokers
to ensure a minimum level of service. Exchange should have
separate cell specifically to handle Internet trading related
complaints. It is desirable that exchanges should also have facility
for on-line registration of complaints on their web-site.
d. Risk Management
i. Exchanges must ensure that brokers have a system-based control
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भारतीय प्रततभूतत और वितिमय बोर्ड
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on the trading limits of clients, and exposures taken by clients.
Brokers must set pre-defined limits on the exposure and turnover
of each client.
ii. The broker systems should be capable of assessing the risk of the
client as soon as the order comes in. The client should be informed
of acceptance/rejection of the order within a reasonable period. In
case system based control rejects an order because of client having
exceeded limits etc., the broker system may have a review and
release facility to allow the order to pass through.
iii. Reports on margin requirements, payment and delivery
obligations, etc. should be informed to the client through the
system.
e. Contract Notes
i. Contract notes must be issued to clients as per existing
regulations, within 24 hours of the trade execution.
f. Cross Trades
i. As in the case of existing system, brokers using Internet based
systems for routing client orders will not be allowed to cross
trades of their clients with each other. All orders must be offered
to the market for matching.
ii. It is emphasised that in addition to the requirements mentioned
above, all existing obligations of the broker as per current
regulation will continue without changes. Exchanges may also
like to specify more stringent standards as they may deem fit for
allowing Internet based trading facilities to their brokers.
g. Network Security
The following security features are mandatory for all Internet based
trading systems:
i. User id
ii. First Level password (Private code)
iii. Automatic expiry of passwords at the end of a reasonable
duration. Reinitialise access on entering fresh passwords
iv. All transaction logs with proper audit facilities to be maintained
in the system.
v. Secured Socket Level Security for server access through Internet
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भारतीय प्रततभूतत और वितिमय बोर्ड
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vi. Suitable Firewalls between trading set-up directly connected to an
Exchange trading system and the Internet trading set-up.
The following advanced security products are advisable.
i. Microprocessor based SMART cards
ii. Dynamic Password (Secure ID Tokens)
iii. 64 bit/128 bit encryption **
iv. Second Level password (personal information e.g. village name,
birth date etc.)
**DOT policy and regulations will govern the level of encryption.
h. Standards for Web Interfaces and Protocols
i. Between a Trading Web Server and Trading Client Terminals,
Interfaces Standards as per recommendations of IETF (Internet
Engineering Task Force) and W3C (World Wide Web Consortium)
may be adopted. E.g.: HTTP Ver 4 or above HTML Ver 4/XML.
i. Systems Operations
i. Brokers should follow the similar logic/priorities used by the
Exchange to treat client orders.
ii. Brokers should maintain all activities/ alerts log with audit trail
facility
iii. Broker Web Server should have internally generated unique
numbering for all client order/trades
iv. Brokers should seek permission from the Exchange before
commencement of Internet trading facility after providing
complete details of the features of implemented systems.
v. Brokers should make periodic reporting to the Exchange as
specified by the Exchange.
42. Securities Trading through Wireless medium on Wireless Application Protocol
(WAP) platform49
42.1. A broker providing stock trading through WAP must be a SEBI registered
broker who also has an Internet website which complies with all the
requirements laid in para 41 above. With regard to the requirements mentioned
above, some additional requirements are to be met by the broker for providing
securities transaction through WAP. These requirements are provided in the
following criteria:
49 Reference: Circular SMDRP/POLICY/CIR-48/2000 dated October 11, 2000.
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भारतीय प्रततभूतत और वितिमय बोर्ड
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42.2. Network Security
42.2.1. The break in data encryption at the WAP gateway server raises security
issues. Until the shortcoming is addressed by WAP, the WAP server
should be hosted by the broker itself and not by a third party.
42.2.2. Suitable firewalls should be installed between trading set-up directly
connected to an Exchange trading system and the WAP server.
42.2.3. WTLS (Wireless Transport Layer Security) level security or a higher level
of security (as and when available) for wireless communication is
mandatory for wireless transactions.
42.2.4. The WTLS encrypts data upto the WAP Gateway server. Transmission
from the WAP Gateway server to the Internet server should be secured
using Secured Socket Level Security, preferably with 128 bit encryption,
for server access through Internet. Alternately, the WAP Gateway server
and Internet server may be co-hosted. The server resource should not be
shared for any other applications.
42.2.5. The following security measures applicable for fixed Internet based
systems should be made mandatory:
a. User ID
b. First Level password (Private code)
c. Automatic expiry of passwords at the end of a reasonable duration.
Reinitialize access on entering fresh passwords
d. All transaction logs with proper audit facilities to be maintained in
the system.
42.2.6. Digitally signed transactions ensure client authentication and support
nonrepudiation. Digital certification should be mandatory for
participants as and when certification agencies are notified by
Government / SEBI.
42.2.7. In case of failure of the network, alternative means of communication
such as telephone, Internet or e-mail should be available.
42.3. Price Quotes/ Order/ Trade Confirmations
42.3.1. Stock quotes should be time-stamped.
42.3.2. All orders and trades must be identified by a unique ID. Order
confirmation must be provided to the user on submitting the order. Order
modification/ cancellation facilities must also be provided. This may be
provided using alternate protocols in case the same is not supported by
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WAP.
42.3.3. Trade confirmation should be provided to the user through e-mail
and/or on the mobile phone.
42.4. System operations
42.4.1. Brokers should follow the similar logic/priorities used by the Exchange
to treat client orders.
42.4.2. Orders/ trades placed through either fixed Internet or WAP system
should be accessible from both systems.
42.4.3. Brokers should maintain all activities/ alerts log with audit trail facility.
42.4.4. Broker Web Server should have internally generated unique numbering
for all client order/trades.
42.5. Risk Management
42.5.1. It is emphasised that risk management should be comprehensive and the
risk management systems should take into account the overall positions
of clients, irrespective of the medium of trading.
43. Securities Trading using Wireless Technology50
43.1. SEBI registered brokers who provide Internet Based Trading shall be eligible to
provide securities trading using wireless technology. All relevant requirements
applicable to internet based trading shall also be applicable to securities
trading using wireless technology.
43.2. Securities Trading using Wireless technology shall include devices such as
mobile phone, laptop with data card, etc, that use Internet Protocol (IP).
43.3. In addition, the stock exchange shall ensure that the broker complies with the
following:
43.3.1. There shall be secure access, encryption and security of communication
for internet based trading and securities trading using wireless
technology. DOT policy and regulation shall govern the level of
encryption.
43.3.2. Adequate measures should be taken for user identification,
authentication and access control using means such as user-id,
50 Reference: Circular CIR/MRD/DP/ 25/2010 dated August 27, 2010.
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passwords, smart cards, biometric devices or other reliable means, to
prevent misuse of facility by unauthorized persons.
43.3.3. Unique identification number as given in case of internet based trading
shall be made applicable for securities trading using wireless technology.
43.3.4. In case of failure of the wireless network, alternative means of
communication for placing orders should be available.
43.3.5. Additional provisions specifying possible risks, responsibilities and
liabilities associated with securities trading using wireless technology
should be incorporated in the Broker-Client agreement as an addendum
or by bringing to the notice of clients, who are desirous of availing such
facility, and taking their concurrence on the same.
43.3.6. As it may not be possible to give detailed information to the investor on
a hand held device e.g. mobile phones, it may be ensured that minimum
information may be given with addresses of the Internet web site/web
page where detailed information would be available.
43.3.7. Order confirmation should be provided to the user on submitting the
order. Order modification / cancellation facilities should also be
provided. Trade confirmation should be provided to the user, along with
history of trades for the day.
43.3.8. Session login details should not be stored on the devices used for
internet based trading and securities trading using wireless technology.
43.3.9. Network security protocols and interface standards should be as per
prevalent industry standards and sound audit trails should be available
for all transactions conducted using wireless devices.
43.3.10. The broker’s server routing orders to the exchange trading system shall
be located in India.
43.3.11. Stock exchanges shall arrange for periodic systems audits of broker
systems to ensure that requirements specified in the circulars are being
met.
43.3.12. Stock exchange shall also include securities trading using wireless
technology in their ongoing investor awareness and educational
programme.
43.4. Stock exchanges may take such other measures and implement such other
safeguards as they deem fit to ensure security and integrity of transactions
conducted using wireless technology.
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44. Additional Requirements for Internet Based Trading (IBT) and Securities trading
using Wireless Technology (STWT)51
44.1. The stock exchange shall ensure that the broker comply with the following
44.1.1. The broker shall capture the IP (Internet Protocol) address (from where
the orders are originating), for all IBT/ STWT orders.
44.1.2. The brokers system should have built-in high system availability to
address any single point failure.
44.1.3. There should be secure end-to-end encryption for all data transmission
between the client and the broker through a Secure Standardized
Protocol. A procedure of mutual authentication between the client and
the broker server should be implemented.
44.1.4. The broker system should have adequate safety features to ensure it is not
susceptible to internal/ external attacks
44.1.5. In case of failure of IBT/ STWT, the alternate channel of communication
shall have adequate capabilities for client identification and
authentication.
44.1.6. Two-factor authentication for login session may be implemented for all
orders emanating using Internet Protocol. Public Key Infrastructure (PKI)
based implementation using digital signatures, supported by one of the
agencies certified by the government of India, is advisable. Further the
two factors in the Two-factor authentication framework should not be
same.
44.1.7. In case of no activity by the client, the system should provide for
automatic trading session logout.
Further to the above, the following practice is advisable –
44.1.8. The back-up and restore systems implemented by the broker should be
adequate to deliver sustained performance and high availability. The
broker system should have on-site as well as remote site back-up
capabilities
51 Reference: Circular CIR/MRD/DP/08/2011 dated June 30, 2011.
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45. Direct Market Access facility52
45.1. Direct Market Access (DMA) is a facility which allows brokers to offer clients
direct access to the exchange trading system through the broker’s
infrastructure without manual intervention by the broker. Some of the
advantages offered by DMA are direct control of clients over orders, faster
execution of client orders, reduced risk of errors associated with manual order
entry, greater transparency, increased liquidity, lower impact costs for large
orders, better audit trails and better use of hedging and arbitrage opportunities
through the use of decision support tools / algorithms for trading.
45.2. While ensuring conformity with the provisions of the Securities Contract
(Regulations) Act, 1956 (42 of 1956), Stock Exchanges may facilitate Direct
Market Access for investors subject to the following conditions:
45.3. Application for Direct Market Access (DMA) facility
45.3.1. Brokers interested to offer DMA facility shall apply to the respective stock
exchanges giving details of the software and systems proposed to be
used, which shall be duly certified by a Security Auditor as reliable.
45.3.2. The stock exchange should grant approval or reject the application as the
case may be and communicate its decision to the member within 30
calendar days of the date of completed application submitted to the
exchange.
45.3.3. The stock exchange, before giving permission to brokers to offer DMA
facility shall ensure the fulfillment of the conditions specified below.
45.4. Operational specifications
45.4.1. All DMA orders shall be routed to the exchange trading system through
the broker’s trading system. The broker’s server routing DMA orders to
the exchange trading system shall be located in India.
45.4.2. The broker should ensure sound audit trail for all DMA orders and trades
and be able to provide identification of actual user-id for all such orders
and trades. The audit trail data should available for at least 5 years.
45.4.3. Exchanges should be able to identify and distinguish DMA orders and
trades from other orders and trades. Exchanges shall maintain statistical
data on DMA trades and provide information on the same to SEBI on a
52 Reference: Circular MRD/DoP/SE/CIR-7/2008 dated April 03, 2008,
Circular MRD/DoP/SE/CIR-03/2009 dated February 20, 2009 and
Circular CIR/MRD/DP/20/2012 dated August 02, 2012.
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need basis.
45.4.4. The DMA system shall have sufficient security features including
password protection for the user ID, automatic expiry of passwords at the
end of a reasonable duration, and reinitialisation of access on entering
fresh passwords.
45.4.5. Brokers should follow the similar logic/priorities used by the Exchange
to treat DMA client orders. Brokers should maintain all activities/ alerts
log with audit trail facility. The DMA Server should have internally
generated unique numbering for all such client order/trades.
45.4.6. A systems audit of the DMA systems and software shall be periodically
carried out by the broker as may be specified by the exchange and
certificate in this regard shall be submitted to the exchange.
45.4.7. The exchanges and brokers should provide for adequate systems and
procedures to handle the DMA trades.
45.5. Risk Management
45.5.1. The broker shall ensure that trading limits/ exposure limits/ position
limits are set for all DMA clients based on risk assessment, credit quality
and available margins of the client. The broker system shall have
appropriate authority levels to ensure that the limits can be set up only by
persons authorized by the risk / compliance manager.
45.5.2. The broker shall ensure that all DMA orders are routed through
electronic/automated risk management systems of the broker to carry out
appropriate validations of all risk parameters including Quantity Limits,
Price Range Checks, Order Value, and Credit Checks before the orders
are released to the Exchange.
45.5.3. All DMA orders shall be subjected to the following limits:
a. Order quantity / order value limit in terms of price and quantity
specified for the client.
b. All the position limits which are specified in the derivatives segment
as applicable.
c. Net position that can be outstanding so as to fully cover the risk
emanating from the trades with the available margins of the specific
client.
d. Appropriate limits for securities which are subject to FII limits as
specified by RBI.
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45.6. Broker to be liable for DMA trades
45.6.1. The broker shall be fully responsible and liable for all orders emanating
through their DMA systems. It shall be the responsibility of the broker to
ensure that only clients who fulfill the eligibility criteria are permitted to
use the DMA facility.
45.7. Cross Trades
45.7.1. Brokers using DMA facility for routing client orders shall not be allowed
to cross trades of their clients with each other. All orders must be offered
to the market for matching.
45.8. Other legal provisions
45.8.1. In addition to the requirements mentioned above, all existing obligations
of the broker as per current regulations and circulars will continue
without change. Exchanges may also like to specify additional safeguards
/ conditions as they may deem fit for allowing DMA facilities to their
brokers.
45.9. The facility of DMA provided by the stock broker shall be used by the client or
an investment manager of the client. A SEBI registered entity shall be
permitted to act as an investment manager on behalf of institutional clients. In
case the facility of DMA is used by the client through an investment manager,
the investment manager may execute the necessary documents on behalf of the
client(s).
45.10. Exchange shall specify from time to time the categories of investors to whom
the DMA facility can be extended. Currently, this facility is available for
institutional clients. Brokers shall specifically authorize clients or investment
managers acting on behalf of clients for providing DMA facility, after fulfilling
Know Your Client requirements and carrying out necessary due diligence.
The broker shall maintain proper records of such due diligence.
45.11. The exchange/ broker shall ensure that proper audit trails are available to
establish identity of the ultimate client. The exchange may put in place such
other safeguards as it deems fit to mitigate any concerns it may have.
45.12. The terms and conditions for the purpose of DMA is specified in Annexure
below. The “Terms and Conditions” shall be provided to the client or
investment manager acting on behalf of a client (s) for availing the DMA
facility. In case the DMA facility provided by the stock broker is used by the
client the paragraphs 1 to 18 of Part A of Annexure shall be applicable. In case
the DMA facility provided by the stock broker is used by the client through an
investment manager the paragraphs 1 to 18 of Part B of Annexure shall be
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applicable and additionally, the investment manager shall provide to the stock
broker the details as specified at the end of the Annexure.
ANNEXURE
PART A: DMA FACILITY USED BY THE CLIENT
1. The client is expected to be fully aware of the risks associated with the market
and the financial instruments being traded on stock exchanges through DMA.
The client shall be responsible for complying with laws, rules, regulations,
notifications etc issued by regulatory authorities as may be applicable from time
to time.
2. The client shall ensure that DMA facility provided by the Broker is used only to
execute the trades of the client and shall not be used for transactions on behalf of
any other person / entity.
3. The client shall be responsible for ensuring that, only persons authorized by it
shall access and use the DMA facility provided by the Broker. All orders
originating from such facility / system shall be deemed to be authorized by the
client.
4. Where the client accesses or proposes to access the Broker’s DMA platform
through external applications, including but not restricted to services of third
party service provider(s), own application(s), etc., the client shall ensure that
such applications have adequate security features including but not limited to
access controls, password protection etc; and that appropriate agreement(s) with
such third party service provider(s) etc. for ensuring secured access and
communication has been executed and are in place.
5. The client shall ensure that no person authorized by them to place orders
through DMA facility provided by the broker has been / is involved in any
adverse action by any regulatory authorities in any jurisdiction.
6. The client shall provide the names of authorized individual users to the broker
prior to placing DMA orders.
7. The client shall not use or allow the use of DMA facility to engage in any form of
market misconduct including insider trading and market manipulation or
conduct that is otherwise in breach of applicable laws, rules and regulation.
8. The client is aware that Algorithmic trading i.e. generation of orders using
automated execution logic is governed by Algorithmic trading guidelines issued
by SEBI and Exchanges and requires prior approval of the exchanges. The client
shall ensure that new algorithms and changes to existing approved algorithms
are not used through the DMA facility without prior approval of concerned stock
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exchanges. The client shall ensure that it has necessary checks and balances, in
place to identify and control dysfunctional algorithms and the Broker shall have
the right to shut down the DMA facility and remove any outstanding client
orders in case of any suspected dysfunctional algo.
9. The client is aware that authentication technologies and strict security measures
are required for routing orders through DMA facility and undertakes to ensure
that the password of the client and/or his representative are not revealed to any
third party.
10. The client acknowledges that all DMA orders placed by them through the DMA
facility would be validated by the risk management system of the broker. The
Broker has the right to accept or reject any DMA order placed by the client at its
sole discretion.
11. The client shall be solely responsible for all acts or omissions of any person using
a DMA facility and shall be bound to accept and settle all transactions executed
through the DMA facility provided by the Broker notwithstanding that such
order(s) may have been submitted erroneously or by an unauthorized user, or
that its data is inaccurate or incomplete when submitted, or the client
subsequently determines for whatever reason that the order should not have
been submitted.
12. The client shall notify the Broker in the event of DMA facility being
compromised. Upon receipt of this notice, client’s DMA facility shall be
promptly disabled but the client shall continue to be responsible for any misuse
of the DMA facility or any orders placed through the DMA facility as a result of
the compromise of the DMA facility at their end. The Broker shall not be liable
for any loss, liability or cost whatsoever arising as a result of any unauthorized
use of DMA facility at the client’s end.
13. In the event of winding-up or insolvency of the client or his otherwise becoming
incapable of settling their DMA obligation, broker may close out the transaction
of the client as permissible under bye-laws, rules, regulations of the exchanges.
The client shall continue to be liable for any losses, costs, damages arising
thereof.
14. The client is fully aware of the risks of transmitting DMA orders to the Broker’s
DMA facility through vendor systems or service providers and the Broker is not
responsible for such risks.
15. The client should be aware of the fact that neither the DMA facility will be
uninterrupted nor error free nor the results that may be obtained from the use of
the service or as to the timeliness, sequence, accuracy, completeness, reliability or
content of any information, service or transaction provided through DMA. The
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DMA service is provided on an "as is", "as available" basis without warranties of
any kind, either express or implied, including, but not limited to, those of
information access, order execution, merchantability and fitness for a particular
purpose. The Broker shall not be liable for any loss, damage or injury including
but not limited to direct lost profits or trading losses or any consequential,
special, incidental, indirect, or similar damages from the use or inability to use
the service or any part thereof.
16. The Broker shall have the right to withdraw the DMA facility in case of:-
16.1. Breach of the limits imposed by the broker or any regulatory authority.
16.2. On account of any misuse of the DMA facility by the client or on
instructions from SEBI/Exchanges.
16.3. Any other reason, at the discretion of the broker.
Broker shall endeavor to give reasonable notice to the client in such instances.
17. The Broker shall not be liable or responsible for non-execution of the DMA
orders of the client due to any link/system failure at the client/ Broker/
exchange(s) end.
18. This document shall not be altered, amended and /or modified by the parties in
a manner that shall be in contravention of any other provisions of this document.
Any additional terms and conditions should not be in contravention with rules /
regulations /bye-laws/circulars, of the relevant authorities including applicable
stock exchanges as amended from time to time.
PART – B: DMA FACILITY USED BY THE CLIENT THROUGH AN
INVESTMENT MANAGER
1. The client shall be solely responsible for all acts or omissions of any person using
a DMA facility and shall be bound to accept and settle all transactions executed
through the DMA facility provided by the Broker to the investment manager
acting on behalf of the client, notwithstanding that such order(s) may have been
submitted erroneously or by an unauthorized user, or that its data is inaccurate
or incomplete when submitted, or the client subsequently determines for
whatever reason that the order should not have been submitted.
2. The investment manager is expected to be fully aware of the risks associated
with the market and the financial instruments being traded on stock exchanges
through DMA. The investment manager shall be responsible for complying with
laws, rules, regulations, notifications etc issued by regulatory authorities as may
be applicable from time to time.
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3. Where the DMA facility provided by the Broker is used to execute trade on
behalf of one or more clients, by the investment manager, then it is represented
and warranted that, at each time an order is placed by such investment manager
through the DMA facility of the Broker -
3.1. The investment manager has due authority to deal on behalf of the client(s)
through the Broker, specifying the roles and responsibilities of the
investment manager in execution of transactions on behalf of the client(s).
3.2. The investment manager shall comply with any applicable laws, rules and
regulations affecting or relating to trading operations.
3.3. The investment manager and the client(s) are bound by the terms and
conditions hereof;
3.4. The investment manager using the DMA facility for routing client(s) orders
shall not cross trades of their client(s) with each other. Accordingly, all
orders should be offered in the market.
3.5. The stock exchange or SEBI may at any time call for any information from a
client(s) or an investment manager acting on behalf of the client(s) with
respect to any matter relating to the activity of the investment manager. The
investment manager shall also furnish any information specifying the roles
and responsibilities of the investment manager in execution of transactions
on behalf of the client(s), as and when required by the exchanges or SEBI.
4. The investment manager shall be responsible for ensuring that, only persons
authorized by it shall access and use the DMA facility provided by the Broker.
All orders originating from such facility / system shall be deemed to be
authorized by the client.
5. Where the investment manager accesses or proposes to access the Broker’s DMA
platform through external applications, including but not restricted to services of
third party service provider(s), own application(s), etc., the investment manager
shall ensure that such applications have adequate security features including but
not limited to access controls, password protection etc; and that appropriate
agreement(s) with such third party service provider(s) etc. for ensuring secured
access and communication has been executed and are in place.
6. The investment manager shall ensure that no person authorized by them to place
orders through DMA facility provided by the broker has been / is involved in
any adverse action by any regulatory authorities in any jurisdiction.
7. The investment manager shall provide the names of authorized individual users
to the broker prior to placing DMA orders.
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8. The investment manager shall not use or allow the use of DMA facility to engage
in any form of market misconduct including insider trading and market
manipulation or conduct that is otherwise in breach of applicable laws, rules and
regulation.
9. The investment manager is aware that Algorithmic trading i.e. generation of
orders using automated execution logic is governed by Algorithmic trading
guidelines issued by SEBI and Exchanges and requires prior approval of the
exchanges. The investment manager shall ensure that new algorithms and
changes to existing approved algorithms are not used through the DMA facility
without prior approval of concerned stock exchanges. The investment manager
shall ensure that it has necessary checks and balances, in place to identify and
control dysfunctional algorithms and the Broker shall have the right to shut
down the DMA facility and remove any outstanding client orders in case of any
suspected dysfunctional algo.
10. The investment manager is aware that authentication technologies and strict
security measures are required for routing orders through DMA facility and
undertakes to ensure that the password of the investment manager and/or his
representative are not revealed to any third party.
11. The investment manager acknowledges that all DMA orders placed by them
through the DMA facility would be validated by the risk management system of
the broker. The Broker has the right to accept or reject any DMA order placed by
the investment manager at its sole discretion.
12. The investment manager shall notify the Broker in the event of DMA facility
being compromised. Upon receipt of this notice, client’s DMA facility shall be
promptly disabled but the client shall continue to be responsible for any misuse
of the DMA facility or any orders placed through the DMA facility as a result of
the compromise of the DMA facility at their end. The Broker shall not be liable
for any loss, liability or cost whatsoever arising as a result of any unauthorized
use of DMA facility at the client’s end.
13. In the event of winding-up or insolvency of the client or his otherwise becoming
incapable of honoring their DMA obligation, broker may close out the
transaction of the client as permissible under bye-laws, rules, regulations of the
exchanges. The client shall continue to be liable for any losses, costs, damages
arising thereof.
14. The investment manager is fully aware of the risks of transmitting DMA orders
to the Broker’s DMA facility through vendor systems or service providers and
the Broker is not responsible for such risks.
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भारतीय प्रततभूतत और वितिमय बोर्ड
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15. The investment manager should be aware of the fact that neither the DMA
facility will be uninterrupted nor error free nor the results that may be obtained
from the use of the service or as to the timeliness, sequence, accuracy,
completeness, reliability or content of any information, service or transaction
provided through DMA. The DMA service is provided on an "as is", "as
available" basis without warranties of any kind, either express or implied,
including, but not limited to, those of information access, order execution,
merchantability and fitness for a particular purpose. The Broker shall not be
liable for any loss, damage or injury including but not limited to direct lost
profits or trading losses or any consequential, special, incidental, indirect, or
similar damages from the use or inability to use the service or any part thereof.
16. The Broker shall have the right to withdraw the DMA facility in case of:-
16.1. Breach of the limits imposed by the broker or any regulatory authority.
16.2. On account of any misuse of the DMA facility by the client/ investment
manager or on instructions from SEBI/Exchanges.
16.3. Any other reason, at the discretion of the broker.
Broker shall endeavor to give reasonable notice to the client in such
instances.
17. The Broker shall not be liable or responsible for non-execution of the DMA
orders of the client due to any link/system failure at the client/ Broker/
exchange(s) end.
18. This document shall not be altered, amended and /or modified by the parties in
a manner that shall be in contravention of any other provisions of this document.
Any additional terms and conditions should not be in contravention with rules /
regulations /bye-laws/circulars, of the relevant authorities including applicable
stock exchanges as amended from time to time.
DETAILS TO BE PROVIDED TO THE STOCK BROKER
On the letter head of the Investment manager
PART A
DETAILS OF THE INVESTMENT MANAGER:
NAME OF THE INVESTMENT MANAGER:
NAME OF THE HOME REGULATOR
COUNTRY OF JURISDICTION OF HOME
REGULATOR REGISTERED /REGULATED IN HOME JURISDICTION AS:
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SEBI REGISTRATION NUMBER:
PART B
CLIENT(s) DETAILS:
S. NAME OF NAME OF THE REGULATED REGISTRATION PAN
No. THE REGULATOR IN INDIA AS NUMBER
ENTITY
46. Smart Order Routing53
46.1. Smart Order Routing allows the brokers trading engines to systematically
choose the execution destination based on factors viz. price, costs, speed,
likelihood of execution and settlement, size, nature or any other consideration
relevant to the execution of the order.
46.2. Stock Exchanges are advised to ensure the following conditions with regard to
the Smart Order Routing facility:
46.2.1. Stock broker interested to offer Smart Order Routing facility shall apply
to the respective stock exchanges.
46.2.2. Stock broker shall submit a third party system audit of its Smart Order
Routing system and software. Stock exchanges shall disseminate to its
stock brokers a list of approved system auditors (CISA or equivalent)
qualified to undertake such system audits.
46.2.3. Stock broker shall provide the following to the respective stock
exchanges:
a. An undertaking to the respective stock exchanges that Smart Order
Routing shall route orders in a neutral manner.
b. Provide the features of the Smart Order Routing to stock exchange.
46.2.4. Stock exchange shall communicate its decision to the broker within 30
calendar days from the date of receipt of complete application by the
stock exchange. Stock exchange shall not consider testing and
demonstration of the SOR system/software as a criterion for declaring
the application of the broker as ‘complete’. Further, testing and
demonstration of SOR system/software, if required, shall be suitably
scheduled within the aforesaid period of 30 calendar days.
53 Reference: Circular CIR/MRD/DP/26/2010 dated August 27, 2010 and Circular
CIR/MRD/DP/36/2010 dated December 09, 2010.
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46.2.5. In case of rejection of the application on smart order routing of a stock
broker, the stock exchange shall communicate such reasons of rejections
to the stock broker. Further, the decision of the stock exchange on the
SOR application of the stock broker and reasons for rejection of the SOR
application shall also be communicated to all the other stock exchanges
where the broker’s SOR facility intends to route orders.
46.2.6. Stock exchange shall ensure that brokers adhere to the best execution
policy while using Smart Order Routing.
46.2.7. Smart Order Routing facility shall be provided to all class of investors.
46.2.8. Stock Broker shall communicate to all clients the features, possible risks,
rights, responsibilities and liabilities associated with the smart order
routing facility. The client desirous of availing such facility shall do so by
entering into a broker-client agreement, as applicable. For the existing
clients, the same shall be implemented through an addendum to the
existing broker-client agreement, as applicable.
46.2.9. Stock broker shall maintain logs of all activities to facilitate audit trail.
Broker shall maintain record of orders, trades and data points for the
basis of decision.
46.2.10. Stock exchange shall permit smart order routing for all orders, without
restricting to any specific type of order. The choice on order types shall
be left to the client.
46.2.11. If stock exchange desires to advise its brokers to seek re-approval, it may
do so only in case of –
a. Inclusion of a new stock exchange for offering SOR facility; and/or,
b. Material changes in the software/system of the smart order routing
facility.
46.2.12. In case the client has availed Smart Order Routing facility and does not
want to use the same for a particular order, the same shall be well
documented by the stock broker.
46.2.13. System audit of the Smart Order Routing systems and software shall be
periodically carried out by the brokers as may be specified by the
exchange and certificate in this regard shall be submitted to the
exchange.
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भारतीय प्रततभूतत और वितिमय बोर्ड
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46.2.14. Stock exchange shall ensure that Smart Order Routing is not used to
place orders at venues other than the recognised stock exchanges.
46.2.15. The stock broker shall carry out appropriate validation of all risk
parameters before the orders are placed in the Smart Order Routing
system.
46.2.16. Stock exchange shall provide unique identification number for the
orders placed through Smart Order Routing system. Further, stock
exchanges shall maintain data on Smart Order Routing orders and
trades.
46.2.17. Stock exchange shall have necessary surveillance mechanism in place to
monitor trading done through Smart Order Routing.
46.2.18. Stock broker shall ensure that alternative mode of trading system is
available in case of failure of Smart Order Routing facility.
46.2.19. Stock exchange shall ensure that within a period of three months from
implementation of Smart Order Routing, a system is put in place to time
stamp market data feed that is disseminated to the market, if the same is
not already available.
46.2.20. Stock exchange shall strengthen investor grievance cell in order to
address complaints, if any, received with regard to Smart Order Routing.
Further, in case of any disputes or complaints, stock exchanges shall
share necessary data as and when required in order to facilitate
necessary examination.
46.2.21. Stock exchange shall synchronise their system clocks with atomic clock
before the start of market.
46.2.22. The broker server routing orders placed through Smart Order Routing
system to the exchange trading system shall be located in India. Stock
exchange shall permit SOR approved brokers to offer SOR facility
through all their servers irrespective of their location in India.
46.2.23. All other existing obligations for the broker as per current regulations
and circulars will continue.
46.2.24. Stock exchange may specify additional safeguards as they deem fit for
allowing Smart Order Routing facility to their brokers.
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भारतीय प्रततभूतत और वितिमय बोर्ड
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47. Broad Guidelines on Algorithmic Trading54
47.1. Any order that is generated using automated execution logic shall be known as
algorithmic trading.
47.2. Guidelines to the stock exchanges and the stock brokers:
Stock exchanges shall ensure the following while permitting algorithmic trading:
47.2.1. The stock exchange shall have arrangements, procedures and system
capability to manage the load on their systems in such a manner so as to
achieve consistent response time to all stock brokers. The stock exchange
shall continuously study the performance of its systems and, if necessary,
undertake system upgradation, including periodic upgradation of its
surveillance system, in order to keep pace with the speed of trade and
volume of data that may arise through algorithmic trading.
47.2.2. In order to ensure maintenance of orderly trading in the market, stock
exchange shall put in place effective economic disincentives with regard
to high daily order-to-trade ratio of algo orders of the stock broker.
Further, the stock exchange shall put in place monitoring systems to
identify and initiate measures to impede any possible instances of order
flooding by algos.
47.2.3. The stock exchange shall ensure that all algorithmic orders are necessarily
routed through broker servers located in India and the stock exchange
has appropriate risk controls mechanism to address the risk emanating
from algorithmic orders and trades. The minimum order-level risk
controls shall include the following:
a. Price check - The price quoted by the order shall not violate the price
bands defined by the exchange for the security. For securities that do
not have price bands, dummy filters shall be brought into effective
use to serve as an early warning system to detect sudden surge in
prices.
b. Quantity Limit check - The quantity quoted in the order shall not
violate the maximum permissible quantity per order as defined by the
exchange for the security.
47.2.4. In the interest of orderly trading and market integrity, the stock exchange
shall put in place a system to identify dysfunctional algos (i.e. algos
leading to loop or runaway situation) and take suitable measures,
including advising the member, to shut down such algos and remove any
54 Reference: Circular CIR/MRD/DP/09/2012 dated March 30, 2012 and Circular
CIR/MRD/DP/16/2013 dated May 21, 2013.
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भारतीय प्रततभूतत और वितिमय बोर्ड
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outstanding orders in the system that have emanated from such
dysfunctional algos. Further, in exigency, the stock exchange should be in
a position to shut down the broker’s terminal.
47.2.5. Terminals of the stock broker that are disabled upon exhaustion of
collaterals shall be enabled manually by the stock exchange in accordance
with its risk management procedures.
47.2.6. The stock exchange may seek details of trading strategies used by the
algo for such purposes viz. inquiry, surveillance, investigation, etc.
47.2.7. In order to strengthen the surveillance mechanism related to algorithmic
trading and prevent market manipulation, stock exchanges shall take
necessary steps to ensure effective monitoring and surveillance of orders
and trades resulting from trading algorithms. Stock exchanges shall
periodically review their surveillance arrangements in order to better
detect and investigate market manipulation and market disruptions.
47.2.8. The stock exchange shall include a report on algorithmic trading on the
stock exchange in the Monthly Development Report (MDR) submitted to
SEBI inter-alia incorporating turnover details of algorithmic trading,
algorithmic trading as percentage of total trading, number of stock
brokers / clients using algorithmic trading, action taken in respect of
dysfunctional algos, status of grievances, if any, received and processed,
etc.
47.2.9. The stock exchange shall synchronize its system clock with the atomic
clock before the start of market such that its clock has precision of atleast
one microsecond and accuracy of atleast +/- one millisecond.
47.3. Stock exchange shall ensure that the stock broker shall provide the facility of
algorithmic trading only upon the prior permission of the stock exchange.
Stock exchange shall subject the systems of the stock broker to initial
conformance tests to ensure that the checks mentioned below are in place and
that the stock broker’s system facilitate orderly trading and integrity of the
securities market. Further, the stock exchange shall suitably schedule such
conformance tests and thereafter, convey the outcome of the test to the stock
broker.
47.4. For stock brokers already providing algo trading, the stock exchange shall
ensure that the risk controls specified herein are implemented by the stock
broker.
47.5. The stock brokers / trading members that provide the facility of algorithmic
trading shall subject their algorithmic trading system to a system audit every
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भारतीय प्रततभूतत और वितिमय बोर्ड
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six months in order to ensure that the requirements prescribed by SEBI / stock
exchanges with regard to algorithmic trading are effectively implemented.
Such system audit of algorithmic trading system shall be undertaken by a
system auditor who possess any of the following certifications:
47.5.1. CISA (Certified Information System Auditors) from ISACA;
47.5.2. DISA (Post Qualification Certification in Information Systems Audit)
from Institute of Chartered Accountants of India (ICAI);
47.5.3. CISM (Certified Information Securities Manager) from ISACA;
47.5.4. CISSP (Certified Information Systems Security Professional) from
International Information Systems Security Certification Consortium,
commonly known as (ISC)².
47.6. Deficiencies or issues identified during the process of system audit of trading
algorithm / software shall be reported by the stock broker / trading member
to the stock exchange immediately on completion of the system audit. Further,
the stock broker / trading member shall take immediate corrective actions to
rectify such deficiencies / issues.
47.7. In case of serious deficiencies / issues or failure of the stock broker / trading
member to take satisfactory corrective action, the stock exchange shall not
allow the stock broker / trading member to use the trading software till
deficiencies / issues with the trading software are rectified and a satisfactory
system audit report is submitted to the stock exchange. Stock exchanges may
also consider imposing suitable penalties in case of failure of the stock broker
/ trading member to take satisfactory corrective action to its system within the
time-period specified by the stock exchanges.
47.8. The stock broker, desirous of placing orders generated using algos, shall satisfy
the stock exchange with regard to the implementation of the following
minimum levels of risk controls at its end -
47.8.1. Price check – Algo orders shall not be released in breach of the price
bands defined by the exchange for the security.
47.8.2. Quantity check – Algo orders shall not be released in breach of the
quantity limit as defined by the exchange for the security.
47.8.3. Order Value check - Algo orders shall not be released in breach of the
‘value per order’ as defined by the stock exchanges.
47.8.4. Cumulative Open Order Value check – The individual client level
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भारतीय प्रततभूतत और वितिमय बोर्ड
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cumulative open order value check, may be prescribed by the broker for
the clients. Cumulative Open Order Value for a client is the total value of
its unexecuted orders released from the stock broker system.
47.8.5. Automated Execution check – An algo shall account for all executed,
unexecuted and unconfirmed orders, placed by it before releasing further
order(s). Further, the algo system shall have pre-defined parameters for
an automatic stoppage in the event of algo execution leading to a loop or
a runaway situation.
47.8.6. All algorithmic orders are tagged with a unique identifier provided by
the stock exchange in order to establish audit trail.
47.9. The other risk management checks already put in place by the exchange shall
continue and the exchange may re-evaluate such checks if deemed necessary
in view of algo trading.
47.10. The stock broker, desirous of placing orders generated using algos, shall
submit to the respective stock exchange an undertaking that -
47.10.1. The stock broker has proper procedures, systems and technical
capability to carry out trading through the use of algorithms.
47.10.2. The stock broker has procedures and arrangements to safeguard
algorithms from misuse or unauthorized access.
47.10.3. The stock broker has real-time monitoring systems to identify algorithms
that may not behave as expected. Stock broker shall keep stock exchange
informed of such incidents immediately.
47.10.4. The stock broker shall maintain logs of all trading activities to facilitate
audit trail. The stock broker shall maintain record of control parameters,
orders, trades and data points emanating from trades executed through
algorithm trading.
47.10.5. The stock broker shall inform the stock exchange on any modification or
change to the approved algos or systems used for algos.
47.11. The stock exchange, if required, shall seek conformance of such modified algo
or systems to the requirements specified above.
47.12. In order to discourage repetitive instances of high daily order-to-trade ratio,
stock exchanges shall impose an additional penalty in form of suspension of
proprietary trading right of the stock broker / trading member for the first
trading hour on the next trading day in case a stock broker / trading member
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भारतीय प्रततभूतत और वितिमय बोर्ड
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is penalized for maintaining high daily order-to-trade ratio, provided penalty
was imposed on the stock broker / trading member on more than ten
occasions in the previous thirty trading days.
48. Testing of software used in or related to Trading and Risk Management55
48.1. The term ‘software’ shall mean electronic systems or applications used by stock
brokers / trading members for connecting to the stock exchanges and for the
purposes of trading and real-time risk management, including software used
for Internet Based Trading (IBT), Direct Market Access (DMA), Securities
Trading using Wireless Technology (STWT), Smart Order Routing (SOR),
Algorithmic Trading (AT) etc.
48.2. Testing of Software
48.2.1. In addition to the testing and approval requirements specified by SEBI on
IBT, DMA, STWT, SOR and AT, stock exchanges shall frame appropriate
testing policies for functional as well as technical testing of the software.
Such framework shall at the minimum include the following:
a. Testing in a simulated test environment: Stock exchanges shall
provide suitable facilities to market participants / software vendors to
test new software or existing software that have undergone change.
Subjecting the new software or existing software that have undergone
change to such testing facility shall be mandatory for market
participants, before putting it in use.
b. Mock testing
i. Stock exchanges shall organize mock trading sessions on regular
basis, atleast once in a calendar month, to facilitate testing of new
software or existing software that has undergone any change of
functionality, in a close-to-real trading environment. Stock
exchanges shall suitably design and plan such mock trading
sessions to ensure maximum participation and sufficient trading
volumes for the purpose of testing.
ii. Stock exchanges shall mandate a minimum time period for such
testing in the mock trading sessions.
iii. In order to improve the efficacy of the mock trading sessions, all
stock brokers / trading members shall ensure that all user-ids
approved for Algo trading, irrespective of the algorithm having
55 Reference: Circular CIR/MRD/DP/24/2013 dated August 19, 2013 and Circular
CIR/MRD/DP/06/2014 dated February 07, 2014.
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भारतीय प्रततभूतत और वितिमय बोर्ड
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undergone change or not, shall participate in the mock trading
sessions.
iv. User Acceptance Test (UAT): The stock broker / trading member
shall undertake UAT of the software to satisfy itself that the newly
developed / modified software meets its requirements.
c. With respect to testing of software related to (i) fixes to bugs in the
software, (ii) changes undertaken to the stock brokers’ software /
systems pursuant to a change to any stock exchange's trading system,
and (iii) software purchased from a software vendor that has already
been tested in the mock environment by certain number of stock
brokers, stock exchanges may prescribe a faster approval process to
make the process of approval expeditious.
48.2.2. Stock brokers / trading members shall also engage system auditor(s) to
examine reports of mock tests and UAT in order to certify that the tests
were satisfactorily undertaken.
48.2.3. Stock exchanges shall monitor compliance of stock brokers / trading
members, who use trading algorithm, with regard to the requirement of
participation in mock trading session as mandated herein. In cases where
stock exchanges find that the stock broker / trading member has failed to
participate in such mock trading sessions, stock exchange shall call for
reasons and if found unsatisfactory, shall suspend the proprietary trading
rights of the stock broker / trading member for a minimum period of one
trading day.
48.2.4. Stock exchanges shall also ensure that the system auditors examine the
compliance of stock broker / trading member, who use trading
algorithms, with regard to the requirement of participation in mock
trading session, as mandated herein, and provide suitable comments in
the periodic system audit report. In cases where the system audit report
indicate that the stock broker / trading member has failed to participate
in such mock trading sessions, stock exchange shall call for reasons from
the stock broker / trading member and if found unsatisfactory, shall
suspend the proprietary trading rights of the stock broker / trading
member for a minimum period of one trading day.
48.2.5. For pre-approval / periodic system audit of Computer-to-Computer Link
(CTCL) or Intermediate Messaging Layer (IML), IBT, DMA, STWT, SOR
and AT, stock brokers / trading members shall engage a system auditor
with any of the certifications specified in para 47.5.1 to 47.5.4 above.
While finalizing the system auditor, stock brokers / trading members
shall ensure the system auditor does not have any conflict of interest with
the stock broker and the directors / promoters of the system auditor are
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भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
not directly or indirectly related to the current directors or promoters of
stock broker / trading member.
48.3. Approval of Software of stock broker / trading member
48.3.1. Stock brokers / trading members shall seek approval of the respective
stock exchanges for deployment of the software in the securities market
by submitting necessary details required by stock exchange including
details of software, tests undertaken and certificate / report provided by
the system auditor. Stock exchange may seek additional details as
deemed necessary for evaluating the application of the stock broker /
trading member.
48.3.2. Stock exchanges shall grant approval or reject the application of the stock
broker as the case may be, and communicate the decision to the stock
broker / trading member within fifteen working days from the date of
receipt of completed application (or within any other such time period
specified vide SEBI circulars on DMA, IBT, STWT, SOR, AT, etc.). In case
of rejection of the application, the stock exchange shall also communicate
reasons of rejection to the stock broker / trading member within such
time period.
48.3.3. Before granting approval to use software in securities market, stock
exchange shall ensure that the requirements specified by SEBI / stock
exchange with regard to software are met by the stock broker / trading
member.
48.3.4. Stock exchanges may suitably schedule the requirements of mock testing,
certification of test reports by system auditor(s) and the software
approval process, so as to facilitate a speedy approval and a smooth
transition of the stock brokers to the new / upgraded software.
48.3.5. In order to ensure that stock brokers are not using software without
requisite approval of the stock exchanges, stock exchanges are advised to
put in place suitable mechanism to prevent any unauthorized change to
the approved software.
48.4. Undertaking to be provided by stock brokers / trading members
48.4.1. Stock brokers / trading members shall submit an undertaking to the
respective stock exchanges stating the following at the minimum:
a. M/s …….(name of the stock broker / trading member)…… will take
all necessary steps to ensure that every new software and any change
thereupon to the trading and/or risk management functionalities of
the software will be tested as per the framework prescribed by SEBI /
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भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
stock exchange before deployment of such new / modified software
in securities market.
b. M/s …….(name of the stock broker / trading member)…… will
ensure that approval of the stock exchange is sought for all new /
modified software and will comply with various requirements
specified by SEBI or the stock exchange from time to time with regard
to usage, testing and audit of the software.
c. The absolute liability arising from failure to comply with the above
provisions shall lie entirely with M/s …….(name of the stock broker /
trading member)…….
48.4.2. Stock exchanges may include additional clauses as deemed necessary in
the undertaking.
48.5. Sharing of Application Programming Interface (API) specifications by the stock
exchange with stock brokers / trading members
48.5.1. API is an interface that enables interaction of software with other
software and typically includes language and message format that is used
by an application program to communicate with the operating system or
other application program. Stock brokers / trading members and
software vendors require relevant API specifications to facilitate
interaction of the developed software with the systems of the stock
exchanges.
48.5.2. Stock exchanges shall provide relevant API specifications to all stock
brokers / trading members and software vendors who are desirous of
developing software for the securities market, after establishing their
respective credentials.
48.5.3. In case of refusal to share APIs, stock exchanges shall provide reasons in
writing to the desirous stock brokers / trading members or software
vendors within a period of fifteen working days from the date of receipt
of such request for sharing of API.
48.5.4. Further, stock exchanges shall not selectively release updates /
modifications, if any, of the existing API specifications to few stock
brokers / trading members or software vendors ahead of others and shall
provide such updated / modified API specifications to all stock brokers /
trading members and software vendors with whom the earlier API
specifications were shared.
48.6. Penalty on malfunction of software used by stock broker / trading member:
48.6.1. Stock exchanges shall examine the cases of malfunctioning of software
used by stock brokers / trading members and apply deterrent penalties
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भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
in form of fines or suspension to the stock broker / trading member
whose software malfunctioned. In addition, stock brokers / trading
members shall implement various mechanisms including the following to
minimize their losses in the event of software malfunction:
a. include suitable clauses in their agreement with the software vendors
to define liabilities of software vendor and stock broker / trading
member in case of software malfunction, and / or,
b. consider taking suitable insurance cover to meet probable losses in
case of software malfunction.
48.7. With regard to changes / updates to stock broker's trading software that intend
to modify the 'look and feel' and do not affect the risk management system of
the stock broker or the connectivity of the trading software with stock
exchange's trading system, it is clarified that mock testing and consequent
system audit may not be insisted upon by the stock exchanges.
48.8. Stock exchanges shall direct their stock brokers to put in place adequate
mechanism to restore their trading systems to 'production state' at the end of
testing session so as to ensure integrity of stock brokers' trading system.
49. Safeguards to avoid trading disruption in case of failure of software vendor56
49.1. Software vendors who provide software to market participants and market
infrastructure institutions for the purpose of trading, risk management,
clearing and settlement play a crucial role in the securities market. Any
inability on the part of such software vendors to provide software or related
services in timely and continuous manner may create a situation of stress in the
securities market.
49.2. Adequate mechanism / procedure should be in place to ensure smooth
transition by stock broker(s) to another software vendor in case of inability of
the existing software vendor to provide software and related services in timely
and continuous manner.
49.3. Stock exchanges may advise the stock brokers to take the following measures:
49.3.1. Explore the possibility of establishing a 'software escrow arrangement'
with their existing software vendors.
49.3.2. In case of large stock brokers, consider reducing dependence on a single
software vendor for trading and risk management systems, by engaging
more than one software vendor.
56 Reference: Circular CIR/MRD/DP/07/2014 dated February 11, 2014.
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भारतीय प्रततभूतत और वितिमय बोर्ड
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49.3.3. Consider including the following in their contracts with the software
vendors:
a. access to documents related to design and development specifications
in the event software vendor fails to provide continuous and timely
services to the stock broker;
b. development of expertise at the end of the stock broker through
appropriate training with regard to software usage and maintenance;
c. appropriate penalty clauses for cases of disruptions to the trading
system of the stock broker on account of (i) software vendor failing to
provide continuous and timely services to the stock broker or (ii)
glitches to the software provided by the software vendor;
d. obligation on the part of the software vendor to cooperate in case of
audit of software including forensic audit, if required.
*****
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भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
VI. CHANGE IN STATUS, CONSTITUTION, CONTROL, AFFILIATION
50. Surrender of Certificate of Registration of Sub-Brokers and Change of Affiliation
of Sub-Brokers57
50.1. Surrender of registration by sub-broker
50.1.1. The affiliating stock broker shall issue a public advertisement in a local
newspaper with wide circulation where the sub-broker’s place of work is
situated, informing the investors/general public about the surrender of
registration of his sub-broker and not to deal with such sub-broker.
50.1.2. An application for surrender of registration has to be made to SEBI by the
sub-broker, along with the following:
a. the letter of de-recognition issued by the Exchange;
b. a certificate from the affiliating broker that the sub-broker has been
disabled from trading;
c. copies of two advertisements issued by the affiliating broker informing
the investors/ general public about the cancellation of his/their sub-
broker(s) and advising them not to deal with such sub-broker(s). One
advertisement shall be issued in a local newspaper where the sub-
broker’s Registered Office/ Head Office/ Corporate Office is situated
and another in English daily/vernacular newspaper with wide
circulation;
d. the original certificate of registration for cancellation. In case the
surrender is made by the affiliating broker, the application for
surrender shall be made by the broker along with evidence of service of
notice of termination of agreement; and,
e. an undertaking that it / he would be liable for all liabilities/obligations
(including monetary penalties, if any) for violations if any, of the
provisions of the SEBI Act and the SEBI (Stock Brokers and Sub-
Brokers) Rules and Regulations, 1992 that have taken place before the
surrender.
50.1.3. Fees, as may be due, as per Schedule III (II) of the SEBI (Stock Broker and
Sub-Broker) Regulations, 1992 as on the date of de-recognition of the sub-
broker by the Exchange, shall be paid along with the application for
surrender.
57 Reference: Circular MIRSD-DR 1/SRP/CIR-43/28408/04 dated December 15, 2004.
Circular CIR/MIRSD/2/2011 dated June 03, 2011,
Circular CIR/MIRSD/10/2012 dated August 27, 2012.
Para A (1 & 2) of Circular MIRSD-DR 1/SRP/CIR-43/28408/04 dated December 15, 2004, deleted
in view of Notification LAD-NRO/GN/2011-12/03/12650 dated April 19, 2011.
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भारतीय प्रततभूतत और वितिमय बोर्ड
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50.1.4. On receipt of the application for surrender and being found suitable in all
respects, the procedure as prescribed in the SEBI (Stock Broker and Sub-
Broker) Regulations, 1992 read with Regulation 15(i) the SEBI (Procedure
for Holding Inquiry) Regulations, 2002, shall be followed.
50.1.5. The sub-broker may, if he so desires, make a representation for
dispensing with the procedure, along with the application for surrender
in terms of fresh proviso to regulations 16(i) of the SEBI ((Procedure for
Holding Inquiry and Imposing Penalty) Regulations, 2002.
50.1.6. If the surrender application is accepted by SEBI, registration would be
cancelled by SEBI with effect from the date of de-recognition by the
Exchange. Until SEBI cancels the registration and issues no due
certificate, the deposit, if any, of the sub- broker shall not be released to
the sub-broker by the Exchange.
50.2. In case of transition from sub-broker to Authorized Person (AP) (where the
sub-broker surrenders registration while seeking approval as AP) with the
same stock broker and the same Stock Exchange, issue of advertisement in
newspaper regarding surrender of sub-broker registration shall not be
required. However, the affiliating stock broker shall furnish an undertaking/
confirmation to the Stock Exchanges at the time of surrender of sub-broker
registration that he has sent communication to the clients of the sub-broker
individually about the surrender of sub-brokership and also the fact of
approval as AP.
50.3. The affiliating stock broker and/or Stock Exchange shall publish the details of
sub-brokers whose registration has been surrendered or their new status as AP,
as the case may be on their respective websites for the information of the
investors.
50.4. Forwarding of application
50.4.1. On receipt of the application(s) for prior approval and / or for surrender
and / or registration, as the case may be, of the sub-broker(s), the
Exchange shall forward the same to SEBI within a month of receipt of the
application by the Exchange only after it has approved the same and
recognized and / derecognized the sub-broker(s) concerned, along with a
confirmation (if not possible to confirm, details may be given) on the
following:
a. no complaint/ arbitration /disciplinary proceeding /investigation
/inquiry is pending against the sub-broker with the exchange,
b. as on date of application, the sub-broker, has paid fees as
per Schedule III (II) of the Regulations, along with interest, if any, till
the date on which the exchange has de-recognised the sub-broker.
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भारतीय प्रततभूतत और वितिमय बोर्ड
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50.5. Change of constitution of the affiliating broker
50.5.1. The change in status and constitution of the affiliating broker would not
constitute change in status and constitution of the sub-broker. However,
if the change in status and constitution of the affiliating broker results in a
fresh registration for the broker, the outgoing broker shall ensure that the
all the sub-brokers affiliated to him either surrender their registrations or
get their registrations affiliated against the new registration number of
the incoming broker in accordance with the following:
a. If the registrations of the sub-brokers are to be surrendered, the
surrender requests of the sub-brokers must be submitted to SEBI
before or at the time of application for change in status and
constitution of the broker and the procedure specified in para 50.1
above shall be followed.
b. If brokers are to be affiliated with the incoming broker, the incoming
broker must submit applications for change of affiliation from the
outgoing broker to the incoming broker, along with its application for
fresh registration. The sub-brokers shall enter into a fresh stock broker
– sub-broker agreement with the incoming broker in terms of
Regulation 15(1)(c) of the SEBI (Stock Broker and Sub-Broker)
Regulations and a copy of the same shall be enclosed with the
application for change of affiliation. The application for change of
affiliation shall also be accompanied with the original certificate of
registration of the sub-broker for carrying out the necessary changes.
Though the affiliation of the sub-broker will change, it shall be liable
for all its activities before the change of affiliation.
50.6. Change in name of sub-broker or affiliating broker
50.6.1. Change in name of the sub-broker or in name of affiliating broker would
not amount to change in status and constitution of the sub-broker and
hence no approval is required for the same. If a sub-broker changes name,
it shall be the responsibility of the affiliating broker to submit the
registration certificate of such sub-broker to SEBI through the concerned
exchange for recording change of name on the registration certificate. If
the name of the affiliating broker changes, the broker shall submit the
registration certificates of all its sub-brokers to SEBI through the
concerned exchange for carrying out appropriate changes on the
certificate. All requests for recording such changes in the certificate of
registration must be sent to SEBI within 7 days of change of name.
144
भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
51. Change in affiliation of Sub-Brokers58
51.1. Regulation 11(2) of the SEBI (Stock Brokers and Sub-Brokers) Regulations, 1992
stipulates that: “No fresh certificate needs to be obtained under sub-regulation
(1) where a sub-broker merely changes his affiliation from one stock broker to
another stock broker, being a member of the same Stock Exchange.”
51.2. Though no fresh certificate needs to be obtained for change in affiliation, such a
change may require approval from the Board.
51.3. The procedure to be followed and the documents to be submitted for seeking
approval for change in affiliation by the sub-brokers is specified in the table
given below:
S. Scenarios Remarks Procedure and Documents to
No. be submitted by the
applicant.
(A) (B) (C)
i. A sub-broker The sub-broker shall submit the application Procedure:
intends to for change in affiliation to the exchange
discontinue through the broker with whom affiliation is Application for change in
business with being sought and exchange shall forward the affiliation to be submitted to
one broker application to SEBI along-with its the exchange through the
and start recommendation. broker with whom affiliation
business with is being sought.
another
broker by The exchange shall ensure
changing and confirm that there is no
affiliation. complaint(s) / action(s) is
ii. A broker The sub-broker affiliated to merging / /are pending against the sub-
merges / amalgamating / acquired broker entities may broker seeking change in
amalgamates either choose to surrender registration or affiliation and the sub-broker
with another affiliate with the incoming entity or any other has no outstanding fee
broker or is broker. against it.
acquired by
another The broker must ensure that all the sub- The Exchange shall forward
broker. brokers affiliated to it submit the application the application complete in
for change in affiliation or surrender within a all respects to SEBI along
period of 15 days. with its recommendation.
The application for surrender of certificate of SEBI shall take the change in
registration of sub-broker shall be submitted affiliation on record and
to the exchange through the existing broker effect the changes on the sub-
whereas the application for change in broker certificate.
58 Reference: Circular MIRSD-DR 1/MK/CIR-15/111600/07 dated December 20, 2007.
145
भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
affiliation of sub-broker shall be submitted to
the exchange through the broker with whom The modified certificate shall
affiliation is being sought. The exchange shall be dispatched to the exchange
forward the application for surrender / to be handed over to the
change in affiliation to SEBI for approval. broker / sub-broker.
iii. A broker Sub-Brokers affiliated to a broker who has
applies for applied for surrender of registration may The sub-broker seeking
surrender. apply for change in affiliation to another change in affiliation shall be
broker or apply for surrender. eligible to do business with
the old broker till the
The broker must ensure that all the sub- application is granted
brokers affiliated to it submit the application approval by SEBI. Thereafter,
for change in affiliation or surrender at the on grant of approval by SEBI
time broker applies for surrender. The the exchange shall ensure that
application must be submitted through the affiliation of the sub-broker is
exchange. changed to new broker with
immediate effect.
The application for surrender of certificate of
registration of sub-broker shall be submitted Documents to be submitted:
to the exchange through the existing broker
whereas the application for change in Exchange recommendation
affiliation of sub-broker shall be submitted to and recommendation by the
the exchange through broker with whom broker with whom affiliation
affiliation is being sought. Exchange shall is being sought.
forward the application for surrender /
change in affiliation to SEBI for approval. Certificate of registration in
iv. A broker Sub-brokers affiliated to a broker who has original for recording change
undergoes undergone change in control/change in in affiliation. In case of lost
change in status or constitution / transfer/ sale/ /misplaced certificate, an
control or transmission, may apply for change in affidavit (on stamp paper of
change in affiliation to another broker or apply for appropriate value)
status and surrender. indemnifying SEBI from
constitution / possible harm caused by loss
sale / transfer The broker undergoing change must ensure of certificate and a copy of
/ that all the sub-brokers affiliated to it submit FIR/ police complaint lodged
transmission the sub-brokers’ application for change in by the sub-broker is required
affiliation or surrender after the issuance of to be furnished.
prior approval to the broker and before the
registration of the incoming broking entity. Letter from the sub-broker
The application must be submitted through seeking change in affiliation
the exchange. addressed to SEBI.
In case the broker expires, the sub-brokers No Objection Certificate
may change their affiliation within a period (NOC) from the existing
of six months from the date on which the affiliated broker with whom
146
भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
broker ceases to exist or the registration will the sub-broker wishes to
be deemed cancelled. discontinue business.
The application for surrender of certificate of Certified true copy of the
registration of sub-broker(s) shall be agreement between the
submitted to the exchange through the broker and the sub-broker.
existing broker whereas the application for
change in affiliation of sub-broker shall be
submitted to the exchange through the
broker with whom affiliation is being sought.
The exchange shall forward the application
for surrender / change in affiliation to SEBI
for approval.
v. SEBI takes Sub-Brokers affiliated to a broker against
punitive whom punitive action has been taken, may
action against apply for change in affiliation to another
the broker broker or apply for surrender The sub-
like brokers must apply for change in affiliation
cancellation / or surrender through the exchange within a
debarred period of one (1) month from the date of the
from SEBI order.
securities
market or the The application for surrender of certificate of
broker is registration of sub-broker(s) shall be
declared a submitted to the exchange through the
defaulter or existing broker whereas the application for
expelled from change in affiliation of sub-broker shall be
exchange. submitted to the exchange through the
broker with whom affiliation is being sought.
The exchange shall forward the application
for surrender / change in affiliation to SEBI
for approval.
vi. The broker or In case the broker or the sub-broker
the sub- terminates the agreement, the sub-broker
broker may apply for change in affiliation or
terminates the surrender registration.
agreement.
In case the sub-broker intends change in
affiliation and broker does not issue NOC,
the sub-broker may apply for change in
affiliation after completion of one month
from the date of termination of agreement
with the proof of request to the broker for
NOC.
147
भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
In case the sub-broker terminates the
agreement, the sub-broker shall submit an
application to the exchange for surrender of
certificate of registration as sub-broker and
enclose proof of service of notice for
termination of agreement with the broker.
In case the sub-broker is not traceable or does
not either apply for change in affiliation or
surrender after termination of agreement by
the broker, the broker may submit an
application for surrender of registration
along with proof of service of notice to the
sub-broker after a period of one month from
the date of termination of agreement.
vii. Broker The sub-brokers may only submit certificate
undergoes a of registration in original for the change in
change in affiliating broker’s name to be recorded on
name. certificate.
51.4. The exchange shall provide to SEBI only its recommendation and the certificate
of the sub-broker seeking change in affiliation / copy of police complaint or
FIR as attachments if the certificate is misplaced or lost along with an affidavit
(on stamp paper of appropriate value) indemnifying SEBI from any possible
harm due to loss of certificate. The other documents mentioned above may be
retained by exchange at its end. The exchange shall provide these documents to
SEBI as and when required.
52. Periodical Report – Grant of prior approval to members of Stock Exchanges/ Sub-
Brokers59
52.1. With the amendment in SEBI (Stock Brokers and Sub-Brokers) Regulations,
1992 (hereinafter referred to as "the said Regulations") vide Notification No.
LAD-NRO/GN/2011-12/03/12650 dated April 19, 2011, the requirement of
members of the Stock Exchanges and sub-brokers to obtain prior approval
from SEBI for change in status or constitution has been done away with.
However, the members of the Stock Exchanges would be required to take prior
approval from SEBI for change in control.
52.2. The Stock Exchanges will continue to grant prior approval to their members
and sub-brokers for change in status or constitution, which would include the
following:
52.2.1. in case of a body corporate —
59 Reference: Circular CIR/MIRSD/2/2011 dated June 03, 2011.
148
भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
a. amalgamation, demerger, consolidation or any other kind of
corporate restructuring falling within the scope of section 230 of the
Companies Act, 201360 or the corresponding provision of any other
law for the time being in force;
b. change in its managing director, whole-time director or director
appointed in compliance with clause (v) of sub-rule (4A) of rule 8 of
the Securities Contracts (Regulation) Rules, 1957; and
c. any change in control over the body corporate;
52.2.2. any change between the following legal forms - individual, partnership
firm, Hindu undivided family, private company, public company,
unlimited company or statutory corporation and other similar changes;
52.2.3. in case of a partnership firm any change in partners not amounting to
dissolution of the firm;
52.2.4. any other purpose as may be considered appropriate by the Stock
Exchanges.
52.3. The Stock Exchanges shall submit a periodical report with details of the
changes in status or constitution of the members / sub-brokers, as per the
format and in accordance with guidelines given at Annexure below.
ANNEXURE
Format for reporting changes in "status or constitution" of Members/ Sub-Brokers
Name of the Stock Exchange:
Report for the quarter ending: June/September/December/March Year:-
Date of report:
S. No. Date Name of Registration Type of Details of PAN Date of Date of
of the number change changes (incoming Change approval
receipt member/ INB/F/E Pre Post entities) by Stock
sub- INS Exchange
broker
60 Words “section 391 of the Companies Act, 1956 (1 of 1956)” replaced with “section 230 of the
Companies Act, 2013” in view of Companies Act 2013 being in force.
149
भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
Type Description of Change
I Amalgamation, demerger, consolidation or any other kind of corporate restructuring
falling within the scope of section 230 of the Companies Act, 2013 or the corresponding
provision of any other law for the time being in force.
II Change in managing director, whole-time director or director appointed in compliance
with clause (v) of sub-rule (4A) of rule 8 of the Securities Contracts (Regulation) Rules,
1957.
III Change in control.
IV Any change between the following legal forms - individual, partnership firm, Hindu
undivided family, private company, public company, unlimited company or statutory
corporation and other similar changes.
V In case of a partnership firm any change in partners not amounting to dissolution of the
firm.
VI Any other purpose as may be considered appropriate by the Stock Exchanges.
Guidelines to fill up the format and sending the same to SEBI
1. A separate annexure shall be submitted for each "Type of change" as specified in the
format.
2. The report shall be signed by an authorized representative of the Stock Exchange and
the same shall be stamped.
3. The Stock Exchanges shall furnish the report to SEBI by 7th day of month following the
end of each quarter.
4. The report shall be submitted by e-mail at serpa@sebi.gov.in. A hard copy of the report
shall also be submitted to SEBI.
53. Revised procedure for seeking prior approval for change in control through single
window61
53.1. Pursuant to amendments in Regulations for certain intermediaries viz., Stock
Brokers and Sub-Brokers, Merchant Bankers, Debenture Trustees, Registrar to
an Issue and Share Transfer Agents, Underwriters, Depository Participants,
Bankers to an Issue and Credit Rating Agencies, vide Notification No. LAD-
NRO/GN/2011-12/03/12650 dated April 19, 2011, the requirement of
obtaining prior approval for change in status or constitution has been
dispensed with. However, in case of change in control of the above
intermediaries except for sub-brokers, prior approval of SEBI is required.
53.2. With a view to expedite the process of granting prior approval, a ‘single
window clearance at SEBI’ will be adopted for the above intermediaries in case
of their having multiple registrations with SEBI. Accordingly, in consultation
with the major Stock Exchanges and market participants, the following
procedure has been devised:
61 Reference: Circular CIR/MIRSD/14/2011 dated August 02, 2011
150
भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
53.2.1. In case an applicant holds multiple registrations with SEBI, it shall make
only one application to SEBI accompanied by the following information
about itself, the acquirer and the directors/partners of the acquirer:
a. Whether any application was made in the past to SEBI seeking
registration in any capacity but it was not granted? If yes, details
thereof.
b. Whether any action has been initiated / taken under SCRA/SEBI Act
or rules and regulations made thereunder? If yes, status thereof along
with corrective action taken to avoid such violations in the future. The
acquirer shall also confirm that it shall honour all past liabilities /
obligations of the applicant, if any.
c. Whether any investor complaint is pending? If yes, steps taken and
confirmation that the acquirer shall resolve the same.
d. Details of litigation, if any.
e. That all the fees due to SEBI have been paid.
f. That there will not be any change in the Board of Directors of
incumbent, till the time prior approval is granted.
g. That the incumbent shall inform all its existing investors / clients in
order to enable them to take informed decision regarding their
continuance or otherwise with the entity with new management.
53.2.2. Further, in case the incumbent is a registered stock broker and / or
depository participant, in addition to the above, it shall obtain approval /
NOC from all the Stock Exchanges / Depositories, where the incumbent
is a member / depository participant and forward a self attested copy of
the same to SEBI.
53.2.3. The application shall be addressed to "Chief General Manager, MIRSD,
SEBI".
53.2.4. The prior approval granted by SEBI shall be valid for a period of 180 days
from the date of communication.
*****
151
भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
VII. SUBSIDIARY
54. Floating of a Subsidiary/ Company by a Stock Exchange to acquire the
membership of other Stock Exchange62
54.1. Small Stock Exchanges may promote/float a subsidiary/company to acquire
membership rights of other Stock Exchange subject to the under noted
conditions:
54.1.1. The subsidiary/company shall be 100% owned by the Stock Exchange
promoting/floating such a subsidiary/company.
54.1.2. For the purposes of fulfillment of above condition, the Exchange and its
members shall together hold 100% in nominal value of the equity share
capital of the subsidiary/company with exchange holding not less than
51% in nominal value of the equity share capital of the
subsidiary/company.
54.1.3. The name of the subsidiary/company shall not contain the words "Stock
Exchange".
54.1.4. The members of the Stock Exchange shall register themselves as sub-
brokers of the subsidiary/company to enable them trade through the
subsidiary/company.
54.1.5. The subsidiary/company shall not undertake any dealing in securities on
its own account.
54.1.6. The subsidiary/company shall register only the members of the Stock
Exchange, which is promoting the subsidiary/company as its sub-broker
and no other client/sub-broker shall be entertained by the
subsidiary/company. Hence, the member has to be eligible to trade on
parent Stock Exchange to be eligible to trade through the subsidiary
company as its sub-broker.
54.1.7. The sub-brokers of the subsidiary/company shall maintain separate
deposit with the subsidiary/company. The Base Minimum Capital
deposited by the sub-broker with the promoting Stock Exchange shall not
be transferred to the subsidiary/company. This deposit could be
maintained 25% in the form of cash and the balance 75% in irrevocable
62 Reference: Circular SMD-II/POLICY/CIR-37/99 dated November 26, 1999,
Circular SMD-I/POLICY/CIR-40/99 dated December 16, 1999,
Circular SMD-II/ALLSE/CIR-02/2000 dated January 10, 2000,
Circular SMDRPD/POLICY/CIR-8/2001 dated February 07, 2001 and
Circular SEBI/SMD/SE/CIR-20/2003/02/06 dated June 02, 2003.
152
भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
bank guarantees / Fixed Deposit Receipts (FDRs). These FDRs would be
discharged in favour of the subsidiary/company and the
subsidiary/company would be given a complete unencumbered and
unconditional lien on these FDRs.
54.1.8. The trading/exposure limit of the sub-brokers shall be based on the
deposit received by the subsidiary/company from the sub-brokers and
these limits shall not exceed the limits as prescribed by the Stock
Exchange of which the subsidiary/company is a member.
54.1.9. The subsidiary/company shall collect margins from the sub-brokers for
the payment of margins to the respective Stock Exchanges of which the
subsidiary/company is a member. The margin imposed by the
subsidiary/company on its sub-brokers shall not be less than the margin
payable to the Stock Exchanges of which the subsidiary/company is the
member.
54.1.10. The Stock Exchange shall incorporate the above mentioned conditions in
the Memorandum of Association/Articles of Association of the
subsidiary/company.
55. Exclusion of turnover from the turnover of the Subsidiary63
55.1. Where a Stock Exchange has formed a subsidiary company, which has become
a stock broker of another Stock Exchange, then the turnover of the stock broker
who is buying, selling or dealing in securities, through the subsidiary company
as a sub-broker, shall be excluded from the turnover of the subsidiary
company, only if the stock broker has paid five years turnover based fees plus
fee for a block of five years in accordance with the Securities and Exchange
Board of India (Stock Brokers and Sub-Brokers) Regulations, 1992, on the
concerned Stock Exchange which has formed the subsidiary company.
56. Eligibility for Trading Member64
56.1. Subsidiaries of the Stock Exchanges can become trading and or clearing
members of the derivatives segment on fulfilling the eligibility criteria laid
down by the exchanges and prescribed under the SEBI (Stock Broker and Sub-
Broker) Regulations, subject to the following conditions:
56.1.1. All the risk containment measures laid down by SEBI shall be followed
by these subsidiary companies and
63 Reference: Circular SMD/POLICY/CIR. No. 24/25374/2001 dated March 22, 2001 and SEBI
(Stock Brokers and Sub-Brokers) (Second Amendment) Regulations, 2000 dated August 30, 2000.
64 Reference: Circular SMDRP/POLICY/CIR-41/2001 dated August 09, 2001.
153
भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
56.1.2. These subsidiaries shall not undertake proprietary trade.
57. Restructuring of the Subsidiary Management65
57.1. Subsidiary company shall be required to comply with minimum requirements
in order to ensure that the transactions in subsidiaries are conducted in a
manner which are not detrimental to the interest of the investors and also to
enable the subsidiaries to provide a safe and transparent mechanism for
transactions in securities.
57.2. The management structure of subsidiaries of small Stock Exchanges shall be as
under:
57.2.1. Chief Executive Officer - The subsidiary company shall appoint a Chief
Executive Officer (CEO) who shall not hold any position concurrently in
the Stock Exchange (parent exchange). The appointment, the terms and
conditions of service, the renewal of appointment and the termination of
service of CEO shall be subject to prior approval of SEBI.
57.2.2. Reconstitution of Governing Board - The Governing Board of the
subsidiary company shall have the following composition:
a. The CEO of the subsidiary company shall be a director on the Board
of Subsidiary. The CEO shall not be a sub-broker of the subsidiary
company or a broker of the parent exchange.
b. At least 50% of Directors representing on the Governing Board of
subsidiary company shall not be sub-brokers of the subsidiary
company or brokers of the promoter / holding exchange (parent
exchange). These directors (excluding CEO) shall be called the Public
Representatives.
c. The Public Representatives shall be nominated by the parent
exchange (subject to prior approval of SEBI).
d. Public Representatives to be nominated as directors of subsidiary
company shall be from amongst the persons of integrity having
necessary professional competence and experience in the areas related
to securities market.
e. For purpose of nomination as Public Representatives the Governing
body of parent exchange may forward the names of the persons to the
SEBI for its approval. The SEBI shall, however have the right to
nominate persons, whose names have not been forwarded by the
governing body of the Stock Exchange.
f. The Public Representatives to be appointed as directors shall hold the
office for a period of one year from the date of assumption of the
office or till the Annual General Meeting of subsidiary company
65 Reference: Circular SMD/POLICY/CIR-4/ 2003 dated February 11, 2003.
154
भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
whichever is earlier.
g. There should be a gap of at least one year after a consecutive period of
three years before re-nomination of any person for the post of non-
member director.
h. The parent exchange may appoint a maximum of two directors who
are officers of the parent exchange. Such directors shall be in addition
to 50% non-member directors (public representatives) mentioned
above.
57.2.3. Staff of the Subsidiary - The subsidiary company shall have its own staff
none of whom shall be concurrently working for or holding any position
of office in the parent exchange.
57.2.4. Responsibilities of Parent Exchange towards Subsidiary Company - The
parent exchange shall be responsible for all risk management of the
subsidiary company and shall set up appropriate mechanism for the
supervision of the trading activity of subsidiary company. Such
mechanism shall include:
a. Verification of compliance of margin payments and other risk
management measures applicable to the subsidiary company as a
broker member of another exchange.
b. Reporting requirements between the subsidiary and exchange, such
as placing quarterly reports on the financial and accounts of the
subsidiary and on review of operations of the subsidiary before the
Governing Board of exchange at its meetings.
c. Conducting of half-yearly inspections of the subsidiary and 20% of its
sub-brokers and placing such reports before the Governing Board of
exchange.
d. Handling of investor complaints of sub-brokers of the subsidiary
company.
58. Access to unauthorized persons by the Members of Subsidiaries66
58.1. The Stock Exchanges which have formed subsidiaries shall note that
appropriate penal action including fine, suspension of trading rights of the
subsidiaries/sub-brokers, etc., would be initiated, in case, any of the members
of the exchange who are sub-brokers of the subsidiary is found to be providing
unauthorized access to persons for illegal trading and/or providing their own
terminal for illegal trading. The exchanges shall exercise vigilance and
surveillance on their subsidiaries/its members to ensure that the members do
not indulge in these types of activities.
66 Reference: Circular SEBI/MRD/SE/15958/2003 dated August 22, 2003.
155
भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
VIII. FOREIGN ACCOUNTS TAX COMPLIANCE ACT
59. Inter-Governmental Agreement with United States of America under Foreign
Accounts Tax Compliance Act - Registration67
59.1. The Government of India has advised that India and the United States of
America (US) have reached an agreement in substance on the terms of an Inter-
Governmental Agreement (IGA) to implement Foreign Accounts Tax
Compliance Act (FATCA) and India is now treated as having an IGA in effect
from April 11, 2014. However, the IGA may be signed in due course.
Information on FATCA is available at:
http://www.irs.gov/Businesses/Corporations/Foreign-Account-Tax-
ComplianceAct-FATCA.
59.2. As advised by the Government, the following points may be noted by all SEBI
registered intermediaries:
59.2.1. Indian Financial Institutions would have time upto December 31, 2014
to register with US authorities and obtain a Global Intermediary
Identification Number (GIIN). This time limit would also be applicable
to Indian Financial Institutions having overseas branches in Model 1
jurisdictions, including those jurisdictions where an agreement under
Model 1 has been reached in substance. Registration should be done
only after the formal IGA is signed.
59.2.2. Overseas branches of Indian Financial Institutions in a jurisdiction
having IGA 2 agreement or in a jurisdiction that does not have an IGA
but permits financial institutions to register and agree to a Foreign
Financial Institution (FFI) agreement, may register with US authorities
within the stipulated time period and obtain a GIIN in accordance with
the requirements to avoid potential withholding under FATCA.
59.2.3. Overseas branches of Indian Financial Institutions in a jurisdiction that
does not have an IGA and does not permit financial institutions to
register and agree to an FFI agreement may not register and their
overseas branches would eventually be subject to withholding under
FATCA.
59.2.4. The Government has further advised that if registration of the parent
intermediary/ head office is a pre-requisite for a branch to register,
such intermediaries may register as indicated at 59.2.1 and 59.2.2 above.
67 Reference: Circular CIR/MIRSD/2/2014 dated June 30, 2014.
156
भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
60. Implementation of the Multilateral Competent Authority Agreement and Foreign
Account Tax Compliance Act68
60.1. India joined the Multilateral Competent Authority Agreement (MCAA) on
Automatic Exchange of Financial Account Information on June 03, 2015. In
terms of the MCAA, all countries which are signatory to MCAA, are obliged to
exchange a wide range of financial information after collecting the same from
financial institutions in their country / jurisdiction.
60.2. On July 09, 2015, the Governments of India and United States of America
(USA) signed an agreement to improve international tax compliance and to
implement the Foreign Account Tax Compliance Act (FATCA) in India. The
USA enacted FATCA in 2010 to obtain information on accounts held by US
taxpayers in other countries. As per the aforesaid agreement, foreign financial
institutions (FFIs) in India will be required to report tax information about US
account holders / taxpayers directly to the Indian Government which will, in
turn, relay that information to the IS Internal Revenue Service (IRS).
60.3. For implementation of the MCAA and agreement with USA, the Government
of India has made necessary legislative changes to Section 285BA of the Income
Tac Act, 1961. Further, the Government of India has notified Rules 114F to
114H (herein after referred to as “the Rules”) under the Income Tax Rules, 1962
and form No. 61B for furnishing of statement of reportable account specified in
the Rules. The Rule is available at
http://www.incometaxindia.gov.in/communications/notification/notificatio
n%20no.%2062%20dated%2007-08-2015.pdf
60.4. A “Guidance Note on implementation of Reporting Requirements under Rules
114F to 114H of the Income Tax Rules” as issued by the Department of
Revenue, Ministry of Finance vide F.No.500/137/2011-FTTR-III dated August
31, 2015 is available at
http://www.incometaxindia.gov.in/communications/notification/guidance_
notes_on_im plementation_31_08_2015.pdf, for information and necessary
action.
60.5. All registered intermediaries shall take necessary steps to ensure compliance
with the requirements specified in the aforesaid Rules after carrying out
necessary due diligence.
*****
68Reference: Circular CIR/MIRSD/2/2015 dated August 26, 2015 and Circular
CIR/MIRSD/3/2015 dated September 10, 2015.
157
भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
IX. SCORES, INVESTOR GRIEVANCES
61. Exclusive e-mail ID for redressal of Investor Complaints69
61.1. All the Stock Exchanges/registered brokers/registered sub-brokers/listed
companies/Depositories/registered depository participants shall designate an
e-mail ID of the grievance redressel division/compliance officer exclusively for
the purpose of registering complaints by investors. The above entities shall also
display the email ID and other relevant details prominently on their websites
and in the various materials/pamphlets/advertisement campaigns initiated by
them for creating investor awareness.
62. Redressal of Investor complaints against Stock Brokers and Sub-Brokers in SEBI
Complaints Redress System (SCORES)70
62.1. SEBI commenced processing of investor complaints in a centralized web based
complaints redress system ‘SCORES’. The salient features of this system are:
62.1.1. Centralised database of all complaints,
62.1.2. Online movement of complaints to the concerned listed companies,
62.1.3. Online upload of Action Taken Reports (ATRs) by the concerned
companies, and
62.1.4. Online viewing by investors of actions taken on the complaint and its
current status.
62.2. The investor grievances received by SEBI against stock brokers and sub-
brokers will be taken up electronically with the concerned Stock Exchange(s)
through SCORES (https://scores.gov.in/Admin). The Stock Exchange(s) shall,
in turn, take up the matter with the concerned stock brokers/sub-brokers.
62.3. The complaint shall be redressed within a period of 15 days from the receipt of
the complaint. In case additional information is required from the complainant,
the same shall be sought within 7 days from the receipt of the complaint. In
such cases, the period of 15 days shall run from the receipt of additional
information.
69 Reference: Circular MRD/DoP/Dep/SE/CIR-22/06 dated December 18, 2006.
70 Reference: Circular CIR/MIRSD/18/2011 dated August 25, 2011 and Circular
SEBI/HO/MIRSD/MIRSD6/CIR/P/2017/20 dated March 10, 2017.
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63. Information regarding Grievance Redressal Mechanism71
63.1. For information of all investors who deal/ invest/ transact in the market, the
offices of all stock brokers (its registered sub-broker(s) and authorized
person(s)) and depository participants shall prominently display basic
information, as provided in Annexure below, about the grievance redressal
mechanism available to investors.
ANNEXURE
Dear Investor,
In case of any grievance / complaint against the Stock Broker / Depository
Participant:
Please contact Compliance Officer of the Stock Broker/ Depository Participant
(Name) / email-id (xxx.@email.com) and Phone No. - 91-XXXXXXXXXX.
You may also approach CEO/ Partner/Proprietor (Name) / email-id
(xxx.@email.com) and Phone No. - 91-XXXXXXXXXX.
If not satisfied with the response of the Stock Broker/ Depository Participant, you
may contact the concerned Stock Exchange / Depository at the following:
Web Address Contact No. Email-id
NSE www.bseindia.com xxxxxxxxxx xxx@bseindia.com
BSE www.nesindia.com Xxxxxxxxxx xxx@nse.co.in
MSEI www.msei.in xxxxxxxxxx xxx@msei.in
Web Address Contact No. Email-id
CDSL www.cdslindia.com xxxxxxxxxx xxx@cdslindia.com
NSDL www.nsdl.co.in xxxxxxxxxx xxx@nsdl.co.in
You can also lodge your grievances with SEBI at http://scores.gov.in. For any
queries, feedback or assistance, please contact SEBI Office on Toll Free Helpline at
1800 22 7575 / 1800 266 7575.
*****
71 Reference: Circular CIR/MIRSD/3/2014 dated August 28, 2014.
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X. GENERAL
64. Advertisement by Brokers/ Sub-Brokers and grant of trading terminals72
64.1. The Stock Exchanges shall ensure that brokers and sub-brokers do not issue
advertisements of their business, including in their internet sites, by
subsidiaries, group companies etc. in contravention to Clause C(4) and C(5) of
the Code of Conduct specified in Schedule II of Regulation 7 and Clause C(5)
and C(6) of the Code of Conduct specified in Schedule II of Regulation 15 of
SEBI (Stock Brokers and Sub-Brokers) Regulations, 1992 and Bye Laws of the
concerned Stock Exchange. Similarly, the Stock Exchanges shall inform their
brokers to ensure that their sub-brokers do not issue such advertisements in
future.
64.2. Stock Exchanges shall grant trading terminals only at the members’ registered
office, branch offices and their registered sub-brokers’ offices.
65. Registration Number of Brokers / Sub-Brokers to be quoted on all
correspondences with SEBI73
65.1. Stock Exchanges shall quote SEBI Registration Number of the concerned
Broker / Sub-Broker quoted on all correspondences with SEBI relating to them.
Stock Exchanges shall instruct the Brokers / Sub-Brokers to quote their SEBI
Registration Number in all their correspondences with SEBI. Stock Exchanges
shall also advise the Brokers / Sub-Brokers to indicate (i) SEBI Registration
Number of the Broker / Sub-Broker and (ii) Name of the Broker/ Sub-Broker
as per SEBI registration certificate on the reverse of the demand drafts
forwarded to SEBI.
66. Maintenance of books of accounts and other documents sought by Enforcement
Agencies from Stock Exchanges and Brokers74
66.1. In terms of Rules 14 and 15 of Securities Contracts (Regulation) Rules, 1957
(hereinafter referred to as SCRR, 1957), every recognized stock exchange and
its members are required to maintain and preserve the specified books of
account and documents for a period ranging from two years to five
years. Further, as per Regulation 18 of SEBI (Stock Brokers & Sub-Brokers)
Regulations, 1992 (hereinafter referred to as Stock Broker Regulations), every
stock broker shall preserve the specified books of account and other records for
a minimum period of five years.
66.2. Enforcement agencies like CBI, Police, Crime Branch etc. have been collecting
72 Reference: Circular SMD/POLICY/CIR-49/2001 dated October 22, 2001.
73 Reference: Circular SMD/DBA-II/Cir-16/9618/03 dated May 05, 2003.
74 Reference: Circular SEBI/MRD/SE/CIR-15/2005 dated August 04, 2005.
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copies of the various records/documents during the course of their
investigation. These original documents both in physical form and electronic
form would be required by such enforcement agencies during trial of the case
also.
66.3. Notwithstanding anything contained in SCRR, 1957 and the Stock Broker
Regulations, it is advised to preserve the originals of the documents, both in
electronic and physical form, copies of which have been taken by CBI, Police or
any other enforcement agency during the course of any investigation till the
trial is completed.
67. Display of details by Stock Brokers (including Trading Members)75
67.1. While a stock broker may use the brand name / logo of its group companies, it
must display more prominently:
a. its name as registered with SEBI, its own logo, if any, its registration
number, and its complete address with telephone numbers in its portal
/web site, if any, notice / display boards, advertisements, publications,
know your client forms, and member client agreements;
b. its name as registered with SEBI, its own logo, if any, its registration
number, and its complete address with telephone numbers, the name of the
compliance officer, his telephone number and e-mail address in contract
notes, statement of funds and securities, and correspondences with the
clients.
68. Unauthenticated news circulated by SEBI Registered Market Intermediaries
through various modes of communication76
68.1. It has been observed by SEBI that unauthenticated news related to various
scrips are circulated in blogs/chat forums/e-mail etc. by employees of Broking
Houses/Other Intermediaries without adequate caution as mandated in the
Code of Conduct for Stock Brokers and respective Regulations of various
intermediaries registered with SEBI.
68.2. Further, in various instances, it has been observed that the Intermediaries do
not have proper internal controls and do not ensure that proper checks and
balances are in place to govern the conduct of their employees. Due to lack of
proper internal controls and poor training, employees of such intermediaries
are sometimes not aware of the damage which can be caused by circulation of
unauthenticated news or rumours. It is a well established fact that market
rumours can do considerable damage to the normal functioning and behaviour
75 Reference: Circular CIR/MIRSD/9/2010 dated November 04, 2010.
76 Reference: Circular CIR/ISD/1/2011 dated March 23, 2011 and Circular CIR/ISD/2/2011
dated March 24, 2011.
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of the market and distort the price discovery mechanisms.
68.3. In view of the above facts, SEBI Registered Market Intermediaries are directed
that:
68.3.1. Proper internal code of conduct and controls should be put in place.
68.3.2. Employees/temporary staff/voluntary workers etc. employed/working
in the Offices of market intermediaries do not encourage or circulate
rumours or unverified information obtained from client, industry, any
trade or any other sources without verification.
68.3.3. Access to Blogs/Chat forums/Messenger sites etc. should either be
restricted under supervision or access should not be allowed.
68.3.4. Logs for any usage of such Blogs/Chat forums/Messenger sites (called
by any nomenclature) shall be treated as records and the same should be
maintained as specified by the respective Regulations which govern the
concerned intermediary.
68.3.5. Employees should be directed that any market related news received by
them either in their official mail/personal mail/blog or in any other
manner, should be forwarded only after the same has been seen and
approved by the concerned Intermediary’s Compliance Officer. If an
employee fails to do so, he/she shall be deemed to have violated the
various provisions contained in SEBI Act/Rules/Regulations etc. and
shall be liable for action. The Compliance Officer shall also be held liable
for breach of duty in this regard.
69. Guidelines on Outsourcing of Activities by Intermediaries77
69.1. SEBI Regulations for various intermediaries require that they shall render at all
times high standards of service and exercise due diligence and ensure proper
care in their operations.
69.2. It has been observed that often the intermediaries resort to outsourcing with a
view to reduce costs, and at times, for strategic reasons.
69.3. Outsourcing may be defined as the use of one or more than one third party –
either within or outside the group - by a registered intermediary to perform the
activities associated with services which the intermediary offers.
69.4. Principles for Outsourcing
77 Reference: Circular CIR/MIRSD/24/2011 dated December 15, 2011.
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69.4.1. The risks associated with outsourcing may be operational risk,
reputational risk, legal risk, country risk, strategic risk, exit-strategy risk,
counter party risk, concentration and systemic risk. The principles for
outsourcing are given below in Annexure.
69.5. Activities that shall not be Outsourced
69.5.1. The intermediaries desirous of outsourcing their activities shall not,
however, outsource their core business activities and compliance
functions. A few examples of core business activities may be – execution
of orders and monitoring of trading activities of clients in case of stock
brokers; dematerialisation of securities in case of depository participants;
investment related activities in case of Mutual Funds and Portfolio
Managers. Regarding Know Your Client (KYC) requirements, the
intermediaries shall comply with the provisions of SEBI {KYC (Know
Your Client) Registration Agency} Regulations, 2011 and Guidelines
issued thereunder from time to time.
69.6. Other Obligations
69.6.1. Reporting To Financial Intelligence Unit (FIU) - The intermediaries shall
be responsible for reporting of any suspicious transactions / reports to
FIU or any other competent authority in respect of activities carried out
by the third parties.
ANNEXURE
PRINCIPLES FOR OUTSOURCING FOR INTERMEDIARIES
1. An intermediary seeking to outsource activities shall have in place a
comprehensive policy to guide the assessment of whether and how those
activities can be appropriately outsourced. The Board / partners (as the case may
be) {hereinafter referred to as the “the Board”} of the intermediary shall have the
responsibility for the outsourcing policy and related overall responsibility for
activities undertaken under that policy.
1.1. The policy shall cover activities or the nature of activities that can be
outsourced, the authorities who can approve outsourcing of such activities,
and the selection of third party to whom it can be outsourced. For example,
an activity shall not be outsourced if it would impair the supervisory
authority’s right to assess, or its ability to supervise the business of the
intermediary. The policy shall be based on an evaluation of risk
concentrations, limits on the acceptable overall level of outsourced activities,
risks arising from outsourcing multiple activities to the same entity, etc.
1.2. The Board shall mandate a regular review of outsourcing policy for such
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activities in the wake of changing business environment. It shall also have
overall responsibility for ensuring that all ongoing outsourcing decisions
taken by the intermediary and the activities undertaken by the third-party,
are in keeping with its outsourcing policy.
2. The intermediary shall establish a comprehensive outsourcing risk management
programme to address the outsourced activities and the relationship with the
third party.
2.1. An intermediary shall make an assessment of outsourcing risk which
depends on several factors, including the scope and materiality of the
outsourced activity, etc. The factors that could help in considering
materiality in a risk management programme include-
2.1.1. The impact of failure of a third party to adequately perform the
activity on the financial, reputational and operational performance of
the intermediary and on the investors / clients;
2.1.2. Ability of the intermediary to cope up with the work, in case of non
performance or failure by a third party by having suitable back-up
arrangements;
2.1.3. Regulatory status of the third party, including its fitness and probity
status;
2.1.4. Situations involving conflict of interest between the intermediary and
the third party and the measures put in place by the intermediary to
address such potential conflicts, etc.
2.2. While there shall not be any prohibition on a group entity / associate of the
intermediary to act as the third party, systems shall be put in place to have
an arm’s length distance between the intermediary and the third party in
terms of infrastructure, manpower, decision-making, record keeping, etc. for
avoidance of potential conflict of interests. Necessary disclosures in this
regard shall be made as part of the contractual agreement. It shall be kept in
mind that the risk management practices expected to be adopted by an
intermediary while outsourcing to a related party or an associate would be
identical to those followed while outsourcing to an unrelated party.
2.3. The records relating to all activities outsourced shall be preserved centrally
so that the same is readily accessible for review by the Board of the
intermediary and / or its senior management, as and when needed. Such
records shall be regularly updated and may also form part of the corporate
governance review by the management of the intermediary.
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भारतीय प्रततभूतत और वितिमय बोर्ड
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2.4. Regular reviews by internal or external auditors of the outsourcing policies,
risk management system and requirements of the regulator shall be
mandated by the Board wherever felt necessary. The intermediary shall
review the financial and operational capabilities of the third party in order to
assess its ability to continue to meet its outsourcing obligations.
3. The intermediary shall ensure that outsourcing arrangements neither diminish
its ability to fulfill its obligations to customers and regulators, nor impede
effective supervision by the regulators.
3.1. The intermediary shall be fully liable and accountable for the activities that
are being outsourced to the same extent as if the service were provided in-
house.
3.2. Outsourcing arrangements shall not affect the rights of an investor or client
against the intermediary in any manner. The intermediary shall be liable to
the investors for the loss incurred by them due to the failure of the third
party and also be responsible for redressal of the grievances received from
investors arising out of activities rendered by the third party.
3.3. The facilities / premises / data that are involved in carrying out the
outsourced activity by the service provider shall be deemed to be those of
the registered intermediary. The intermediary itself and Regulator or the
persons authorized by it shall have the right to access the same at any point
of time.
3.4. Outsourcing arrangements shall not impair the ability of SEBI/SRO or
auditors to exercise its regulatory responsibilities such as
supervision/inspection of the intermediary.
4. The intermediary shall conduct appropriate due diligence in selecting the third
party and in monitoring of its performance.
4.1. It is important that the intermediary exercises due care, skill, and diligence
in the selection of the third party to ensure that the third party has the ability
and capacity to undertake the provision of the service effectively.
4.2. The due diligence undertaken by an intermediary shall include assessment
of:
4.2.1. third party’s resources and capabilities, including financial
soundness, to perform the outsourcing work within the timelines
fixed;
4.2.2. compatibility of the practices and systems of the third party with the
intermediary’s requirements and objectives;
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4.2.3. market feedback of the prospective third party’s business reputation
and track record of their services rendered in the past;
4.2.4. level of concentration of the outsourced arrangements with a single
third party; and
4.2.5. the environment of the foreign country where the third party is
located.
5. Outsourcing relationships shall be governed by written contracts / agreements /
terms and conditions (as deemed appropriate) {hereinafter referred to as
“contract”} that clearly describe all material aspects of the outsourcing
arrangement, including the rights, responsibilities and expectations of the parties
to the contract, client confidentiality issues, termination procedures, etc.
5.1. Outsourcing arrangements shall be governed by a clearly defined and
legally binding written contract between the intermediary and each of the
third parties, the nature and detail of which shall be appropriate to the
materiality of the outsourced activity in relation to the ongoing business of
the intermediary.
5.2. Care shall be taken to ensure that the outsourcing contract:
5.2.1. clearly defines what activities are going to be outsourced, including
appropriate service and performance levels;
5.2.2. provides for mutual rights, obligations and responsibilities of the
intermediary and the third party, including indemnity by the parties;
5.2.3. provides for the liability of the third party to the intermediary for
unsatisfactory performance/other breach of the contract
5.2.4. provides for the continuous monitoring and assessment by the
intermediary of the third party so that any necessary corrective
measures can be taken up immediately, i.e., the contract shall enable
the intermediary to retain an appropriate level of control over the
outsourcing and the right to intervene with appropriate measures to
meet legal and regulatory obligations;
5.2.5. includes, where necessary, conditions of sub-contracting by the third-
party, i.e. the contract shall enable intermediary to maintain a similar
control over the risks when a third party outsources to further third
parties as in the original direct outsourcing;
5.2.6. has unambiguous confidentiality clauses to ensure protection of
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भारतीय प्रततभूतत और वितिमय बोर्ड
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proprietary and customer data during the tenure of the contract and
also after the expiry of the contract;
5.2.7. specifies the responsibilities of the third party with respect to the IT
security and contingency plans, insurance cover, business continuity
and disaster recovery plans, force majeure clause, etc.;
5.2.8. provides for preservation of the documents and data by third party;
5.2.9. provides for the mechanisms to resolve disputes arising from
implementation of the outsourcing contract;
5.2.10. provides for termination of the contract, termination rights, transfer of
information and exit strategies;
5.2.11. addresses additional issues arising from country risks and potential
obstacles in exercising oversight and management of the
arrangements when intermediary outsources its activities to foreign
third party. For example, the contract shall include choice-of-law
provisions and agreement covenants and jurisdictional covenants that
provide for adjudication of disputes between the parties under the
laws of a specific jurisdiction;
5.2.12. neither prevents nor impedes the intermediary from meeting its
respective regulatory obligations, nor the regulator from exercising its
regulatory powers; and
5.2.13. provides for the intermediary and /or the regulator or the persons
authorized by it to have the ability to inspect, access all books, records
and information relevant to the outsourced activity with the third
party.
6. The intermediary and its third parties shall establish and maintain contingency
plans, including a plan for disaster recovery and periodic testing of backup
facilities.
6.1. Specific contingency plans shall be separately developed for each
outsourcing arrangement, as is done in individual business lines.
6.2. An intermediary shall take appropriate steps to assess and address the
potential consequence of a business disruption or other problems at the third
party level. Notably, it shall consider contingency plans at the third party;
co-ordination of contingency plans at both the intermediary and the third
party; and contingency plans of the intermediary in the event of non-
performance by the third party.
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6.3. To ensure business continuity, robust information technology security is a
necessity. A breakdown in the IT capacity may impair the ability of the
intermediary to fulfill its obligations to other market
participants/clients/regulators and could undermine the privacy interests of
its customers, harm the intermediary’s reputation, and may ultimately
impact on its overall operational risk profile. Intermediaries shall, therefore,
seek to ensure that third party maintains appropriate IT security and robust
disaster recovery capabilities.
6.4. Periodic tests of the critical security procedures and systems and review of
the backup facilities shall be undertaken by the intermediary to confirm the
adequacy of the third party’s systems.
7. The intermediary shall take appropriate steps to require that third parties protect
confidential information of both the intermediary and its customers from
intentional or inadvertent disclosure to unauthorised persons.
7.1. An intermediary that engages in outsourcing is expected to take appropriate
steps to protect its proprietary and confidential customer information and
ensure that it is not misused or misappropriated.
7.2. The intermediary shall prevail upon the third party to ensure that the
employees of the third party have limited access to the data handled and
only on a “need to know” basis and the third party shall have adequate
checks and balances to ensure the same.
7.3. In cases where the third party is providing similar services to multiple
entities, the intermediary shall ensure that adequate care is taken by the
third party to build safeguards for data security and confidentiality.
8. Potential risks posed where the outsourced activities of multiple intermediaries
are concentrated with a limited number of third parties.
8.1. In instances, where the third party acts as an outsourcing agent for multiple
intermediaries, it is the duty of the third party and the intermediary to
ensure that strong safeguards are put in place so that there is no co-mingling
of information /documents, records and assets.
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70. General Guidelines for dealing with Conflicts of Interest of Intermediaries,
Recognised Stock Exchanges, Recognised Clearing Corporations, Depositories and
their Associated Persons in Securities Market.78
70.1. All intermediaries, recognized Stock Exchanges, recognised Clearing
Corporations and Depositories (hereinafter collectively referred to as "such
entities") are presently governed by the provisions for avoidance of conflict of
interest as mandated in the respective regulations read with relevant circulars
issued from time to time by SEBI. On the lines of Principle 8 of the
International Organisation of Securities Commissions (IOSCO) Objectives and
Principles of Securities Regulations, it has been decided to put in place
comprehensive guidelines to collectively cover such entities and their
associated persons, for elimination of their conflict of interest, as detailed
hereunder.
70.2. Such entities shall adhere to these guidelines for avoiding or dealing with or
managing conflict of interest. They shall be responsible for educating their
associated persons for compliance of these guidelines.
70.3. For the purpose of these guidelines "intermediaries" and "associated persons"
have the same meaning as defined in Securities and Exchange Board of India
(Certification of Associated Persons in the Securities Markets) Regulations,
2007.
70.4. Such entities and their associated persons shall,
70.4.1. lay down, with active involvement of senior management, policies and
internal procedures to identify and avoid or to deal or manage actual or
potential conflict of interest, develop an internal code of conduct
governing operations and formulate standards of appropriate conduct in
the performance of their activities, and ensure to communicate such
policies, procedures and code to all concerned;
70.4.2. at all times maintain high standards of integrity in the conduct of their
business;
70.4.3. ensure fair treatment of their clients and not discriminate amongst them;
70.4.4. ensure that their personal interest does not, at any time conflict with
their duty to their clients and client’s interest always takes primacy in
their advice, investment decisions and transactions;
70.4.5. make appropriate disclosure to the clients of possible source or potential
areas of conflict of interest which would impair their ability to render
78 Reference: Circular CIR/MIRSD/5/2013 dated August 27, 2013.
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भारतीय प्रततभूतत और वितिमय बोर्ड
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fair, objective and unbiased services;
70.4.6. endeavor to reduce opportunities for conflict through prescriptive
measures such as through information barriers to block or hinder the
flow of information from one department/ unit to another, etc.;
70.4.7. place appropriate restrictions on transactions in securities while
handling a mandate of issuer or client in respect of such security so as to
avoid any conflict;
70.4.8. not deal in securities while in possession of material non published
information;
70.4.9. not to communicate the material non published information while
dealing in securities on behalf of others;
70.4.10. not in any way contribute to manipulate the demand for or supply of
securities in the market or to influence prices of securities;
70.4.11. not have an incentive structure that encourages sale of products not
suiting the risk profile of their clients;
70.4.12. not share information received from clients or pertaining to them,
obtained as a result of their dealings, for their personal interest;
70.5. The Boards of such entities shall put in place systems for implementation of the
aforementioned guidelines and provide necessary guidance enabling
identification, elimination or management of conflict of interest situations. The
Boards shall review the compliance of the above guidelines periodically.
70.6. The said guidelines shall be in addition to the provisions, if any, contained in
respective regulations/ circulars issued by the Board from time to time
regarding dealing with conflict of interest, in respect of such entities.
71. Digital Mode of Payment79
71.1. SEBI has notified the SEBI (Payment of Fees and Mode of Payment)
(Amendment) Regulations, 2017 on March 06, 2017 to enable digital mode of
payment (RTGS/NEFT/IMPS etc.) of fees/penalties/remittance/other
payments etc.
71.2. Pursuant to above, SEBI has been receiving direct credit of amounts from
various intermediaries / other entities.
79 Reference: Circular SEBI/HO/GSD/T&A/CIR/P/2017/42 dated May 16, 2017.
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71.3. In order to identify and account such direct credit in the SEBI account,
intermediaries / other entities shall provide the information as mentioned in
Annexure below to SEBI once the payment is made.
71.4. The above information should be emailed to the respective department(s) as
well as to Treasury & Accounts division at tad@sebi.gov.in.
ANNEXURE
Date Depart Name of Type of SEBI PAN Amount Purpose of Bank UTR
ment of Intermedi Interme Registratio (Rs) Payment name No.
SEBI ary / diary n No. (If (including and
Other any) the period Account
entities for which number
payment from
was made which
e.g. payment
quarterly, is
annually) remitted
72. Regulatory Framework for Commodity Derivatives Brokers80
72.1. As per Section 131(B) of Finance Act, 2015 all rules, directions, guidelines,
instructions, circulars, or any like instruments, made by the erstwhile Forward
Markets Commission (FMC) or the Central Government applicable to
recognized associations under the Forward Contracts (Regulation) Act, 1952
shall continue to remain in force for a period of one year from the date on
which the FCRA is repealed (September 29, 2015), or till such time as notified
by SEBI, whichever is earlier, as if the FCRA had not been repealed.
72.2. Erstwhile FMC issued various circulars/letters/ directions to exchanges
dealing in commodity derivatives for compliance by their members from time
to time. Consequent to merger of FMC with SEBI, it is important that
regulatory provisions for brokers across equity and commodity derivatives
markets be harmonized. Accordingly, regulatory provisions have been divided
into three parts as described below.
72.2.1. Part A contains details of FMC circulars which shall stand repealed and
relevant SEBI circulars which shall be applicable.
72.2.2. Part B contains details of FMC circulars contents/norms of which shall
continue as they are specific to commodity derivative markets.
80 Reference: Circular SEBI/HO/MIRSD/MIRSD2/CIR/P/2016/92 dated September 23, 2016
and Circular SEBI/HO/MIRSD/MIRSD1/CIR/P/2017/104 dated September 21, 2017.
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72.2.3. Part C contains details of FMC circulars which shall stand repealed.
72.3. Part A: Following FMC circulars shall stand repealed and relevant SEBI
circulars shall be applicable to all commodity derivatives exchanges including
regional commodity derivative exchanges for compliance by their members.
S. No. Subject FMC Circular being repealed SEBI circulars being made
applicable
i Segregation of Client No circular issued by FMC a) SMD/SED/CIR/93/23321
and Own Funds and dated Nov 18, 1993.
Securities b) MRD/DoP/SE/Cir-
11/2008 dated Apr 17,
2008.
ii Running Account a) FMC/4/2012/C/14 No. a) Clause 12 of Annexure A to
Settlement 1/2/2012/IR-I/Client- MIRSD/ SE /Cir-19/2009
Protect/ dated Feb 02, 2012. dated Dec 3, 2009.
b) FMC/4/2013/C/59 No. b) MIRSD /Cir/ 01/ 2011
1/2/2012/IR-I/Client- dated May 13, 2011.
Protect dated May 20, 2013.
c) No. 1/2/2012/IR-I/Client-
Protect dated Jun 25, 2013.
d) FMC/4/2014/C/121
FMC/2014/04/23-
Quarterly Settlement dated
Oct 17, 2014.
iii Requirements with a) No.IRD/Div/(1)FMCR/1/2 a) Clauses 6,8,14,15,16,18 and
respect to Financial 005 dated Feb 14, 2006. 19 of Annexure A to
Documents, PAN, b) Div. III/I/(53)/06/PAN MIRSD/ SE /Cir-19/2009
Inactive Clients etc. No. dated Nov 28, 2006. dated Dec 03, 2009.81
c) 9/3/2008-MKT-II dated Jan b) CIR/MIRSD/01 /2013
12, 2009. dated Jan 04, 2013.
d) No. 18/1/2007/MKT-III c) CIR/MIRSD/64/2016
dated Feb 11, 2008. dated Jul 12, 2016.
e) No. 9/1/2009-MKT-I dated For new client accounts.
Dec 07, 2009.
f) No. 9/12009-MKT-I dated
81 Words “Clauses 1 to 11 and Clauses 14 to 19 of Annexure A to MIRSD /SE/Cir-19/2009 dated Dec 3,
2009” replaced with “Clause 6,8,14,15,16,18 and 19 of Annexure A to MIRSD/SE/CIR-19/2009 dated
December 03, 2009” in view of Clauses 1,2,3,4,5,7,9,10,11 and 17 of SEBI Circular dated December
03, 2009, being incorporated in various provisions of SEBI Circular CIR/MIRSD/16/2011 dated
August 22, 2011 and FMC Circular FMC/4/2011/G/30 dated December 16, 2011 and Annexures
specified in these circulars.
172
भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
Aug 10, 2010.
iv In-Person Verification Part C of a) Para 3 of MIRSD/Cir- 26
FMC/4/2015/C/0015No. /2011 Dec 23, 2011.
FMC/COMPL/IV/KRA- b) Point 4 of Part
05/11/14 dated Mar 13, 2015. 'Instructions/Check List' of
Annexure 3 of Circular
CIR/MIRSD/16/2011
dated Aug 22, 2011.
v KRA FMC/4/2015/C/0015 No. a) MIRSD/Cir-23/2011 dated
FMC/COMPL/IV/KRA- Dec 2, 2011.
05/11/14 dated Mar 13, 2015 b) Para 1 of MIRSD/Cir- 26
/2011 dated Dec 23, 2011.
vi Anti-Money a) No.7/1/2008- MKT-II dated a) CIR/ISD/AML/3/2010
Laundering and Oct 30, 2009. dated Dec 31, 2010.
Maintenance of b) No.7/1/2008-MKT-II dated b) CIR/MIRSD/2/2013 dated
Records Jan 25, 2010. Jan 24, 2013.
c) No. 7/1/2008-MKT-II dated c) CIR/MIRSD/1/2014 dated
Aug 25, 2010. Mar 12, 2014.
d) FMC/4/2013/C/163; Div.
III / I/ 89 / 07 dated Dec
18, 2013.
e) No. 7/1/2013-MKT-1(A)
dated Feb 04, 2015.
vii Dealing in Cash FMC/2/2014/C/23 No. MRD/SE/Cir- 33/2003/27/08
9/1/2014 -MKT-I dated Mar 12, dated Aug 27, 2003.
2014.
viii Guidelines on Pre- FMC/4/2011/G/0010FMC/Co CIR/MIRSD/03/2011 dated
funded Instruments mplt/Circular dated Sep 27, Jun 9, 2011.
2011.
ix SMS and Email alerts a) FMC/4/2012/C/13 No. CIR/MIRSD/15/2011 dated
facility to clients FMC/IR-I/Client Aug 02, 2011.
protection/2012 dated Feb
02, 2012.
b) FMC/Complt/Circular
dated Jun 04, 2012.
c) No:IR (2)/5/2012/SMS-
Email dated Dec 07,2012.
d) No.IR(2)/5/2012/SMS-
Email dated Jan 21, 2013.
e) No.IR(2)/5/2012/SMS/Em
ail dated Mar 01, 2013.
f) No.IR(2)/5/2012/SMS/Em
ail dated Mar 06, 2013.
g) No.IR(2)/5/2012/SMS/Em
ail dated May 15, 2013.
173
भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
h) No.IR(2)/5/2012/SMS/E-
mail dated Jun 21, 2013.
x Contract Note a) No. 07/2008/COMP/LAD- a) SMDRP/Policy/Cir-
ENF/AD(SN)/6609 dated 56/2000 dated Dec 15,
Oct 27, 2009. 2000.
b) FMC/COMPL/IV/2010/03 b) SMD/SE/15/2003/29/04
/05/00011 dated Apr 19, dated Apr 29, 2003.
2011. c) MRD/DoP/SE/Cir-
c) Div.III/I/89/07 dated Mar 20/2005 dated Sep 8, 2005.
13, 2014. d) Clause 13 of Annexure A to
d) Div.III/I/89/07 dated Dec MIRSD/ SE /Cir-19/2009
24, 2014. dated Dec 3, 2009.
xi Exclusive e-mail ID No circular issued by FMC MRD/DoP/Dep/SE/Cir-
for redressel of 22/06 dated Dec 18, 2006.
Investor Complaints
xii Display of No circular issued by FMC a) Cir/MIRSD/ 9 /2010 dated
information such as Nov 4, 2010.
logo, registration b) CIR/MIRSD/3/2014 dated
number on notice Aug 28, 2014.
board and contract
note and investor
grievance redressal
mechanism on notice
board
xiii Internal Audit No circular issued by FMC Para 7 to 11 of circular
MIRSD/Master Cir-04/2010
dated Mar 17, 2010.
xiv Inspection of brokers a) No. Div./III/I/301/2011- a) Para 2 to 6 of circular
12/Audit dated Dec 23, MIRSD/Master Cir-
2011. 04/2010 dated Mar 17,
b) No. Div./III/I/104/2008- 2010.
09/Audit dated Feb 02, b) CIR/MIRSD/13/2012
2012. dated Dec 07, 2012.
c) FMC/1/2014/C/50No.Div.
III/I/300/2011-12/Audit
dated Apr 23, 2014.
d) FMC/1/2014/C/47 No.
FMC/1/2014/Audit/C
Dated Apr 23, 2014.
xv Change in control/ a) No.IRD-Div-III/1/143/10- a) MIRSD/MSS/Cir- 30/
constitution MR dated Aug 14, 2010. 13289/03 dated Jul 09,
b) Div:III/I/120/MR-2011/2 2003.
dated Apr 07, 2011. b) CIR/MIRSD/2/2011 dated
c) FMC/6/2011/C/0018 No. Jun 3, 2011.
Div.III/I/68/MR/General c) CIR/MIRSD/14/2011
174
भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
dated Sep 22, 2011. dated Aug 02, 2011.
d) FMC/6/2011/C/0019 No.
Div. III/I/157/10-MRDated
Sep 27, 2011.
e) FMC/4/2012/C/41 No.
Div. III/I/157/10-MR
dated Apr 04, 2012.
f) Div. III/I/10/MR dated
Apr 30, 2015.
xvi Procedure for a) FMC/6/2011/C/0018 No. MIRSD/MSS/Cir- 30/
surrender of Div.III/I/68/MR/General 13289/03 dated Jul 09, 2003.
membership dated Sep 22, 2011.
b) FMC/1/2014/C/146 dated
Dec 31, 2014.
c) No.Div.II/I/112/2015/Ref
und of Deposit dated Jan
19, 2015.
d) No. III/I/10/MR dated Jul
08, 2015.
xvii Guidelines on No circular issued by FMC CIR/MIRSD/24/2011 dated
Outsourcing of Dec 15, 2011.
Activities by
Intermediaries
xviii BPO/KPO services - No. S/1/2009/MD-I dated Mar a) Rule 8(1)(f) and 8(3)(f) of
Segregation thereof 28, 2011. SCRR, 1957.
from Commodity b) SMD/POLICY/CIR-6//97
Derivatives Market dated May 07, 1997.
xix Authorized Persons No.6/3/2008-MKT – II; a) MIRSD/ DR-1/ Cir- 16 /09
FMC/2/2012/G/3 dated Jan dated Nov 06, 2009.
11, 2012. b) Cir/MIRSD/AP/8/2010
dated Jul 23, 2010.
72.4. Part B: Following FMC circulars are specific to commodity derivatives market.
Contents/norms specified in following circulars shall continue to be in force
beyond September 28, 2016. Provisions of these circulars shall be applicable to
all commodity derivatives exchanges including regional commodity
derivatives exchanges for compliance by their members.
S. No. Subject FMC Circular No. and Date
i Account Opening Process a) No.-FMC/4/2011/G/30 Ref. No.: Div. III/I/89/07
dated Dec 16, 2011*.
b) Div.III/I/89/07 dated Aug 23, 2013.
c) F.No.FMC/COMPL/2013/10/30-FSLRC/FSDC dated
Mar 28, 2014.
d) Div.III/2/89/VOL IV dated Apr 23, 2014.
175
भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
e) No. FMC/COMPL/IV/KRA-05/11/14 dated Feb 26,
2015.
ii Customer Protection such No.FMC/Comp/VI/2009/04/06/114/5787 dated Sep 16,
as keeping evidence of 2009.
client placing order
iii Nomenclature of Stock a) 4/5/2005- M&S/MCX/Unit-II dated Apr 25, 2006.
brokers
iv Surrender of membership F.No.1/4/2009/MD-I dated Jul 20, 2009.
*All clauses to remain except to the extent as modified as described below. Annexure
- 3 (Rights and Obligations of Members, Authorized Persons and Clients) of Circular
No.-FMC/4/2011/G/30 Ref. No.: Div. III/I/89/07 dated Dec 16, 2011 is modified as
follows:
In Clause 30, for the words "in the Statement immediately but not later than 30
calendar days of receipt thereof, to the Member. A detailed statement of accounts
must be sent every month to all the clients in physical form. The proof of delivery of
the same should be preserved by the Member" the words "in the Statement within
such time as may be prescribed by the relevant Exchange from time to time where
the trade was executed, from the receipt thereof to the Stock broker" shall be
substituted.
In Clause 31, for the words "monthly", the words "daily" shall be substituted.
Para 3 C.A.iv which restricted seeking authorization through non-mandatory
documents for any adjustment of funds among securities (stock) exchange and
commodities exchange, will not be applicable, if such adjustment is within the same
broking entity.
72.5. Part C: Following FMC circulars shall stand repealed.
S. No. Subject FMC Circular No. and Date
i Segregation of Client Accounts in FMC/2/2011/C/0008; No.9/1/2011-MKT/I
Commodity Futures Exchange and dated Sep 26, 2011.
Spot Exchanges
ii Member to obtain FMC Unique Code No. IRD/Div./III/(1)/FMCR/1/2005 dated Oct
28, 2005.
iii Submission of networth certificate No. Div-III/I/122/10/MR dated Nov 22, 2010.
from the members
iv Nomenclature of Stock Brokers No. IRD-DIV-III/I/FCR-I/2009 dated Dec 21,
2009.
No. DIV-III/I/122/10/MR dated Jun 25, 2010.
6/3/2008-MKT –II dated Feb 18, 2011.
72.6. All commodity derivatives exchanges shall continue to levy penalties they are
176
भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
currently levying and any revision thereof shall be decided in consultation
with SEBI. Accordingly, FMC circulars dealing with penalties including
Uniform Penalty Circular dated Mar 05, 2010 shall stand repealed.
*****
177
भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
ANNEXURES TO SECTION II
Annexure - 1
ACCOUNT OPENING KIT
INDEX OF DOCUMENTS
S. No. Name of the Document Brief Significance of the Document Page No
MANDATORY DOCUMENTS AS PRESCRIBED BY SEBI & EXCHANGES
1 Account Opening Form A. KYC form - Document captures the basic information
about the constituent and an instruction/check list.
B. Document captures the additional information about the
constituent relevant to trading account and an
instruction/check list.
2 Document stating the Rights & Obligations of stock
broker/trading member, sub-broker and client for trading on
Rights and Obligations
exchanges (including additional rights & obligations in case
of internet/wireless technology based trading).
3 Risk Disclosure Document Document detailing risks associated with dealing in the
(RDD) securities market.
4 Guidance note Document detailing do’s and don’ts for trading on exchange,
for the education of the investors.
5 Policies and Procedures Document describing significant policies and procedures of
the stock broker (to be added by the stock broker).
6 Tariff sheet Document detailing the rate/amount of brokerage and other
charges levied on the client for trading on the stock
exchange(s) (to be added by the stock broker).
VOLUNTARY DOCUMENTS AS PROVIDED BY THE STOCK BROKER
7
8
Name of stock broker/trading member/clearing member: ----------------------------------------------------------------------------
SEBI Registration No. and date: ------------------------------------------------------------------------------------------------------------
Registered office address: -------------------------------------------------------------------------------------------------------------------
Ph: ------------------------ Fax: ----------------------- Website: ------------------------------------------------------------------------------
Correspondence office address: ------------------------------------------------------------------------------------------------------------
Ph: ------------------------ Fax: ----------------------- Website: ------------------------------------------------------------------------------
Compliance officer name, phone no. & email id: ---------------------------------------------------------------------------------------
CEO name, phone no. & email id: ----------------------------------------------------------------------------------------------------------
For any grievance/dispute please contact stock broker (name) at the above address or email id- xxx@email.com
and Phone no. 91-XXXXXXXXXX. In case not satisfied with the response, please contact the concerned
exchange(s) at xyz@email.com and Phone no. 91-XXXXXXXXXX.
CENTRAL KYC REGISTRY | Know Your Customer (KYC) Application Form | Individual
Important Instructions:
A) Fields marked with ‘*’ are mandatory fields. E) List of State / U.T code as per Indian Motor Vehicle Act, 1988 is available at the end.
B) Please fill the form in English and in BLOCK letters. F) List of two character ISO 3166 country codes is available at the end.
C) Please fill the date in DD-MM-YYYY format. G) KYC number of applicant is mandatory for update application.
D) Please read section wise detailed guidelines / instructions H) For particular section update, please tick ( ) in the box available before the
at the end. section number and strike off the sections not required to be updated.
For office use only Application Type* New Update
(To be filled by financial institution) KYC Number (Mandatory for KYC update request)
Acco u n t T y p e * Normal Simplified (for low risk customers) Small
1. PERSONAL DETAILS (Please refer instruction A at the end)
Prefix First Name Middle Name Last Name
Name* (Same as ID proof)
Maiden Name (If any*)
Father / Spouse Name*
Mother Name*
Date of Birth* D D M M Y Y Y Y
PHOTO
Gender* M- Male F- Female T-Transgender
Marital Status* Married Unmarried Others
Citizenship* IN- Indian Others (ISO 3166 Country Code )
Residential Status* Resident Individual Non Resident Indian
Foreign National Person of Indian Origin
Occupation Type* S-Service ( Private Sector Public Sector Government Sector )
O-Others ( Professional Self Employed Retired Housewife Student)
B-Business Signature / Thumb
X- Not Categorised Impression
2. TICK IF APPLICABLE RESIDENCE FOR TAX PURPOSES IN JURISDICTION(S) OUTSIDE INDIA (Please refer instruction B at the end)
ADDITIONAL DETAILS REQUIRED* (Mandatory only if section 2 is ticked)
ISO 3166 Country Code of Jurisdiction of Residence*
Tax Identification Number or equivalent (If issued by jurisdiction)*
Place / City of Birth* ISO 3166 Country Code of Birth*
3. PROOF OF IDENTITY (PoI)* (Please refer instruction C at the end)
(Certified copy of any one of the following Proof of Identity[PoI] needs to be submitted)
A- Passport Number Passport Expiry Date D D M M Y Y Y Y
B- Voter ID Card
C- PAN Card
D- Driving Licence Driving Licence Expiry Date D D M M Y Y Y Y
E- UID (Aadhaar)
F- NREGA Job Card
Z- Others (any document notified by the central government) Identification Number
S- Simplified Measures Account - Document Type cod e Identification Number
4. PROOF OF ADDRESS (PoA)*
4.1 CURRENT / PERMANENT / OVERSEAS ADDRESS DETAILS (Please see instruction D at the end)
(Certified copy of any one of the following Proof of Address [PoA] needs to be submitted)
Address Type* Residential / Business Residential Business Registered Office Unspecified
Proof of Address* Passport Driving Licence UID (Aadhaar)
Voter Identity Card NREGA Job Card Others please specify
Simplified Measures Account - Document Type code
Address
Line 1*
Line 2
Line 3 City / Town / Village*
District* Pin / Post Code* State / U.T Code* ISO 3166 Country Code*
4.2 CORRESPONDENCE / LOCAL ADDRESS DETAILS * (Please see instruction E at the end)
Same as Current / Permanent / Overseas Address details (In case of multiple correspondence / local addresses, please fill ‘Annexure A1’)
Line 1*
Line 2
Line 3 City / Town / Village*
District* Pin / Post Code* State / U.T Code* ISO 3166 Country Code*
4.3 ADDRESS IN THE JURISDICTION DETAILS WHERE APPLICANT IS RESIDENT OUTSIDE INDIA FOR TAX PURPOSES* (Applicable if section 2 is ticked)
Same as Current / Permanent / Overseas Address details Same as Correspondence / Local Address details
Line 1*
Line 2
Line 3 City / Town / Village*
State* ZIP / Post Code* ISO 3166 Country Code*
5. CONTACT DETAILS (All communications will be sent on provided Mobile no. / Email-ID) (Please refer instruction F at the end)
Tel. (Off) Tel. (Res) Mobile
FAX Email ID
6. DETAILS OF RELATED PERSON (In case of additional related persons, please fill ‘Annexure B1’ ) (please refer instruction G at the end)
Addition of Related Person Deletion of Related Person KYC Number of Related Person (if available*)
Related Person Type* Guardian of Minor Assignee Authorized Representative
Prefix First Name Middle Name Last Name
Name*
(If KYC number and name are provided, below details of section 6 are optional)
PROOF OF IDENTITY [PoI] OF RELATED PERSON* (Please see instruction (H) at the end)
A- Passport Number Passport Expiry Date D D M M Y Y Y Y
B- Voter ID Card
C- PAN Card
D- Driving Licence Driving Licence Expiry Date D D M M Y Y Y Y
E- UID (Aadhaar)
F- NREGA Job Card
Z- Others (any document notified by the central government) Identification Number
S- Simplified Measures Account - Document Type cod e Identification Number
7. REMARKS (If any)
8. APPLICANT DECLARATION
I hereby declare that the details furnished above are true and correct to the best of my knowledge and belief and I under t a k e to inform you of any changes
therein, immediately. In case any of the above information is found to be false or untrue or misleading or misrepresenting, I am aware that I may be held liable
for it. [Signature / Thumb Impression]
I hereby consent to receiving information from Central KYC Registry through SMS/Email on the above registered number/email address.
Date : D D M M Y Y Y Y Place : Signature / Thumb Impression of Applicant
9. ATTESTATION / FOR OFFICE USE ONLY
Documents Received C ertified Copies
KYC VERIFICATION CARRIED OUT BY INSTITUTION DETAILS
Date D D M M Y Y Y Y Name
Emp. Name Code
Emp. Code
Emp. Designation
Emp. Branch
[Institution Stamp]
[Employee Signature]
CENTRAL KYC REGISTRY | Instructions / Check list / Guidelines for filling Individual KYC Application Form
General Instructions:
1 Fields marked with ‘*’ are mandatory fields.
2 Tick ‘’ wherever applicable.
3 Self-Certification of documents is mandatory.
4 Please fill the form in English and in BLOCK Letters.
5 Please fill all dates in DD-MM-YYYY format.
6 Wherever state code and country code is to be furnished, the same should be the two-digit code as per Indian Motor Vehicle, 1988 and ISO 3166 country code
respectively list of which is available at the end.
7 KYC number of applicant is mandatory for updation of KYC details.
8 For particular section update, please tick () in the box available before the section number and strike off the sections not required to be updated.
9 In case of ‘Small Account type’ only personal details at section number 1 and 2, photograph, signature and self-certification required.
A Clarification / Guidelines on filling ‘Personal Details’ section
1 Name: Please state the name with Prefix (Mr/Mrs/Ms/Dr/etc.). The name should match the name as mentioned in the Proof of Identity submitted failing which the
application is liable to be rejected.
2 Either father’s name or spouse’s name is to be mandatorily furnished. In case PAN is not available father’s name is mandatory.
B Clarification / Guidelines on filling details if applicant residence for tax purposes in jurisdiction(s) outside India
1 Tax identification Number (TIN): TIN need not be reported if it has not been issued by the jurisdiction. However, if the said jurisdiction has issued a high integrity
number with an equivalent level of identification (a “Functional equivalent”), the same may be reported. Examples of that type of number for individual include, a social
security/insurance number, citizen/personal identification/services code/number, and resident registration number)
C Clarification / Guidelines on filling ‘Proof of Identity [PoI]’ section
1 If driving license number or passport is provided as proof of identity then expiry date is to be mandatorily furnished.
2 Mention identification / reference number if ‘Z- Others (any document notified by the central government)’ is ticked.
3 In case of Simplified Measures Accounts for verifying the identity of the applicant, any one of the following documents can also be submitted and undernoted relevant
code may be mentioned in point 3 (S).
Document Code Description
01 Identity card with applicant’s photograph issued by Central/ State Government Departments, Statutory/ Regulatory Authorities, Public Sector
Undertakings, Scheduled Commercial Banks, and Public Financial Institutions.
02 Letter issued by a gazetted officer, with a duly attested photograph of the person.
D Clarification / Guidelines on filling ‘Proof of Address [PoA] - Current / Permanent / Overseas Address details’ section
1 PoA to be submitted only if the submitted PoI does not have an address or address as per PoI is invalid or not in force.
2 State / U.T Code and Pin / Post Code will not be mandatory for Overseas addresses.
3 In case of Simplified Measures Accounts for verifying the address of the applicant, any one of the following documents can also be submitted and undernoted relevant
code may be mentioned in point 4.1.
Document Code Description
01 Utility bill which is not more than two months old of any service provider (electricity, telephone, post-paid mobile phone, piped gas, water
bill).
02 Property or Municipal Tax receipt.
03 Bank account or Post Office savings bank account statement.
04 Pension or family pension payment orders (PPOs) issued to retired employees by Government Departments or Public Sector Undertakings, if
they contain the address.
05 Letter of allotment of accommodation from employer issued by State or Central Government departments, statutory or regulatory bodies,
public sector undertakings, scheduled commercial banks, financial institutions and listed companies. Similarly, leave and license agreements
with such employers allotting official accommodation.
06 Documents issued by Government departments of foreign jurisdictions and letter issued by Foreign Embassy or Mission in India.
E Clarification / Guidelines on filling ‘Proof of Address [PoA] - Correspondence / Local Address details’ section
1 To be filled only in case the PoA is not the local address or address where the customer is currently residing. No separate PoA is required to be submitted.
2 In case of multiple correspondence / local addresses, Please fill ‘Annexure A1’
F Clarification / Guidelines on filling ‘Contact details’ section
1 Please mention two- digit country code and 10 digit mobile number (e.g. for Indian mobile number mention 91-9999999999).
2 Do not add ‘0’ in the beginning of Mobile number.
G Clarification / Guidelines on filling ‘Related Person details’ section
1 Provide KYC number of related person if available.
H Clarification / Guidelines on filling ‘Related Person details – Proof of Identity [PoI] of Related Person’ section
1 Mention identification / reference number if ‘Z- Others (any document notified by the central government)’ is ticked.
List of two – digit state / U.T codes as per Indian Motor Vehicle Act, 1988
State / U.T Code State / U.T Code State / U.T Code
Andaman & Nicobar AN Himachal Pradesh HP Pondicherry PY
Andhra Pradesh AP Jammu & Kashmir JK Punjab PB
Arunachal Pradesh AR Jharkhand JH Rajasthan RJ
Assam AS Karnataka KA Sikkim SK
Bihar BR Kerala KL Tamil Nadu TN
Chandigarh CH Lakshadweep LD Telangana TS
Chattisgarh CG Madhya Pradesh MP Tripura TR
Dadra and Nagar Haveli DN Maharashtra MH Uttar Pradesh UP
Daman & Diu DD Manipur MN Uttarakhand UA
Delhi DL Meghalaya ML West Bengal WB
Goa GA Mizoram MZ Other XX
Gujarat GJ Nagaland NL
Haryana HR Orissa OR
List of ISO 3166 two- digit Country Code
Country Country Country Country Country Country Country Country
Code Code Code Code
Afghanistan AF Dominican Republic DO Libya LY Saint Pierre and Miquelon PM
Aland Islands AX Ecuador EC Liechtenstein LI Saint Vincent and the Grenadines VC
Albania AL Egypt EG Lithuania LT Samoa WS
Algeria DZ El Salvador SV Luxembourg LU San Marino SM
American Samoa AS Equatorial Guinea GQ Macao MO Sao Tome and Principe ST
Andorra AD Eritrea ER Macedonia, the former Yugoslav Republic MK Saudi Arabia SA
of
Angola AO Estonia EE Madagascar MG Senegal SN
Anguilla AI Ethiopia ET Malawi MW Serbia RS
Antarctica AQ Falkland Islands (Malvinas) FK Malaysia MY Seychelles SC
Antigua and Barbuda AG Faroe Islands FO Maldives MV Sierra Leone SL
Argentina AR Fiji FJ Mali ML Singapore SG
Armenia AM Finland FI Malta MT Sint Maarten (Dutch part) SX
Aruba AW France FR Marshall Islands MH Slovakia SK
Australia AU French Guiana GF Martinique MQ Slovenia SI
Austria AT French Polynesia PF Mauritania MR Solomon Islands SB
Azerbaijan AZ French Southern Territories TF Mauritius MU Somalia SO
Bahamas BS Gabon GA Mayotte YT South Africa ZA
Bahrain BH Gambia GM Mexico MX South Georgia and the South Sandwich GS
Islands
Bangladesh BD Georgia GE Micronesia, Federated States of FM South Sudan SS
Barbados BB Germany DE Moldova, Republic of MD Spain ES
Belarus BY Ghana GH Monaco MC Sri Lanka LK
Belgium BE Gibraltar GI Mongolia MN Sudan SD
Belize BZ Greece GR Montenegro ME Suriname SR
Benin BJ Greenland GL Montserrat MS Svalbard and Jan Mayen SJ
Bermuda BM Grenada GD Morocco MA Swaziland SZ
Bhutan BT Guadeloupe GP Mozambique MZ Sweden SE
Bolivia, Plurinational State of BO Guam GU Myanmar MM Switzerland CH
Bonaire, Sint Eustatius and Saba BQ Guatemala GT Namibia NA Syrian Arab Republic SY
Bosnia and Herzegovina BA Guernsey GG Nauru NR Taiwan, Province of China TW
Botswana BW Guinea GN Nepal NP Tajikistan TJ
Bouvet Island BV Guinea-Bissau GW Netherlands NL Tanzania, United Republic of TZ
Brazil BR Guyana GY New Caledonia NC Thailand TH
British Indian Ocean Territory IO Haiti HT New Zealand NZ Timor-Leste TL
Brunei Darussalam BN Heard Island and McDonald Islands HM Nicaragua NI Togo TG
Bulgaria BG Holy See (Vatican City State) VA Niger NE Tokelau TK
Burkina Faso BF Honduras HN Nigeria NG Tonga TO
Burundi BI Hong Kong HK Niue NU Trinidad and Tobago TT
Cabo Verde CV Hungary HU Norfolk Island NF Tunisia TN
Cambodia KH Iceland IS Northern Mariana Islands MP Turkey TR
Cameroon CM India IN Norway NO Turkmenistan TM
Canada CA Indonesia ID Oman OM Turks and Caicos Islands TC
Cayman Islands KY Iran, Islamic Republic of IR Pakistan PK Tuvalu TV
Central African Republic CF Iraq IQ Palau PW Uganda UG
Chad TD Ireland IE Palestine, State of PS Ukraine UA
Chile CL Isle of Man IM Panama PA United Arab Emirates AE
China CN Israel IL Papua New Guinea PG United Kingdom GB
Christmas Island CX Italy IT Paraguay PY United States US
Cocos (Keeling) Islands CC Jamaica JM Peru PE United States Minor Outlying Islands UM
Colombia CO Japan JP Philippines PH Uruguay UY
Comoros KM Jersey JE Pitcairn PN Uzbekistan UZ
Congo CG Jordan JO Poland PL Vanuatu VU
Congo, the Democratic Republic of CD Kazakhstan KZ Portugal PT Venezuela, Bolivarian Republic of VE
the
Cook Islands CK Kenya KE Puerto Rico PR Viet Nam VN
Costa Rica CR Kiribati KI Qatar QA Virgin Islands, British VG
Cote d'Ivoire !Côte d'Ivoire CI Korea, Democratic People's Republic KP Reunion !Réunion RE Virgin Islands, U.S. VI
of
Croatia HR Korea, Republic of KR Romania RO Wallis and Futuna WF
Cuba CU Kuwait KW Russian Federation RU Western Sahara EH
Curacao !Curaçao CW Kyrgyzstan KG Rwanda RW Yemen YE
Cyprus CY Lao People's Democratic Republic LA Saint Barthelemy !Saint Barthélemy BL Zambia ZM
Czech Republic CZ Latvia LV Saint Helena, Ascension and Tristan da SH Zimbabwe ZW
Cunha
Denmark DK Lebanon LB Saint Kitts and Nevis KN
Djibouti DJ Lesotho LS Saint Lucia LC
Dominica DM Liberia LR Saint Martin (French part) MF
CEN4.T3R AADLD KRYECSS R IENG TIHSET RJUY R |I SInDsItCrTuIcOtiNo nDsE /T ACIhLeSc Wk HlisEtR /E G AuPidPeLlIiCnAeNs Tfo ISr fRillEinSgID EKNnTo wO UYToSuIrD CEu IsNtDoImA eFrO (RK YTACX) APpUpRlPicOaStioEnS *F (oArpmplicable if Section 2 is ticked )
Annex ure A1
GeneSraal mInes tarus cCtiuornres:n t / Permanent / Overseas Address details (In case of multiple correspondence / local addresses, please fill ‘Annexure A1’)
1L Ci nFEiee lNd1sT* mR a A r kL e dK wYitCh ‘*R’aEreG mISanTdRatYor y |f iKeldnso.w Your Customer (KYC) Application Form | Individual | Correspondence / Local Address
2 Tick ( ) wherever applicable.
LIminpeo 2r t a n t Instructions:
3 Self-Certification form is mandatory.
4LA i )nP Feleie a3lsd es f mi ll a t hr ke e fdo rwmit hin ‘ *E’ nagreli smh aanndda itno rByL fOieCldKs. Letters. E) List of State / U.T code as per Indian Motor Vehic C le i t A y c / t , T 1 o 9 w 88 n i s / a V v i a ll i a la g b e le * at the end.
5B )P Pleleaasese f ilfli lal tllh dea ftoersm in in D EDn-gMliMsh-Y aYnYdY in f oBrLmOaCt.K letters. F) List of two character ISO 3166 country codes is available at the end.
State / U.T Code* Pin / Post Code* ISO 3166 Country Code*
6C )W Phleearesvee fri lsl ttahtee dcaotdee i na nDdD c-MouMnt-rYyY cYoYde f oisrm toa tb.e furnished, the sameG s)h KouYlCd bneu mthbee trw oof- daipgpitl iccoadnet iass m paenr dInadtoiaryn fMoro utoprd Vaeteh iacplep, li1c9a8ti8o na.nd ISO 3166 country code respectively.
7 D ) L P is l t e o a f s S e t a re te a / d U s .T e c c t o io d n e w as is e p e d r e I t n a d il i e a d n g M u o id to e r l in V e e s h i / c l i e n s A tr c u t c 1 ti 9 o 8 n 8 s is availaHb)l eF oart tphaer teicnudlar section update, please tick ( ) in the box available before the
8 List5 o. f CtwOo NchTaAraCcTte rD ISEOTA-3I1L6S6 c(oAulln ctorym cmoduensic aist iaovnasi lwabilll eb ea ts tehnet eonnd p.rovided Mobile no. \ Email-ID) (Please refer instruction F at the end))
at the end. section number and strike off the sections not required to be updated.
9 KYC number of applicant is mandatory for update application at the end.
Tel. (Off) Tel. (Res) Mobile
10 For particular section update, please tick ((cid:31)) in the box available before the section number and strike off the sections not required to be updated.
1F1A XIn c a s e o f ‘S m all Account type’ only personal details at section nuEmmbeari l1 I Dan d 2, photograph, signature and self-certification required.
For office use only Application Type* New Update
A ( . T C o l a b9r e.i f i f cAil a lePti d oP n bL/ y gI Cf u in iAd a eNn li cTn ia e Dl s i nEo s nCt i f tLi u llAt i i n oRg n A) ‘PTe KIrOY soNC n a N l D u e m ta b il e s r ’ section (Mandatory for KYC update request)
1 Name: Please state the name with Prefix (Mr/Mrs/Ms/Dr/etc.). The name should match the name as mentioned in the Proof of Identity submitted failing which the application is liable to
be Ir heejerectbeyd d.eclare that the details furnished above are true and correct to the best of my/our knowledge and belief and I undertake to inform you of any changes therein, immediately.
2 EithIne cr afaseth aenry’s o nf athmee a obor vsep oinufosrem’sa tnioanm ies fiosu tnod b teo bmea fnadlsaet oorri luyn ftururnei sohr emdis. lIena dciansge o Pr AmNis riesp nreost eanvtainigla, bI laem fa/wthee ar’rse naawmaree itsh amt aI/nwdea mtoaryy .be held liable for it.
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ILS (Please see instruction E at the end)
B. ClaSraifmicaet iaosn C/guurirdeenlitn /e Ps eornm failnlienngt d/ eOtavielsr sief aaps pAlidcdarnets rse sdiedteanilcse for tax purposes in jurisdiction(s) outside India
I hereby consent to receiving information from Central KYC Registry through SMS/Email on the above registered number/email address
1L i nJuer is1d*i c t io n ( s) of Residence: It may be mentioned that since US taxes the global income of its citizen, every US citizen if whatever nationality, is also a resident for tax purpose in USA.
2 Tax identification Number (TIN): In the footnote it may be mentioned that TIN need not be reported if it has not been issued by the jurisdiction. However, if the said jurisdiction has issued
LD i an bytee h 2 ig: h in D t e g Drity numMbeMr with aYn eYquivYaleYnt level of identification (a “Functional equivalent”), the same may be reported. Examples of that type o[Sf ignnuamtubree r/ Tfohru minbd iIvmidprueasls iionnc]lude, a social
LP i lnsaeecce u3 r: it y /i n s u rance number, citizen/personal identification/services code/number, and resident registration number) City / Town / Village*
Signature / thumb Impression of Applicant
District* Pin / Post Code* State / U.T Code* ISO 3166 Country Code*
C.Clarification/guidelines on filling ‘Proof of Identity’ section
10. ATTESTATION / FOR OFFICE USE ONLY
1 If driving license number or passport is provided as proof of identity then Expiry date is to be mandatorily furnished.
2. CONTACT DETAILS (All communications will be sent on provided Mobile no./ Email-ID) (Please refer instruction F at the end)
2 Mention identification / reference number if ‘Z- Others (any document notified by the central government)’ is ticked.
Documents Received Self-Certified True Copies Notary
Tel. (Off) Tel. (Res) Mobile
DR. Cislakr Cifiacatetigoonr/yg u i d e l i n e s on filling ‘HPirgohof of Address [PoAM] -e Cduiurrment / Permanent / OversLeoaws Address details’ section
1F.A PXo A t o b e s u b mitted in only if the submitted PoI does not have an Eamddareils IsD o r address as per PoI is invalid or not in force.
IN PERSON VERIFICATON DETAILS IN PERSON VERIFICATON DETAILS
E. Clarification/guidelines on filling ‘Proof of Address [PoA] - Correspondence / Local Address details’ section
3. APPLICANT DECLARATION
1 I dToe nbteit yfil lVede rinif iconaltyio inn c a s e the PoA isD noont tehe local address or address where the customer isN caumrree n t l y residing. No separate PoA is required to be submitted.
2 In cI ahesreeb oyf d meculalrteip tlhea tc toherr deestapiolsn fudreninshceed /a lboocvae la ared tdruree sasnde sco, rPrelcet atos eth efi lbl e‘sAt nonf meyx uknreow Ale1d’ge and belief and I undertake to inform you of any changes
Date Code
therein, immediately. In case any of the above information is found to be false or untrue or misleading or misrepresenting, I am aware that I may be held
F.E Cmlalpirai.bf liNec faaotrm iiot.en / g u i d e l i n e s o n f i l l i n g ‘Contact details’ section
1 Please mention two- digit country code and 10 digit mobile number (e.g. for Indian mobile number mention 91-9999999999). [Signature / Thumb Impression]
Emp. Code
2 Do not add ‘0’ in the beginning of Mobile number.
EDmatpe. D:esiDgnaDtion M M Y Y Y Y Place : Signature / Thumb Impression of Applicant
G. Clarification/guidelines on filling ‘Related Person details section
Emp. Branch
1 Provide KYC number of related person if available.
[Institution Stamp]
H. Clarification/guidelines on filling ‘Related Person details – Proof of Identity [PoI] section
1 In case of nominees, proof of identity is not required.
[Employee Signature]
2 Mention identification / reference number if ‘Z- Others (any document notified by the central government)’ is ticked.
CEN4.T3R AADLD KRYECSS R IENG TIHSET RJUY R |I SInDsItCrTuIcOtiNo nDsE /T ACIhLeSc Wk HlisEtR /E G AuPidPeLlIiCnAeNs Tfo ISr fRillEinSgID EKNnTo wO UYToSuIrD CEu IsNtDoImA eFrO (RK YTACX) APpUpRlPicOaStioEnS *F (oArpmplicable if Section 2 is ticked )
Annex ure B1
GeneSraal mInes tarus cCtiuornres:n t / Permanent / Overseas Address details (In case of multiple correspondence / local addresses, please fill ‘Annexure A1’)
1L Ci nFEiee lNd1sT* mR a A r kL e dK wYitCh ‘*R’aEreG mISanTdRatYor y |f iKeldnso.w Your Customer (KYC) Application Form | Individual | Related Person
2 Tick ( ) wherever applicable.
LIminep o2r t a n t Instructions:
3 Self-Certification form is mandatory.
4L A i nP) elFei ae 3sld e s f im ll at hr ek e fdo rwmi tihn ‘E*’ nagrleis mh aanndda into BryL fOieCldKs .Letters. E) List of State / U.T code as per Indian Motor Vehi C cle it y A c / t , T 1 o 9 w 88 n is / V av il a la ila g b e le * at the end.
5B P) lPelaesaes efi lfl iall ltl hdea tfeosrm in i nD DEn-MglMis-hY aYnYdY i nfo BrmLOatC.K letters. F) List of two character ISO 3166 country codes is available at the end.
State / U.T Code* Pin / Post Code* ISO 3166 Country Code*
6C W) Phleeraesvee rf isll ttahtee dcoadtee iann DdD c-oMuMnt-rYy YcoYdYe f oisr mtoa bt.e furnished, the same Gsh) oKuYldC b neu tmheb etwr oo-f daigpipt lcicoadnet aiss m paenr dInadtoiarny Mfoor tuopr dVaethei calpep, l1ic9a8t8io ann.d ISO 3166 country code respectively.
7 D L ) i P st l e o a f s S e t a re te a /U d . s T e c c o ti d o e n a w s is p e e d r e In ta d i i l a e n d M gu o i t d o e r li V n e e h s i c / l i e n s A t c ru t c 1 t 9 io 8 n 8 s i s availaHb)le F aotr tphaer eticnudlar section update, please tick ( ) in the box available before the
8 List5 o. f CtwOo NchTaAraCcTte rD ISEOTA-3I1L6S6 c(oAulln ctorym cmoduensic aist iaovnasi lwabilll eb ea ts tehnet eonnd p.rovided Mobile no. \ Email-ID) (Please refer instruction F at the end))
.at the end. section number and strike o f the sections not required to be updated.
9 KYC number of applicant is mandatory for update application at the end.
Tel. (Off) Tel. (Res) Mobile
10 For particular section update, please tick ((cid:31)) in the box available before the section number and strike off the sections not required to be updated.
1F1 F A o XIn r c o a s f f e i c o e f ‘ S u m s a e ll A o c n c l o y unt type’ only pe A rs p o p n l a ic l a de ti t o a n ils T a y t p se e c * tion nuEmmN beae ri wl1 I Da n d 2 , U ph p o d to a g t r e a p h , s ig nature and self -certification required.
A(. TCol a9 bre .i f ifcA ilal P etidoP nb L/ygI Cufiin AdaeN nlic Tniea Dsl i EonsnC t ifL tiullA tiino Rgn A )‘PTeK IrOsYoN Cna Nl Duemtabilesr’ section (Mandatory for KYC update request)
1 Name: Please state the name with Prefix (Mr/Mrs/Ms/Dr/etc.). The name should match the name as mentioned in the Proof of Identity submitted failing which the application is liable to
be Ir heejerectbeyd d.eclare that the details furnished above are true and correct to the best of my/our knowledge and belief and I undertake to inform you of any changes therein, immediately.
1. DETAILS OF RELATED PERSON (Please refer instruction G at the end)
2 EithIne cr afaseth aenry’s o nf athmee a obor vsep oinufosrem’sa tnioanm ies fiosu tnod b teo bmea fnadlsaet oorri luyn ftururnei sohr emdis. lIena dciansge o Pr AmNis riesp nreost eanvtainigla, bI laem fa/wthee ar’rse naawmaree itsh amt aI/nwdea mtoaryy .be held liable for it.
AI wddoiutilodn l iokfe Rtoe slahtaerde Pmeyr spoenrs o n a l / K DYeCle dteiotani l so wf Rithe lCaetendtr aPl eKrYsCon R egistry KYC Number of Related Person (if available*)
B. Clarification/guidelines on filling details if applicant residence for tax purposes in jurisdiction(s) outside India
RelaI theedre Pbye rcsoonsne nTty tpo ere*ceiving inform aGtiuona rfrdoima nC eonf trMali nKoYrC Registry through SMASs/sEimgnaiel oen the above registered nAuumthbeorr/eizmeadil Radedprersessentative
1 Jurisdiction (s) of Residence: It may be mentioned that since US taxes the global income of its citizen, every US citizen if whatever nationality, is also a resident for tax purpose in USA.
Prefix First Name Middle Name Last Name
2 Tax identification Number (TIN): In the footnote it may be mentioned that TIN need not be reported if it has not been issued by the jurisdiction. However, if the said jurisdiction has issued
DN aabytme h e ig:*h inDtegDrity numMbeMr with aYn eYquivYaleYnt level of identification (a “Functional equivalent”), the same may be reported. Examples of that type o[Sf ignnuamtubree r/ Tfohru minbd iIvmidprueasls iionnc]lude, a social
P lsaecceu r:ity/insurance number, citize(nI/fp KeYrsCo nnaulm idbeenrt iafincda tnioanm/see ravriec epsr ocvoiddeed/n, ubmelboewr, daentda irlse soifd seenct trieogni s1t raarteio onp ntiuomnable)r)
Signature / thumb Impression of Applicant
C.ClaPriRfiOcaOtiFo n O/gFu IiDdeElNinTeIsT Yo n(P foilIl)i nOgF ‘ PRrEoLoAf ToEf DId PenEtRitSyO’ sNe*c t(iPonlease see instruction (H) at the end)
10. ATTESTATION / FOR OFFICE USE ONLY
1 If driving license number or passport is provided as proof of identity then Expiry date is to be mandatorily furnished.
2 Me A nt - io P n a id s e s n p tif o ic r a t ti N on u / m re b fe e r r e n c e n u m b e r if ‘Z - O t h ers (any document notified by the central governmen P t)’ a is s s tic p k o e r d t . Expiry Date D D M M Y Y Y Y
Documents Received Self-Certified True Copies Notary
B- Voter ID Card
DR. Cislakr Cifiacatetigoonr/yg u i d e l i n e s on filling ‘HPirgohof of Address [PoAM] -e Cduiurrment / Permanent / OversLeoaws Address details’ section
1. PoCA -t oP bAeN s uCbmaritdte d in only if the submitted PoI does not have an address or address as per PoI is inva l id o r n o t in force.
D- Driving LicenINc ePERSON VERIFICATON DETAILS Driving LiceInNc PeE ERxSpOiNry V DERatIFeI C A D T O ND DETAMILSM Y Y Y Y
E. Clarification/guidelines on filling ‘Proof of Address [PoA] - Correspondence / Local Address details’ section
1 I dToe nEbte-it yfUil lVeIDde r ini(fA icoanaldtyio hinna ca a r s ) e the PoA isD noont tehe local address or address where the customer isN caumrree n t l y residing. No separate PoA is required to be submitted.
2 In case of multiple correspondence / local addresses, Please fill ‘Annexure A1’
DatFe - N R E G A J o b C a r d Code
F.E CmlaZpri.-f iNOcaattmhioeenr /s g u( ai dn e y l i nd eo sc uo m n e f in l lt i nn go t‘iCfieodn tbayc tt hdeet caeilsn’t rsael cgtoiovnernment) Identification Number
1 Please mention two- digit country code and 10 digit mobile number (e.g. for Indian mobile number mention 91-9999999999).
EmSp.- CSoimdep l if ie d M e a s ures Account - Document Type cod e Identification Number
2 Do not add ‘0’ in the beginning of Mobile number.
Emp. Designation
G. Cla2r.i f iAcaPtiPonL/gICuiAdeNliTne Ds EonC fLilAlinRgA ‘RTeIlOatNed Person details section
Emp. Branch
1 Provide KYC number of related person if available.
I hereby declare that the details furnished above are true and correct to the best of my knowledge and belief and I undertake to inform you of any changes [Institution Stamp]
therein, immediately. In case any of the above information is found to be false or untrue or misleading or misrepresenting, I am aware that I may be held
H. Claliarbifleic foart iito.n/guidelines on filling ‘Related Person details – Proof of Identity [PoI] section
[Signature / Thumb Impression]
1 In case of nominees, proof of identity is not required.
[Employee Signature]
2 Mention identification / reference number if ‘Z- Others (any document notified by the central government)’ is ticked.
Date : D D M M Y Y Y Y Place : Signature / Thumb Impression of Applicant
3. ATTESTATION / FOR OFFICE USE ONLY
Documents Received C ertified Copies
KYC VERIFICATION CARRIED OUT BY INSTITUTION DETAILS
Date D D M M Y Y Y Y Name
Emp. Name Code
Emp. Code
Emp. Designation
Emp. Branch
[Institution Stamp]
[Employee Signature]
KNOW YOUR CLIENT (KYC) APPLICATION FORM
For Non-Individuals
PHOTOGRAPH
Please fill this form in ENGLISH and in BLOCK LETTERS.
Please affix the
A. IDENTITY DETAILS recent passport
size photographs
1. Name of the Applicant: ________________________________________________________________ and sign across it
2. Date of incorporation: _______________(dd/mm/yyyy) & Place of incorporation: ________________
3. Date of commencement of business: ______________________________________________________ (dd/mm/yyyy)
4. a. PAN: _______________________________ b. Registration No. (e.g. CIN): _________________________________
5. Status (please tick any one):
Private Limited Co./Public Ltd. Co./Body Corporate/Partnership/Trust/Charities/NGO’s/FI/ FII/HUF/AOP/ Bank/Government
Body/Non-Government Organization/Defense Establishment/BOI/Society/LLP/ Others (please specify) _______________
B. ADDRESS DETAILS
1. Address for correspondence: ________________________________________________________________________
_________ City/town/village: _____________ Pin Code: _________ State: ______________ Country: _______________
2. Contact Details: Tel. (Off.) _______ Tel. (Res.) _______ Mobile No.: ________ Fax: ___________ Email id: __________
3. Specify the proof of address submitted for correspondence address: ______________________________________
4. Registered Address (if different from above): ____________________________________________________________
_________ City/town/village: _____________ Pin Code: _________ State: _____________ Country: ________________
C. OTHER DETAILS
1. Name, PAN, residential address and photographs of Promoters/Partners/Karta/Trustees and whole time directors:
_________________________________________________________________________________________________
2. a) DIN of whole time directors: _______________________________________________________________________
b) Aadhaar number of Promoters/Partners/Karta:______________________________________________
DECLARATION
I/We hereby declare that the details furnished above are true and correct to the best of my/our knowledge and belief and I/we
undertake to inform you of any changes therein, immediately. In case any of the above information is found to be false or
untrue or misleading or misrepresenting, I am/we are aware that I/we may be held liable for it.
_____________________________________
Name & Signature of the Authorised Signatory Date: ___________ (dd/mm/yyyy)
FOR OFFICE USE ONLY
Originals verified and Self-Attested Document copies received
(………………………………………..)
Name & Signature of the Authorised Signatory
Date …………………. Seal/Stamp of the intermediary
Annexure – 3
TRADING ACCOUNT RELATED DETAILS
For Individuals & Non-individuals
A. BANK ACCOUNT(S) DETAILS
Bank Branch Bank account no. Account Type: Saving/Current/ MICR IFSC code
Name address Others-In case of NRI/NRE/NRO Number
B. DEPOSITORY ACCOUNT(S) DETAILS
Depository Participant Depository Name Beneficiary name DP ID Beneficiary ID
Name (NSDL/CDSL) (BO ID)
C. TRADING PREFERENCES
*Please sign in the relevant boxes where you wish to trade. The segment not chosen should be struck off by the client.
Exchanges Segments
Cash Currency Derivative
Name of the
Exchange -1 Name of other
F&O
Segment s, if any
Name of the
Name of the
Segments -1, 2...
Exchange -2
# If, in future, the client wants to trade on any new segment/new exchange, separate authorization/letter should be taken
from the client by the stock broker.
D. PAST ACTIONS
 Details of any action/proceedings initiated/pending/ taken by SEBI/ Stock exchange/any other authority against the
applicant/constituent or its Partners/promoters/whole time directors/authorized persons in charge of dealing in
securities during the last 3 years: ………………………………………………………………………………………………..
E. DEALINGS THROUGH SUB-BROKERS AND OTHER STOCK BROKERS
 If client is dealing through the sub-broker, provide the following details:
Sub-broker’s Name: …………………………….…. SEBI Registration number: ………………………….….
Registered office address: ……………………..…. Ph: …….… Fax: ……….…. Website: ………………….
 Whether dealing with any other stock broker/sub-broker (if case dealing with multiple stock brokers/sub-brokers,
provide details of all)
Name of stock broker:……………………………………………Name of Sub-Broker, if any:…………………………..…..
Client Code: …………………………….Exchange: …………………………………………….……………….…………..….
Details of disputes/dues pending from/to such stock broker/sub- broker: ……………………….………………….………
F. ADDITIONAL DETAILS
 Whether you wish to receive physical contract note or Electronic Contract Note (ECN) (please specify): ……………..
Specify your Email id, if applicable: ……………………………………………………………………………………………..
 Whether you wish to avail of the facility of internet trading/ wireless technology (please specify): ………………………
 Number of years of Investment/Trading Experience: ………………………………………………………………………….
 In case of non-individuals, name, designation, PAN, UID, signature, residential address and photographs of persons
authorized to deal in securities on behalf of company/firm/others: …………………………………………………………..
 Any other information: …………………………………………………………………………………………………………….
G. INTRODUCER DETAILS (optional)
Name of the Introducer: ………………………………………………………………………………………………………………..
(Surname) (Name) (Middle Name)
Status of the Introducer: Sub-broker/Remisier/Authorized Person/Existing Client/Others, please specify……………………
Address and phone no. of the Introducer: ……………………………. Signature of the Introducer: ……………………………
H. NOMINATION DETAILS (for individuals only)
I/We wish to nominate I/We do not wish to nominate
Name of the Nominee: ………………………………………. Relationship with the Nominee: ………………………………….
PAN of Nominee: ……………………………………………... Date of Birth of Nominee: ………………...………………………
Address and phone no. of the Nominee: …………………………………………………………………………………………….
If Nominee is a minor, details of guardian:
Name of guardian: ……………………… Address and phone no. of Guardian: ……………………………..…………………..
Signature of guardian ……………………………………………………………………………….………………………………….
WITNESSES (Only applicable in case the account holder has made nomination)
Name ------------------------- Name -----------------------------
Signature --------------------- Signature ------------------------
Address ----------------------- Address --------------------------
________________________________________________________________________________________________
DECLARATION
1. I/We hereby declare that the details furnished above are true and correct to the best of my/our knowledge and belief
and I/we undertake to inform you of any changes therein, immediately. In case any of the above information is found
to be false or untrue or misleading or misrepresenting, I am/we are aware that I/we may be held liable for it.
2. I/We confirm having read/been explained and understood the contents of the document on policy and procedures of
the stock broker and the tariff sheet.
3. I/We further confirm having read and understood the contents of the ‘Rights and Obligations’ document(s) and ‘Risk
Disclosure Document’. I/We do hereby agree to be bound by such provisions as outlined in these documents. I/We
have also been informed that the standard set of documents has been displayed for Information on stock broker’s
designated website, if any.
Place ----------------------- (---------------------------------------------------)
Date ------------------------ Signature of Client/ (all) Authorized Signatory (ies)
________________________________________________________________________________________________
FOR OFFICE USE ONLY
UCC Code allotted to the Client: --------------------
Documents verified with Client Interviewed By In-Person Verification done by
Originals
Name of the Employee
Employee Code
Designation of the employee
Date
Signature
I / We undertake that we have made the client aware of ‘Policy and Procedures’, tariff sheet and all the non-mandatory
documents. I/We have also made the client aware of ‘Rights and Obligations’ document (s), RDD and Guidance Note.
I/We have given/sent him a copy of all the KYC documents. I/We undertake that any change in the ‘Policy and
Procedures’, tariff sheet and all the non-mandatory documents would be duly intimated to the clients. I/We also
undertake that any change in the ‘Rights and Obligations’ and RDD would be made available on my/our website, if any,
for the information of the clients.
………………………………………..
Signature of the Authorised Signatory
Date …………………. Seal/Stamp of the stock broker
_______________________________________________________________________________________________
INSTRUCTIONS/ CHECK LIST
1. Additional documents in case of trading in derivatives segments - illustrative list:
Copy of ITR Acknowledgement Copy of Annual Accounts
In case of salary income - Salary Slip, Copy of Form 16 Net worth certificate
Copy of demat account holding statement. Bank account statement for last 6 months
Any other relevant documents substantiating ownership of Self declaration with relevant supporting documents.
assets.
*In respect of other clients, documents as per risk management policy of the stock broker need to be provided by the
client from time to time.
2. Copy of cancelled cheque leaf/ pass book/bank statement specifying name of the constituent, MICR Code or/and
IFSC Code of the bank should be submitted.
3. Demat master or recent holding statement issued by DP bearing name of the client.
4. For individuals:
a. Stock broker has an option of doing ‘in-person’ verification through web camera at the branch office of the
stock broker/sub-broker’s office.
b. In case of non-resident clients, employees at the stock broker’s local office, overseas can do in-person’
verification. Further, considering the infeasibility of carrying out ‘In-person’ verification of the non-resident
clients by the stock broker’s staff, attestation of KYC documents by Notary Public, Court, Magistrate,
Judge, Local Banker, Indian Embassy / Consulate General in the country where the client resides may be
permitted.
5. For non-individuals:
a. Form need to be initialized by all the authorized signatories.
b. Copy of Board Resolution or declaration (on the letterhead) naming the persons authorized to deal in
securities on behalf of company/firm/others and their specimen signatures.
________________________________________________________________________________________________
Annexure – 4
RIGHTS AND OBLIGATIONS OF STOCK BROKERS, SUB-BROKERS AND CLIENTS
as prescribed by SEBI and Stock Exchanges
1. The client shall invest/trade in those securities/contracts/other instruments admitted to dealings on the Exchanges
as defined in the Rules, Byelaws and Regulations of Exchanges/ Securities and Exchange Board of India (SEBI)
and circulars/notices issued there under from time to time.
2. The stock broker, sub-broker and the client shall be bound by all the Rules, Byelaws and Regulations of the
Exchange and circulars/notices issued there under and Rules and Regulations of SEBI and relevant notifications of
Government authorities as may be in force from time to time.
3. The client shall satisfy itself of the capacity of the stock broker to deal in securities and/or deal in derivatives
contracts and wishes to execute its orders through the stock broker and the client shall from time to time continue
to satisfy itself of such capability of the stock broker before executing orders through the stock broker.
4. The stock broker shall continuously satisfy itself about the genuineness and financial soundness of the client and
investment objectives relevant to the services to be provided.
5. The stock broker shall take steps to make the client aware of the precise nature of the Stock broker’s liability for
business to be conducted, including any limitations, the liability and the capacity in which the stock broker acts.
6. The sub-broker shall provide necessary assistance and co-operate with the stock broker in all its dealings with the
client(s).
CLIENT INFORMATION
7. The client shall furnish all such details in full as are required by the stock broker in "Account Opening Form” with
supporting details, made mandatory by stock exchanges/SEBI from time to time.
8. The client shall familiarize himself with all the mandatory provisions in the Account Opening documents. Any
additional clauses or documents specified by the stock broker shall be non-mandatory, as per terms & conditions
accepted by the client.
9. The client shall immediately notify the stock broker in writing if there is any change in the information in the ‘account
opening form’ as provided at the time of account opening and thereafter; including the information on winding up
petition/insolvency petition or any litigation which may have material bearing on his capacity. The client shall
provide/update the financial information to the stock broker on a periodic basis.
10. The stock broker and sub-broker shall maintain all the details of the client as mentioned in the account opening
form or any other information pertaining to the client, confidentially and that they shall not disclose the same to any
person/authority except as required under any law/regulatory requirements. Provided however that the stock broker
may so disclose information about his client to any person or authority with the express permission of the client.
MARGINS
11. The client shall pay applicable initial margins, withholding margins, special margins or such other margins as are
considered necessary by the stock broker or the Exchange or as may be directed by SEBI from time to time as
applicable to the segment(s) in which the client trades. The stock broker is permitted in its sole and absolute
discretion to collect additional margins (even though not required by the Exchange, Clearing House/Clearing
Corporation or SEBI) and the client shall be obliged to pay such margins within the stipulated time.
12. The client understands that payment of margins by the client does not necessarily imply complete satisfaction of all
dues. In spite of consistently having paid margins, the client may, on the settlement of its trade, be obliged to pay
(or entitled to receive) such further sums as the contract may dictate/require.
TRANSACTIONS AND SETTLEMENTS
13. The client shall give any order for buy or sell of a security/derivatives contract in writing or in such form or manner,
as may be mutually agreed between the client and the stock broker. The stock broker shall ensure to place orders
and execute the trades of the client, only in the Unique Client Code assigned to that client.
14. The stock broker shall inform the client and keep him apprised about trading/settlement cycles, delivery/payment
schedules, any changes therein from time to time, and it shall be the responsibility in turn of the client to comply
with such schedules/procedures of the relevant stock exchange where the trade is executed.
15. The stock broker shall ensure that the money/securities deposited by the client shall be kept in a separate account,
distinct from his/its own account or account of any other client and shall not be used by the stock broker for
himself/itself or for any other client or for any purpose other than the purposes mentioned in Rules, Regulations,
circulars, notices, guidelines of SEBI and/or Rules, Regulations, Bye-laws, circulars and notices of Exchange.
16. Where the Exchange(s) cancels trade(s) suo moto all such trades including the trade/s done on behalf of the client
shall ipso facto stand cancelled, stock broker shall be entitled to cancel the respective contract(s) with client(s).
17. The transactions executed on the Exchange are subject to Rules, Byelaws and Regulations and circulars/notices
issued thereunder of the Exchanges where the trade is executed and all parties to such trade shall have submitted
to the jurisdiction of such court as may be specified by the Byelaws and Regulations of the Exchanges where the
trade is executed for the purpose of giving effect to the provisions of the Rules, Byelaws and Regulations of the
Exchanges and the circulars/notices issued thereunder.
BROKERAGE
18. The Client shall pay to the stock broker brokerage and statutory levies as are prevailing from time to time and as
they apply to the Client’s account, transactions and to the services that stock broker renders to the Client. The
stock broker shall not charge brokerage more than the maximum brokerage permissible as per the rules,
regulations and bye-laws of the relevant stock exchanges and/or rules and regulations of SEBI.
LIQUIDATION AND CLOSE OUT OF POSITION
19. Without prejudice to the stock broker's other rights (including the right to refer a matter to arbitration), the client
understands that the stock broker shall be entitled to liquidate/close out all or any of the client's positions for non-
payment of margins or other amounts, outstanding debts, etc. and adjust the proceeds of such liquidation/close out,
if any, against the client's liabilities/obligations. Any and all losses and financial charges on account of such
liquidation/closing-out shall be charged to and borne by the client.
20. In the event of death or insolvency of the client or his/its otherwise becoming incapable of receiving and paying for
or delivering or transferring securities which the client has ordered to be bought or sold, stock broker may close out
the transaction of the client and claim losses, if any, against the estate of the client. The client or his nominees,
successors, heirs and assignee shall be entitled to any surplus which may result there from. The client shall note
that transfer of funds/securities in favor of a Nominee shall be valid discharge by the stock broker against the legal
heir.
21. The stock broker shall bring to the notice of the relevant Exchange the information about default in
payment/delivery and related aspects by a client. In case where defaulting client is a corporate
entity/partnership/proprietary firm or any other artificial legal entity, then the name(s) of
Director(s)/Promoter(s)/Partner(s)/Proprietor as the case may be, shall also be communicated by the stock broker
to the relevant Exchange(s).
DISPUTE RESOLUTION
22. The stock broker shall provide the client with the relevant contact details of the concerned Exchanges and SEBI.
23. The stock broker shall co-operate in redressing grievances of the client in respect of all transactions routed through
it and in removing objections for bad delivery of shares, rectification of bad delivery, etc.
24. The client and the stock broker shall refer any claims and/or disputes with respect to deposits, margin money, etc.,
to arbitration as per the Rules, Byelaws and Regulations of the Exchanges where the trade is executed and
circulars/notices issued thereunder as may be in force from time to time.
25. The stock broker shall ensure faster settlement of any arbitration proceedings arising out of the transactions
entered into between him vis-à-vis the client and he shall be liable to implement the arbitration awards made in
such proceedings.
26. The client/stock-broker understands that the instructions issued by an authorized representative for dispute
resolution, if any, of the client/stock-broker shall be binding on the client/stock-broker in accordance with the letter
authorizing the said representative to deal on behalf of the said client/stock-broker.
TERMINATION OF RELATIONSHIP
27. This relationship between the stock broker and the client shall be terminated; if the stock broker for any reason
ceases to be a member of the stock exchange including cessation of membership by reason of the stock broker's
default, death, resignation or expulsion or if the certificate is cancelled by the Board.
28. The stock broker, sub-broker and the client shall be entitled to terminate the relationship between them without
giving any reasons to the other party, after giving notice in writing of not less than one month to the other parties.
Notwithstanding any such termination, all rights, liabilities and obligations of the parties arising out of or in respect
of transactions entered into prior to the termination of this relationship shall continue to subsist and vest in/be
binding on the respective parties or his/its respective heirs, executors, administrators, legal representatives or
successors, as the case may be.
29. In the event of demise/insolvency of the sub-broker or the cancellation of his/its registration with the Board
or/withdrawal of recognition of the sub-broker by the stock exchange and/or termination of the agreement with the
sub broker by the stock broker, for any reason whatsoever, the client shall be informed of such termination and the
client shall be deemed to be the direct client of the stock broker and all clauses in the ‘Rights and Obligations’
document(s) governing the stock broker, sub-broker and client shall continue to be in force as it is, unless the client
intimates to the stock broker his/its intention to terminate their relationship by giving a notice in writing of not less
than one month.
ADDITIONAL RIGHTS AND OBLIGATIONS
30. The stock broker shall ensure due protection to the client regarding client’s rights to dividends, rights or bonus
shares, etc. in respect of transactions routed through it and it shall not do anything which is likely to harm the
interest of the client with whom and for whom they may have had transactions in securities.
31. The stock broker and client shall reconcile and settle their accounts from time to time as per the Rules,
Regulations, Bye Laws, Circulars, Notices and Guidelines issued by SEBI and the relevant Exchanges where the
trade is executed.
32. The stock broker shall issue a contract note to his constituents for trades executed in such format as may be
prescribed by the Exchange from time to time containing records of all transactions including details of order
number, trade number, trade time, trade price, trade quantity, details of the derivatives contract, client code,
brokerage, all charges levied etc. and with all other relevant details as required therein to be filled in and issued in
such manner and within such time as prescribed by the Exchange. The stock broker shall send contract notes to
the investors within one working day of the execution of the trades in hard copy and/or in electronic form using
digital signature.
33. The stock broker shall make pay out of funds or delivery of securities, as the case may be, to the Client within one
working day of receipt of the payout from the relevant Exchange where the trade is executed unless otherwise
specified by the client and subject to such terms and conditions as may be prescribed by the relevant Exchange
from time to time where the trade is executed.
34. The stock broker shall send a complete `Statement of Accounts’ for both funds and securities in respect of each of
its clients in such periodicity and format within such time, as may be prescribed by the relevant Exchange, from
time to time, where the trade is executed. The Statement shall also state that the client shall report errors, if any, in
the Statement within such time as may be prescribed by the relevant Exchange from time to time where the trade
was executed, from the receipt thereof to the Stock broker.
35. The stock broker shall send daily margin statements to the clients. Daily Margin statement should include, inter-
alia, details of collateral deposited, collateral utilized and collateral status (available balance/due from client) with
break up in terms of cash, Fixed Deposit Receipts (FDRs), Bank Guarantee and securities.
36. The Client shall ensure that it has the required legal capacity to, and is authorized to, enter into the relationship with
stock broker and is capable of performing his obligations and undertakings hereunder. All actions required to be
taken to ensure compliance of all the transactions, which the Client may enter into shall be completed by the Client
prior to such transaction being entered into.
ELECTRONIC CONTRACT NOTES (ECN)
37. In case, client opts to receive the contract note in electronic form, he shall provide an appropriate e-mail id to the
stock broker. The client shall communicate to the stock broker any change in the email-id through a physical letter.
If the client has opted for internet trading, the request for change of email id may be made through the secured
access by way of client specific user id and password.
38. The stock broker shall ensure that all ECNs sent through the e-mail shall be digitally signed, encrypted, non-tamper
able and in compliance with the provisions of the IT Act, 2000. In case, ECN is sent through e-mail as an
attachment, the attached file shall also be secured with the digital signature, encrypted and non-tamperable.
39. The client shall note that non-receipt of bounced mail notification by the stock broker shall amount to delivery of the
contract note at the e-mail ID of the client.
40. The stock broker shall retain ECN and acknowledgement of the e-mail in a soft and non-tamperable form in the
manner prescribed by the exchange in compliance with the provisions of the IT Act, 2000 and as per the extant
rules/regulations/circulars/guidelines issued by SEBI/Stock Exchanges from time to time. The proof of delivery i.e.,
log report generated by the system at the time of sending the contract notes shall be maintained by the stock
broker for the specified period under the extant regulations of SEBI/stock exchanges. The log report shall provide
the details of the contract notes that are not delivered to the client/e-mails rejected or bounced back. The stock
broker shall take all possible steps to ensure receipt of notification of bounced mails by him at all times within the
stipulated time period under the extant regulations of SEBI/stock exchanges.
41. The stock broker shall continue to send contract notes in the physical mode to such clients who do not opt to
receive the contract notes in the electronic form. Wherever the ECNs have not been delivered to the client or has
been rejected (bouncing of mails) by the e-mail ID of the client, the stock broker shall send a physical contract note
to the client within the stipulated time under the extant regulations of SEBI/stock exchanges and maintain the proof
of delivery of such physical contract notes.
42. In addition to the e-mail communication of the ECNs to the client, the stock broker shall simultaneously publish the
ECN on his designated web-site, if any, in a secured way and enable relevant access to the clients and for this
purpose, shall allot a unique user name and password to the client, with an option to the client to save the contract
note electronically and/or take a print out of the same.
LAW AND JURISDICTION
43. In addition to the specific rights set out in this document, the stock broker, sub-broker and the client shall be entitled
to exercise any other rights which the stock broker or the client may have under the Rules, Bye-laws and
Regulations of the Exchanges in which the client chooses to trade and circulars/notices issued thereunder or Rules
and Regulations of SEBI.
44. The provisions of this document shall always be subject to Government notifications, any rules, regulations,
guidelines and circulars/notices issued by SEBI and Rules, Regulations and Bye laws of the relevant stock
exchanges, where the trade is executed, that may be in force from time to time.
45. The stock broker and the client shall abide by any award passed by the Arbitrator(s) under the Arbitration and
Conciliation Act, 1996. However, there is also a provision of appeal within the stock exchanges, if either party is not
satisfied with the arbitration award.
46. Words and expressions which are used in this document but which are not defined herein shall, unless the context
otherwise requires, have the same meaning as assigned thereto in the Rules, Byelaws and Regulations and
circulars/notices issued thereunder of the Exchanges/SEBI.
47. All additional voluntary clauses/document added by the stock broker should not be in contravention with
rules/regulations/notices/circulars of Exchanges/SEBI. Any changes in such voluntary clauses/document(s) need to
be preceded by a notice of 15 days. Any changes in the rights and obligations which are specified by
Exchanges/SEBI shall also be brought to the notice of the clients.
48. If the rights and obligations of the parties hereto are altered by virtue of change in Rules and regulations of SEBI or
Bye-laws, Rules and Regulations of the relevant stock Exchanges where the trade is executed, such changes shall
be deemed to have been incorporated herein in modification of the rights and obligations of the parties mentioned
in this document.
INTERNET & WIRELESS TECHNOLOGY BASED TRADING FACILITY PROVIDED BY STOCK BROKERS TO CLIENT
(All the clauses mentioned in the ‘Rights and Obligations’ document(s) shall be applicable. Additionally, the
clauses mentioned herein shall also be applicable.)
1. Stock broker is eligible for providing Internet based trading (IBT) and securities trading through the use of wireless
technology that shall include the use of devices such as mobile phone, laptop with data card, etc. which use
Internet Protocol (IP). The stock broker shall comply with all requirements applicable to internet based
trading/securities trading using wireless technology as may be specified by SEBI & the Exchanges from time to
time.
2. The client is desirous of investing/trading in securities and for this purpose, the client is desirous of using either the
internet based trading facility or the facility for securities trading through use of wireless technology. The Stock
broker shall provide the Stock broker’s IBT Service to the Client, and the Client shall avail of the Stock broker’s IBT
Service, on and subject to SEBI/Exchanges Provisions and the terms and conditions specified on the Stock
broker’s IBT Web Site provided that they are in line with the norms prescribed by Exchanges/SEBI.
3. The stock broker shall bring to the notice of client the features, risks, responsibilities, obligations and liabilities
associated with securities trading through wireless technology/internet/smart order routing or any other technology
should be brought to the notice of the client by the stock broker.
4. The stock broker shall make the client aware that the Stock Broker’s IBT system itself generates the initial
password and its password policy as stipulated in line with norms prescribed by Exchanges/SEBI.
5. The Client shall be responsible for keeping the Username and Password confidential and secure and shall be
solely responsible for all orders entered and transactions done by any person whosoever through the Stock
broker’s IBT System using the Client’s Username and/or Password whether or not such person was authorized to
do so. Also the client is aware that authentication technologies and strict security measures are required for the
internet trading/securities trading through wireless technology through order routed system and undertakes to
ensure that the password of the client and/or his authorized representative are not revealed to any third party
including employees and dealers of the stock broker
6. The Client shall immediately notify the Stock broker in writing if he forgets his password, discovers security flaw in
Stock Broker’s IBT System, discovers/suspects discrepancies/ unauthorized access through his
username/password/account with full details of such unauthorized use, the date, the manner and the transactions
effected pursuant to such unauthorized use, etc.
7. The Client is fully aware of and understands the risks associated with availing of a service for routing orders over
the internet/securities trading through wireless technology and Client shall be fully liable and responsible for any
and all acts done in the Client’s Username/password in any manner whatsoever.
8. The stock broker shall send the order/trade confirmation through email to the client at his request. The client is
aware that the order/ trade confirmation is also provided on the web portal. In case client is trading using wireless
technology, the stock broker shall send the order/trade confirmation on the device of the client.
9. The client is aware that trading over the internet involves many uncertain factors and complex hardware, software,
systems, communication lines, peripherals, etc. are susceptible to interruptions and dislocations. The Stock broker
and the Exchange do not make any representation or warranty that the Stock broker’s IBT Service will be available
to the Client at all times without any interruption.
10. The Client shall not have any claim against the Exchange or the Stock broker on account of any suspension,
interruption, non-availability or malfunctioning of the Stock broker’s IBT System or Service or the Exchange’s
service or systems or non-execution of his orders due to any link/system failure at the Client/Stock
brokers/Exchange end for any reason beyond the control of the stock broker/Exchanges.
Annexure – 5
RISK DISCLOSURE DOCUMENT FOR CAPITAL MARKET AND DERIVATIVES SEGMENTS
This document contains important information on trading in Equities/Derivatives Segments of the stock exchanges. All
prospective constituents should read this document before trading in Equities/Derivatives Segments of the Exchanges.
Stock exchanges/SEBI does neither singly or jointly and expressly nor impliedly guarantee nor make any representation
concerning the completeness, the adequacy or accuracy of this disclosure document nor have Stock exchanges /SEBI
endorsed or passed any merits of participating in the trading segments. This brief statement does not disclose all the risks
and other significant aspects of trading.
In the light of the risks involved, you should undertake transactions only if you understand the nature of the relationship into
which you are entering and the extent of your exposure to risk.
You must know and appreciate that trading in Equity shares, derivatives contracts or other instruments traded on the Stock
Exchange, which have varying element of risk, is generally not an appropriate avenue for someone of limited
resources/limited investment and/or trading experience and low risk tolerance. You should therefore carefully consider
whether such trading is suitable for you in the light of your financial condition. In case you trade on Stock exchanges and
suffer adverse consequences or loss, you shall be solely responsible for the same and Stock exchanges/its Clearing
Corporation and/or SEBI shall not be responsible, in any manner whatsoever, for the same and it will not be open for you to
take a plea that no adequate disclosure regarding the risks involved was made or that you were not explained the full risk
involved by the concerned stock broker. The constituent shall be solely responsible for the consequences and no contract
can be rescinded on that account. You must acknowledge and accept that there can be no guarantee of profits or no
exception from losses while executing orders for purchase and/or sale of a derivative contract being traded on Stock
exchanges.
It must be clearly understood by you that your dealings on Stock exchanges through a stock broker shall be subject to your
fulfilling certain formalities set out by the stock broker, which may inter alia include your filling the know your client form,
reading the rights and obligations, do’s and don’ts, etc., and are subject to the Rules, Byelaws and Regulations of relevant
Stock exchanges, its Clearing Corporation, guidelines prescribed by SEBI and in force from time to time and Circulars as
may be issued by Stock exchanges or its Clearing Corporation and in force from time to time.
Stock exchanges does not provide or purport to provide any advice and shall not be liable to any person who enters into any
business relationship with any stock broker of Stock exchanges and/or any third party based on any information contained in
this document. Any information contained in this document must not be construed as business advice. No consideration to
trade should be made without thoroughly understanding and reviewing the risks involved in such trading. If you are unsure,
you must seek professional advice on the same.
In considering whether to trade or authorize someone to trade for you, you should be aware of or must get acquainted with
the following:-
1. BASIC RISKS:
1.1 Risk of Higher Volatility:
Volatility refers to the dynamic changes in price that a security/derivatives contract undergoes when trading activity continues
on the Stock Exchanges. Generally, higher the volatility of a security/derivatives contract, greater is its price swings. There
may be normally greater volatility in thinly traded securities / derivatives contracts than in active securities /derivatives
contracts. As a result of volatility, your order may only be partially executed or not executed at all, or the price at which your
order got executed may be substantially different from the last traded price or change substantially thereafter, resulting in
notional or real losses.
1.2 Risk of Lower Liquidity:
Liquidity refers to the ability of market participants to buy and/or sell securities / derivatives contracts expeditiously at a
competitive price and with minimal price difference. Generally, it is assumed that more the numbers of orders available in a
market, greater is the liquidity. Liquidity is important because with greater liquidity, it is easier for investors to buy and/or sell
securities / derivatives contracts swiftly and with minimal price difference, and as a result, investors are more likely to pay or
receive a competitive price for securities / derivatives contracts purchased or sold. There may be a risk of lower liquidity in
some securities / derivatives contracts as compared to active securities / derivatives contracts. As a result, your order may
only be partially executed, or may be executed with relatively greater price difference or may not be executed at all.
1.2.1 Buying or selling securities / derivatives contracts as part of a day trading strategy may also result into losses, because
in such a situation, securities / derivatives contracts may have to be sold / purchased at low / high prices, compared to the
expected price levels, so as not to have any open position or obligation to deliver or receive a security / derivatives contract.
1.3 Risk of Wider Spreads:
Spread refers to the difference in best buy price and best sell price. It represents the differential between the price of buying a
security / derivatives contract and immediately selling it or vice versa. Lower liquidity and higher volatility may result in wider
than normal spreads for less liquid or illiquid securities / derivatives contracts. This in turn will hamper better price formation.
1.4 Risk-reducing orders:
The placing of orders (e.g., "stop loss” orders, or "limit" orders) which are intended to limit losses to certain amounts may not
be effective many a time because rapid movement in market conditions may make it impossible to execute such orders.
1.4.1 A "market" order will be executed promptly, subject to availability of orders on opposite side, without regard to price and
that, while the customer may receive a prompt execution of a "market" order, the execution may be at available prices of
outstanding orders, which satisfy the order quantity, on price time priority. It may be understood that these prices may be
significantly different from the last traded price or the best price in that security / derivatives contract.
1.4.2 A "limit" order will be executed only at the "limit" price specified for the order or a better price. However, while the
customer receives price protection, there is a possibility that the order may not be executed at all.
1.4.3 A stop loss order is generally placed "away" from the current price of a stock / derivatives contract, and such order gets
activated if and when the security / derivatives contract reaches, or trades through, the stop price. Sell stop orders are
entered ordinarily below the current price, and buy stop orders are entered ordinarily above the current price. When the
security / derivatives contract reaches the pre -determined price, or trades through such price, the stop loss order converts to
a market/limit order and is executed at the limit or better. There is no assurance therefore that the limit order will be
executable since a security / derivatives contract might penetrate the pre-determined price, in which case, the risk of such
order not getting executed arises, just as with a regular limit order.
1.5 Risk of News Announcements:
News announcements that may impact the price of stock / derivatives contract may occur during trading, and when combined
with lower liquidity and higher volatility, may suddenly cause an unexpected positive or negative movement in the price of the
security / contract.
1.6 Risk of Rumors:
Rumors about companies / currencies at times float in the market through word of mouth, newspapers, websites or news
agencies, etc. The investors should be wary of and should desist from acting on rumors.
1.7 System Risk:
High volume trading will frequently occur at the market opening and before market close. Such high volumes may also occur
at any point in the day. These may cause delays in order execution or confirmation.
1.7.1 During periods of volatility, on account of market participants continuously modifying their order quantity or prices or
placing fresh orders, there may be delays in order execution and its confirmations.
1.7.2 Under certain market conditions, it may be difficult or impossible to liquidate a position in the market at a reasonable
price or at all, when there are no outstanding orders either on the buy side or the sell side, or if trading is halted in a security /
derivatives contract due to any action on account of unusual trading activity or security / derivatives contract hitting circuit
filters or for any other reason.
1.8 System/Network Congestion:
Trading on exchanges is in electronic mode, based on satellite/leased line based communications, combination of
technologies and computer systems to place and route orders. Thus, there exists a possibility of communication failure or
system problems or slow or delayed response from system or trading halt, or any such other problem/glitch whereby not
being able to establish access to the trading system/network, which may be beyond control and may result in delay in
processing or not processing buy or sell orders either in part or in full. You are cautioned to note that although these
problems may be temporary in nature, but when you have outstanding open positions or unexecuted orders, these represent
a risk because of your obligations to settle all executed transactions.
2. As far as Derivatives segments are concerned, please note and get yourself acquainted with the following
additional features:-
2.1 Effect of "Leverage" or "Gearing":
In the derivatives market, the amount of margin is small relative to the value of the derivatives contract so the transactions
are 'leveraged' or 'geared'. Derivatives trading, which is conducted with a relatively small amount of margin, provides the
possibility of great profit or loss in comparison with the margin amount. But transactions in derivatives carry a high degree of
risk.
You should therefore completely understand the following statements before actually trading in derivatives and also trade
with caution while taking into account one's circumstances, financial resources, etc. If the prices move against you, you may
lose a part of or whole margin amount in a relatively short period of time. Moreover, the loss may exceed the original margin
amount.
A. Futures trading involve daily settlement of all positions. Every day the open positions are marked to market based on the
closing level of the index / derivatives contract. If the contract has moved against you, you will be required to deposit the
amount of loss (notional) resulting from such movement. This amount will have to be paid within a stipulated time frame,
generally before commencement of trading on next day.
B. If you fail to deposit the additional amount by the deadline or if an outstanding debt occurs in your account, the stock
broker may liquidate a part of or the whole position or substitute securities. In this case, you will be liable for any losses
incurred due to such close-outs.
C. Under certain market conditions, an investor may find it difficult or impossible to execute transactions. For example, this
situation can occur due to factors such as illiquidity i.e. when there are insufficient bids or offers or suspension of trading due
to price limit or circuit breakers etc.
D. In order to maintain market stability, the following steps may be adopted: changes in the margin rate, increases in the cash
margin rate or others. These new measures may also be applied to the existing open interests. In such conditions, you will be
required to put up additional margins or reduce your positions.
E. You must ask your broker to provide the full details of derivatives contracts you plan to trade i.e. the contract specifications
and the associated obligations.
2.2 Currency specific risks:
1. The profit or loss in transactions in foreign currency-denominated contracts, whether they are traded in your own or
another jurisdiction, will be affected by fluctuations in currency rates where there is a need to convert from the currency
denomination of the contract to another currency.
2. Under certain market conditions, you may find it difficult or impossible to liquidate a position. This can occur, for example
when a currency is deregulated or fixed trading bands are widened.
3. Currency prices are highly volatile. Price movements for currencies are influenced by, among other things: changing
supply-demand relationships; trade, fiscal, monetary, exchange control programs and policies of governments; foreign
political and economic events and policies; changes in national and international interest rates and inflation; currency
devaluation; and sentiment of the market place. None of these factors can be controlled by any individual advisor and no
assurance can be given that an advisor's advice will result in profitable trades for a participating customer or that a customer
will not incur losses from such events.
2.3 Risk of Option holders:
1. An option holder runs the risk of losing the entire amount paid for the option in a relatively short period of time. This risk
reflects the nature of an option as a wasting asset which becomes worthless when it expires. An option holder who neither
sells his option in the secondary market nor exercises it prior to its expiration will necessarily lose his entire investment in the
option. If the price of the underlying does not change in the anticipated direction before the option expires, to an extent
sufficient to cover the cost of the option, the investor may lose all or a significant part of his investment in the option.
2. The Exchanges may impose exercise restrictions and have absolute authority to restrict the exercise of options at certain
times in specified circumstances.
2.4 Risks of Option Writers:
1. If the price movement of the underlying is not in the anticipated direction, the option writer runs the risks of losing
substantial amount.
2. The risk of being an option writer may be reduced by the purchase of other options on the same underlying interest and
thereby assuming a spread position or by acquiring other types of hedging positions in the options markets or other markets.
However, even where the writer has assumed a spread or other hedging position, the risks may still be significant. A spread
position is not necessarily less risky than a simple 'long' or 'short' position.
3. Transactions that involve buying and writing multiple options in combination, or buying or writing options in combination with
buying or selling short the underlying interests, present additional risks to investors. Combination transactions, such as option
spreads, are more complex than buying or writing a single option. And it should be further noted that, as in any area of
investing, a complexity not well understood is, in itself, a risk factor. While this is not to suggest that combination strategies
should not be considered, it is advisable, as is the case with all investments in options, to consult with someone who is
experienced and knowledgeable with respect to the risks and potential rewards of combination transactions under various
market circumstances.
3. TRADING THROUGH WIRELESS TECHNOLOGY/ SMART ORDER ROUTING OR ANY OTHER TECHNOLOGY:
Any additional provisions defining the features, risks, responsibilities, obligations and liabilities associated with securities
trading through wireless technology/ smart order routing or any other technology should be brought to the notice of the client
by the stock broker.
4. GENERAL
4.1 The term ‘constituent’ shall mean and include a client, a customer or an investor, who deals with a stock broker for the
purpose of acquiring and/or selling of securities / derivatives contracts through the mechanism provided by the Exchanges.
4.2 The term ‘stock broker’ shall mean and include a stock broker, a broker or a stock broker, who has been admitted as
such by the Exchanges and who holds a registration certificate from SEBI.
Annexure-6
GUIDANCE NOTE - DO’s AND DON’Ts FOR TRADING ON THE EXCHANGE(S) FOR INVESTORS
BEFORE YOU BEGIN TO TRADE
1. Ensure that you deal with and through only SEBI registered intermediaries. You may check their SEBI registration
certificate number from the list available on the Stock exchanges www.exchange.com and SEBI website www.sebi.gov.in.
2. Ensure that you fill the KYC form completely and strike off the blank fields in the KYC form.
3. Ensure that you have read all the mandatory documents viz. Rights and Obligations, Risk Disclosure Document, Policy
and Procedure document of the stock broker.
4. Ensure to read, understand and then sign the voluntary clauses, if any, agreed between you and the stock broker. Note
that the clauses as agreed between you and the stock broker cannot be changed without your consent.
5. Get a clear idea about all brokerage, commissions, fees and other charges levied by the broker on you for trading and the
relevant provisions/ guidelines specified by SEBI/Stock exchanges.
6. Obtain a copy of all the documents executed by you from the stock broker free of charge.
7. In case you wish to execute Power of Attorney (POA) in favour of the Stock broker, authorizing it to operate your bank and
demat account, please refer to the guidelines issued by SEBI/Exchanges in this regard.
TRANSACTIONS AND SETTLEMENTS
8. The stock broker may issue electronic contract notes (ECN) if specifically authorized by you in writing. You should
provide your email id to the stock broker for the same. Don’t opt for ECN if you are not familiar with computers.
9. Don’t share your internet trading account’s password with anyone.
10. Don’t make any payment in cash to the stock broker.
11. Make the payments by account payee cheque in favour of the stock broker. Don’t issue cheques in the name of sub-
broker. Ensure that you have a documentary proof of your payment/deposit of securities with the stock broker, stating
date, scrip, quantity, towards which bank/ demat account such money or securities deposited and from which bank/ demat
account.
12. Note that facility of Trade Verification is available on stock exchanges’ websites, where details of trade as mentioned in
the contract note may be verified. Where trade details on the website do not tally with the details mentioned in the contract
note, immediately get in touch with the Investors Grievance Cell of the relevant Stock exchange.
13. In case you have given specific authorization for maintaining running account, payout of funds or delivery of securities (as
the case may be), may not be made to you within one working day from the receipt of payout from the Exchange. Thus,
the stock broker shall maintain running account for you subject to the following conditions:
a) Such authorization from you shall be dated, signed by you only and contains the clause that you may revoke the
same at any time.
b) The actual settlement of funds and securities shall be done by the stock broker, at least once in a calendar quarter or
month, depending on your preference. While settling the account, the stock broker shall send to you a ‘statement of
accounts’ containing an extract from the client ledger for funds and an extract from the register of securities displaying
all the receipts/deliveries of funds and securities. The statement shall also explain the retention of funds and
securities and the details of the pledged shares, if any.
c) On the date of settlement, the stock broker may retain the requisite securities/funds towards outstanding obligations
and may also retain the funds expected to be required to meet derivatives margin obligations for next 5 trading days,
calculated in the manner specified by the exchanges. In respect of cash market transactions, the stock broker may
retain entire pay-in obligation of funds and securities due from clients as on date of settlement and for next day’s
business, he may retain funds/securities/margin to the extent of value of transactions executed on the day of such
settlement in the cash market.
d) You need to bring any dispute arising from the statement of account or settlement so made to the notice of the stock
broker in writing preferably within 7 (seven) working days from the date of receipt of funds/securities or statement, as
the case may be. In case of dispute, refer the matter in writing to the Investors Grievance Cell of the relevant Stock
exchanges without delay.
14. In case you have not opted for maintaining running account and pay-out of funds/securities is not received on the next
working day of the receipt of payout from the exchanges, please refer the matter to the stock broker. In case there is
dispute, ensure that you lodge a complaint in writing immediately with the Investors Grievance Cell of the relevant Stock
exchange.
15. Please register your mobile number and email id with the stock broker, to receive trade confirmation alerts/ details of the
transactions through SMS or email, by the end of the trading day, from the stock exchanges.
IN CASE OF TERMINATION OF TRADING MEMBERSHIP
16. In case, a stock broker surrenders his membership, is expelled from membership or declared a defaulter; Stock
exchanges gives a public notice inviting claims relating to only the "transactions executed on the trading system" of Stock
exchange, from the investors. Ensure that you lodge a claim with the relevant Stock exchanges within the stipulated period
and with the supporting documents.
17. Familiarize yourself with the protection accorded to the money and/or securities you may deposit with your stock broker,
particularly in the event of a default or the stock broker’s insolvency or bankruptcy and the extent to which you may
recover such money and/or securities may be governed by the Bye-laws and Regulations of the relevant Stock exchange
where the trade was executed and the scheme of the Investors’ Protection Fund in force from time to time.
DISPUTES/ COMPLAINTS
18. Please note that the details of the arbitration proceedings, penal action against the brokers and investor complaints
against the stock brokers are displayed on the website of the relevant Stock exchange.
19. In case your issue/problem/grievance is not being sorted out by concerned stock broker/sub-broker then you may take up
the matter with the concerned Stock exchange. If you are not satisfied with the resolution of your complaint then you can
escalate the matter to SEBI.
20. Note that all the stock broker/sub-brokers have been mandated by SEBI to designate an e-mail ID of the grievance
redressal division/compliance officer exclusively for the purpose of registering complaints.
SARAL
ACCOUNT OPENING FORM FOR RESIDENT INDIVIDUALS TRADING IN CASH SEGMENT
PHOTOGRAPH
I KYC - Please fill this form in BLOCK LETTERS. Please affix your
recent passport size
A. IDENTITY DETAILS
photograph and
1. Name of the Applicant: ____________________________________________________ sign across it
2. Father’s/ Spouse Name:_________________________________________________
3. a. Gender: Male/ Female b. Marital status: Single/ Married c. Date of birth:____(dd/mm/yyyy)
4. Nationality:________________
5. a. PAN: ____________________ b. Aadhaar Number, if any: __________________________________
6. Specify the proof of Identity submitted: ______________________________________________
B. ADDRESS DETAILS
1. Residence/ Correspondence Address: ________________________________________ City/town/village:
___________ Pin Code: __________ State: ______________ Country: __________________
2. Contact Details: Tel. (Off.) _______ Tel. (Res.) ________ Mobile No.: ________Fax: ___ Email id: _______________
3. Permanent Address (if different from above address): __________________________________________________
City/town/village:__________ Pin Code: _______ State: _________ Country: _____________
4. Specify the proof of address submitted for residence/correspondence /permanent address:________________
DECLARATION
I hereby declare that the details furnished above are true and correct to the best of my knowledge and belief and I undertake
to inform you of any changes therein, immediately. In case any of the above information is found to be false or untrue or
misleading or misrepresenting, I am aware that I may be held liable for it.
__________________ Signature of the Applicant Date: __________(dd/mm/yyyy)
Originals verified and Self-Attested Document copies received (………………………………………..)
Name & Signature of the Authorised Signatory
Date …………………. Seal/Stamp of the intermediary
I I OTHER DETAILS:
1. Bank account details:
Bank Name Branch address Bank account no. Account Type: Saving/Current/ MICR IFSC code
Number
2. Demat account details:(In case the client does not have DP account, this column may be crossed)
DP name NSDL/CDSL Beneficiary name DP ID BO ID
3. Whether DP account is also to be opened with the same intermediary (Yes/No)
4. Trading Preferences: Please sign the relevant boxes where you wish to trade.
Exchange Sign Exchange Sign Exchange Sign
NSE BSE MCX-SX
5. Mode of receiving Contract Note/ Statement of Account: Physical / Electronic (Please indicate your
preference)............................
6. Standing instructions to receive credits automatically into my BO account (Yes/No)
7. Nomination details (Name, PAN, Address and Phone no. of nominee); relationship with the nominee (If nominee
is a minor, details of Guardian like name, address, phone no. and signature of Guardian may be obtained)
I have understood the contents of policy and procedures document, tariff sheet, 'Rights and Obligations' document and 'Risk
Disclosure Document'. I do hereby agree to be bound by such provisions as outlined in these documents. I have also been
informed that the standard set of documents has been displayed for information on stock broker's designated website.
__________________ Signature of the Aplicant Date: __________(dd/mm/yyyy)
FOR OFFICE USE ONLY
UCC Code allotted to the Client: -------------------
DP name NSDL/CDSL Beneficiary name DP ID BO ID
Documents verified with Client Interviewed In-Person Verification done by
Originals By
Name of the Employee
Employee Code
Designation of the
employee
Date
Signature
I / We undertake that I/we have made the client aware of ‘Policy and Procedures’, tariff sheet. I/We have also made the
client aware of ‘Rights and Obligations’ document (s), RDD and Guidance Note. I/We have given/sent him a copy of all the
KYC documents. I/We undertake that any change in the ‘Policy and Procedures’, tariff sheet would be duly intimated to the
clients. I/We also undertake that any change in the ‘Rights and Obligations’ and RDD would be made available on my/our
website, if any, for the information of the clients.
If the client chooses to avail the demat facility from the same stock broker who is also a depository participant, the stock
broker may use the same form and provide the details of the demat account opened for the said client to the client while
providing a copy of the KYC documents.
………………………………………..
Signature of the Authorised Signatory
Date …………………. Seal/Stamp of the stock broker
NOTE: This form is applicable for individual investors trading in the cash segment. If such investors wish to trade in
segments other than cash segment and / or wish to avail facilities such as internet trading, running account, margin
trading, Power of Attorney etc., they may furnish additional details required as per prescribed regulations to the
concerned intermediary.
भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
APPENDIX
LIST OF CIRCULARS / NOTIFICATIONS
S. No. Circular / Notification No. and Date Subject
1. SEBI communication SE/10118 dated Listing fees from 1992-93 to 1996-97.
October 12, 1992.
2. SMD/SED/CIR/93/23321 dated Regulation Of Transactions Between Clients and
November 18, 1993. Brokers.
3. SMD/VRN/1476/95 dated April 27, Severance of connections with other businesses.
1995.
4. SMD/POLICY/CIR-6/97 dated May Applicability of Rule 8(1)(f) and 8(3)(f) of the
07, 1997. Securities Contract (Regulation) Rules, 1957.
5. SMD/POLICY/CIRCULAR/30/97 Registration of Brokers.
dated November 25, 1997.
6. SMD/POLICY/CIR-34/97 dated Conversion of individual membership into
December 11, 1997. Corporate membership.
7. SMD/POLICY/CIR-11/98 dated March Additional information to be submitted at the
16, 1998. time of registration of Stock Broker with SEBI.
8. FITTC/DC/CR-1/98 dated June 16, Derivatives Trading in India.
1998.
9. SMD/POLICY(BRK.REG.)/CIR-18/98 Merger/ Amalgamation of Trading Members.
dated July 09, 1998.
10. SMD-II/POLICY/CIR-37/99 dated Floating of a Subsidiary/Company by a Stock
November 26, 1999. Exchange to acquire the membership of other
Stock Exchange.
11. SMD-I/POLICY/CIR-40/99 dated Floating of a Subsidiary/Company by a Stock
December 16, 1999. Exchange to acquire the membership of other
Stock Exchange.
12. SMD-II/ALLSE/CIR-02/2000 dated Meeting Of All Stock Exchanges.
January 10, 2000.
13. SMDRP/POLICY/CIR- 06/2000 dated Conditions to be met by Broker for providing
January 31, 2000. Internet Based Trading Service.
14. SMD/POLICY/CIR. No. Exclusion of turnover from the turnover of the
24/25374/2001 dated March 22, 2001 Subsidiary.
and SEBI (Stock Brokers and Sub-
Brokers) (Second Amendment)
Regulations, 2000 dated August 30,
2000.
15. SMDRP/Policy/Cir-48/2000 dated Securities Trading through Wireless medium on
October 11, 2000. Wireless Application Protocol (WAP) platform.
16. SMDRP/POLICY/CIR-56/00 dated Use of Digital Signature on Contract Notes.
December 15, 2000.
17. SUB-BROK/CIR/02/2001 dated Intimation to the Brokers to permit their Sub-
January 15, 2001. Brokers to start business only after receipt of
Sub-Broker registration certificate from SEBI.
भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
18. SMDRPD/POLICY/CIR-8/2001 dated Composition of the deposit with Subsidiary.
February 07, 2001.
19. SMDRP/POLICY/CIR-39/2001 dated Unique Client Code.
July 18, 2001.
20. SMDRP/POLICY/CIR-41/2001 dated Eligibility for Trading Member.
August 09, 2001.
21. SMD/POLICY/CIR-49/2001 dated Advertisement by Brokers/ Sub-Brokers and
October 22, 2001. grant of trading terminals.
22. CIR/MIRSD/24/2011 dated December Guidelines on Outsourcing of Activities by
15, 2011. Intermediaries.
23. SMD/DBA-II/CIR-22/2002 dated Additional requirements for processing
September 12, 2002. applications of Stock Brokers for Registration/
Prior approval for sale of membership/ Change
of name/ trade name.
24. SMD/POLICY/CIR-4/ 2003 dated Restructuring of the Subsidiary Management.
February 11, 2003.
25. SEBI/SMD/SE/15/2003/29/04 dated Issuance of Contract Notes in electronic form.
April 29, 2003.
26. SMD/DBA-II/Cir-16/9618/03 dated SEBI Registration Number of Brokers / Sub-
May 05, 2003. Brokers to be quoted on all correspondences
with SEBI.
27. SEBI/SMD/SE/CIR-20/2003/02/06 Eligibility of a sub-broker to trade through the
dated June 02, 2003. Subsidiary Company.
28. SEBI/MRD/SE/15958/2003 dated Access to unauthorized persons by the members
August 22, 2003. of Subsidiaries.
29. SEBI/MRD/SE/CIR-32/2003/27/08 “Pro – account” trading terminal.
dated August 27, 2003.
30. SEBI/MRD/SE/CIR-33/2003/27/08 Mode of payment and delivery.
dated August 27, 2003.
31. SEBI/MRD/SE/CIR-34/2003/29/09 Unique Client Code.
dated September 29, 2003.
32. SEBI/MRD/SE/CIR-42/2003 dated Disclosure of proprietary trading by Broker to
November 19, 2003. Client.
33. SEBI/MIRSD/CIR-06/2004 January 13, Review of norms relating to trading by
2004. Members/Sub-Brokers.
34. SEBI/MRD/SE/CIR-15/2005 dated Maintenance of books of accounts and other
August 04, 2005. documents sought by Enforcement Agencies
from Stock Exchanges and Brokers.
35. MRD/DoP/SE/CIR-20/2005 dated Electronic issuance of contract notes – Additional
September 08, 2005. conditions.
36. MRD/DoP/Dep/SE/CIR-22/06 dated Exclusive e-mail ID for redressel of Investor
December 18, 2006. Complaints.
37. MIRSD-DR 1/MK/CIR-15/111600/07 Change in affiliation of Sub-Brokers.
dated December 20, 2007.
38. MRD/DoP/SE/CIR-7/2008 dated April Introduction of Direct Market Access facility.
भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
03, 2008.
39. MRD/DoP/SE/CIR-11/2008 dated Collateral deposited by Clients with Brokers.
April 17, 2008.
40. MRD/DoP/SE/CIR-03/2009 dated Direct Market Access – Clarification.
February 20, 2009.
41. MIRSD/DR-1/CIR-16/09 dated Market Access through Authorised Persons.
November 06, 2009.
42. MIRSD/SE/CIR-19/2009 dated Dealings between a client and a stock broker
December 03, 2009. (trading members included).
43. SEBI/MIRSD/MASTER CIR-04/2010 Master Circular on Oversight of Members (Stock
dated March 17, 2010. Brokers/Trading Members/Clearing Members
of any Segment of Stock Exchanges and Clearing
Corporations).
44. CIR/MRD/DMS/13/2010 dated April Execution of Power of Attorney (PoA) by the
23, 2010. Client in favour of the Stock Broker/ Stock
Broker and Depository Participant.
45. SEBI/CIR/MIRSD/AP/8/2010 dated Market Access through Authorised Persons.
July 23, 2010.
46. CIR/MRD/DP/ 25/2010 dated August Securities Trading using Wireless Technology.
27, 2010.
47. CIR/MRD/DP/26/2010 dated August Introduction of Smart Order Routing.
27, 2010.
48. CIR/MRD/DMS/28/2010 dated Execution of Power of Attorney (PoA) by the
August 31, 2010. Client in favour of the Stock Broker/ Stock
Broker and Depository Participant –
Clarifications.
49. CIR/MIRSD/9/2010 dated November Display of Details by Stock Brokers (including
04, 2010. Trading Members).
50. CIR/MRD/DP/36/2010 dated Smart Order Routing (SOR) – Clarification.
December 09, 2010.
51. CIR/ISD/1/2011 dated March 23, 2011. Unauthenticated news circulated by SEBI
Registered Market Intermediaries through
various modes of communication.
52. CIR/ISD/2/2011 dated March 24, 2011. Addendum to Circular no. Cir/ISD/1/2011
dated March 23, 2011.
53. Notification LAD-NRO/GN/2011- (Change in Conditions of Registration of Certain
12/03/12650 dated April 19, 2011. Intermediaries) (Amendment) Regulations, 2011.
54. SEBI/MIRSD/CIR/01/2011 dated May Clarification on circular dated December 3, 2009
13, 2011. on ‘Dealings between a Client and a Stock
broker.
55. CIR/MIRSD/2/2011 dated June 03, Periodical Report – Grant of prior approval to
2011. members of Stock Exchanges/Sub-Brokers.
56. CIR/MIRSD/03/2011 dated June 09, Pre- funded instruments / electronic fund
2011. transfers.
57. CIR/MRD/DP/08/2011 dated June 30, Review of Internet Based Trading (IBT) and
भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
2011. Securities trading using Wireless Technology
(STWT).
58. CIR/DNPD/6/2011 dated July 05, 2011. Modification of Client Codes of Non-
institutional Trades Executed on Stock
Exchanges (All Segments).
59. CIR/MIRSD/12/2011 dated July 11, Clarification regarding admission of Limited
2011. Liability Partnerships as Members of Stock
Exchanges.
60. CIR/MIRSD/14/2011 dated August 02, Revised procedure for seeking prior approval for
2011. change in control through single window.
61. CIR/MIRSD/15/2011 dated August 02, SMS and E-mail alerts to investors by Stock
2011. Exchanges.
62. CIR/MIRSD/16/2011 dated August 22, Simplification and Rationalization of Trading
2011. Account Opening Process.
63. CIR/MIRSD/18/2011 dated August 25, Redressal of investor grievances against Stock
2011. Brokers and Sub-Brokers in SEBI Complaints
Redress System (SCORES).
64. MIRSD/SE/CIR-21/2011 dated October Uniform Know Your Client (KYC) Requirements
05, 2011. for the Securities Markets.
65. CIR/MIRSD/22/2011 dated October ‘In-person’ verification (IPV) of Clients by
25, 2011. Subsidiaries of Stock Exchanges, acting as Stock
Brokers.
66. MIRSD/CIR-23/2011 dated December The Securities and Exchange Board of India
02, 2011. (KYC Registration Agency) Regulations, 2011.
67. MIRSD/CIR-26/2011 dated December Guidelines in pursuance of the SEBI KYC
23, 2011. Registration Agency (KRA) Regulations, 2011
and for In-Person Verification (IPV).
68. CIR/MRD/DP/09/2012 dated March Broad Guidelines on Algorithmic Trading.
30, 2012.
69. CIR/MRD/DP/20/2012 dated August Direct Market Access – Clarification.
02, 2012.
70. CIR/MIRSD/09/2012 dated August 13, Aadhaar Letter as Proof of Address for Know
2012. Your Client (KYC) norms.
71. CIR/MIRSD/10/2012 dated August 27, Rationalization of process relating to surrender
2012. of registration by Sub-Brokers.
72. CIR/MIRSD/13/2012 dated December Oversight of Members (Stock Brokers/Trading
07, 2012. Members/Clearing Members of any segment of
Stock Exchanges/Clearing Corporations).
73. CIR/MIRSD/2/2013 dated January 24, Guidelines on Identification of Beneficial
2013 Ownership.
74. Notification no. LAD-NRO/GN/2012- SEBI (KYC Registration Agency) Amendment
13/35/6998 dated March 22, 2013. Regulation 2013.
75. CIR/MIRSD/4/2013 dated March 28, Amendment to SEBI {(Know Your Client)
2013. Registration Agency} Regulations,
2011 and relevant circulars.
76. CIR/MRD/DP/24/2013 dated August Testing of software used in or related to Trading
भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
19, 2013. and Risk Management.
77. CIR/MIRSD/5/2013 dated August 27, General Guidelines for dealing with Conflicts of
2013. Interest of Intermediaries, Recognised Stock
Exchanges, Recognised Clearing Corporations,
Depositories and their Associated Persons in
Securities Market.
78. CIR/MRD/DP/16/2013 dated May 21, Broad Guidelines on Algorithmic Trading.
2013.
79. CIR/MIRSD/8/2013 dated September Simplification of registration requirements for
30, 2013. Stock Brokers.
80. CIR/MIRSD/09/2013 dated October Know Your Client Requirements.
08, 2013.
81. CIR/MRD/DMS/34/2013 dated Annual System Audit of Stock Brokers / Trading
November 06, 2013. Members.
82. CIR/MIRSD/13/2013 dated December Know Your Client Requirements.
26, 2013.
83. CIR/MRD/DP/06/2014 dated Testing of software used in or related to Trading
February 07, 2014. and Risk Management.
84. CIR/MRD/DP/07/2014 dated Safeguards to avoid trading disruption in case of
February 11, 2014. failure of software vendor.
85. CIR/MIRSD/2/2014 dated June 30, Inter-Governmental Agreement with United
2014. States of America under Foreign Accounts Tax
Compliance Act – Registration.
86. CIR/MIRSD/3/2014 dated August 28, Information regarding Grievance Redressal
2014. Mechanism.
87. CIR/MIRSD/4/2014 dated October 13, Single registration for Stock Brokers & Clearing
2014. Members.
88. CIR/MRD/DP/29/2014 dated October Modification of Client Codes of Non-
21, 2014. institutional Trades Executed on Stock
Exchanges (All Segments).
89. MIRSD-DR 1/SRP/CIR-43/28408/04 Change in Status and Constitution of the Sub-
dated December 15, 2004. Brokers, Surrender of Certificate of Registration
of Sub-Brokers and Change of Affiliation of Sub-
Brokers.
90. CIR/MIRSD/1/2015 dated March 04, SARAL Account Opening Form for Resident
2015. Individuals.
91. CIR/MIRSD/2/2015 dated August 26, Implementation of the Multilateral Competent
2015. Authority Agreement and Foreign Account Tax
Compliance Act.
92. CIR/MIRSD/3/2015 dated September Reporting Requirement under Foreign Account
10, 2015. Tax Compliance Act (FATCA) and Common
Reporting Standards (CRS) – Guidance Note.
93. CIR/MIRSD/4/2015 dated September Registration of Members of Commodity
29, 2015. Derivatives Exchanges.
94. CIR/MIRSD/29/2016 dated January 22, Know Your Client Requirements - Clarification
2016. on voluntary adaptation of Aadhaar based e-
भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
KYC process.
95. CIR/MIRSD/64/2016 dated July 12, Simplification of Account Opening Kit.
2016.
96. CIR/MIRSD/66/2016 dated July 21, Operationalisation of Central KYC Records
2016. Registry (CKYCR).
97. SEBI/HO/MIRSD/MIRSD2/CIR/P/20 Regulatory Framework for Commodity
16/92 dated September 23, 2016. Derivatives Brokers.
98. SEBI/HO/MIRSD/MIRSD2/CIR/P/20 Enhanced Supervision of Stock
16/95 dated September 26, 2016. Brokers/Depository Participants.
99. CIR/MIRSD/120/2016 dated Uploading of the existing clients' KYC details
November 10, 2016. with Central KYC Records Registry (CKYCR)
System by the registered intermediaries.
100. SEBI/ HO/MIRSD/MIRSD6/CIR/P/20 Redressal of complaints against Stock Brokers
17/20 dated March 10, 2017. and Depository Participants in SEBI Complaints
Redress System (SCORES).
101. SEBI/ HO/MIRSD/MIRSD1/CIR/P/20 Online Registration Mechanism for Securities
17/38 dated May 02, 2017. Market Intermediaries.
102. SEBI/ HO/GSD/T&A/CIR/P/2017/42 Digital Mode of Payment.
dated May 16, 2017.
103. CIR/M RD/DP/54/2017 dated June 13, Comprehensive Review of Margin Trading
2017. Facility.
104. CIR/H O/MIRSD/MIRSD2/CIR/P/201 Clarification to Enhanced Supervision Circular.
7/64 dated June 22, 2017.
105. CIR/H O/MIRSD/MIRSD2/CIR/P/201 Policy of Annual Inspection of Members by
7/73 dated June 30, 2017. Stock Exchanges/Clearing Corporations.
106. CIR/M RD/DP/86/2017 dated August Margin Trading Facility – Clarification.
01, 2017.
107. SEBI/ HO/MIRSD/MIRSD1/CIR/P/20 Integration of broking activities in Equity
17/04 dated September 21, 2017. Markets and Commodity Derivatives Markets
under single entity.
108. CIR/H O/MIRSD/MIRSD2/CIR/PB/2 Clarification to Enhanced Supervision Circular.
017/107 dated September 25, 2017.
109. SEBI/ HO/MIRSD/MIRSD2/CIR/P/20 Modification to Enhanced Supervision Circular.
17/123 dated November 29, 2017.
110. SEBI/ HO/MIRSD/DOP1/CIR/P/2018 Circular on Prevention of Unauthorised Trading
/54 dated March 22, 2018. by Stock Brokers.
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