MASTER CIRCULAR
SEBI/HO/MIRSD/MIRSD-PoD/P/CIR/2025/90 June 17, 2025
To,
All Recognized Stock Exchanges
Stock Brokers through Recognized Stock Exchanges
Madam/Sir,
Subject: Master Circular for Stock Brokers
I. 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 provisions of the applicable circulars at one place, SEBI had
issued Master Circular dated August 09, 2024 in respect of Stock Brokers.
II. Subsequently, various guidelines/directions were issued to Stock Brokers by way
of circulars/advisory. In view of the same, the Master Circular dated August 09,
2024 has been updated to include all relevant circulars that were issued till June
10, 2025. The instant master circular supersedes the Master Circular for Stock
Brokers dated August 09, 2024.
III. Vide Master Circular for Stock Brokers dated August 09, 2024, the
directions/instructions contained in the circulars listed out in the Appendix to that
Master Circular, to the extent they relate to the Stock Brokers, were rescinded. In
addition, with the issuance of this Master Circular, the directions/instructions
contained in the circulars listed out at Sr. nos.119-130 in the Appendix to this
Master Circular, to the extent they relate to the Stock Brokers, shall stand
rescinded.
IV. Notwithstanding such rescission,
a) anything done or any action taken or purported to have been done or taken
under the rescinded circulars, prior to such rescission, shall be deemed to
have been done or taken under the corresponding provisions of this Master
Circular;
1
b) any application made to the Board under the rescinded circulars, prior to such
rescission, and pending before it shall be deemed to have been made under
the corresponding provisions of this Master Circular;
c) the previous operation of the rescinded circulars or anything duly done or
suffered thereunder, any right, privilege, obligation or liability acquired,
accrued or incurred under the rescinded circulars, any penalty, incurred in
respect of any violation committed against the rescinded circulars, or any
investigation, legal proceeding or remedy in respect of any such right,
privilege, obligation, liability, penalty as aforesaid, shall remain unaffected as
if the rescinded circulars have never been rescinded;
V. This circular is issued in exercise of powers conferred under Section 11(1) of the
Securities and Exchange Board of India Act, 1992 read with Regulation 30 of
Chapter VII of SEBI (Stock Brokers) Regulations, 1992 and Regulation 51 of
Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations)
Regulations, 2018 to protect the interests of investors in securities and to promote
the development of, and to regulate the securities markets.
VI. This circular is available on SEBI website at www.sebi.gov.in.
Yours faithfully,
Aradhana Verma
General Manager
Tel. No: 022 26449633
aradhanad@sebi.gov.in
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TABLE OF CONTENTS
S. Page
Subject
No. No.
I. REGISTRATION OF STOCK BROKERS
1. Registration of Brokers – Verification of antecedents of the applicant 10
2. Conversion of individual membership into corporate membership 10
Additional information to be submitted at the time of registration of Stock 10
3.
Broker with SEBI
Additional requirements for processing applications of Stock Brokers for
4. Registration/ Prior approval for sale of membership/ Change of name/ 11
Trade name
5. Merger/ Amalgamation of Trading Members 12
Admission of Limited Liability Partnerships as Members of Stock
6. 12
Exchanges
7. Single registration for Stock Brokers & Clearing Members 13
8. Registration of Members of Commodity Derivatives Exchanges 14
Integration of broking activities in Equity Markets and Commodity
9. 15
Derivatives Markets under single entity
10. Uniform membership structure across segments 15
11. Online Registration Mechanism for Securities Market Intermediaries 16
Transfer of business by SEBI Registered intermediaries to other legal
12. 17
entity
II. SUPERVISION & OVERSIGHT
Oversight of Members (Stock Brokers/Trading Members/Clearing
13. Members of any Segment of Stock Exchanges and Clearing 18
Corporations)
Policy of Annual Inspection of Members by Stock Exchanges/Clearing
14. 20
Corporations
15. Enhanced Supervision of Stock Brokers / Depository Participants 22
16. Annual System Audit of Stock Brokers / Trading Members 36
Framework for Monitoring and Supervision of System Audit of Stock
17. 39
Brokers (SBs) through Technology based Measures.
18. Early Warning Mechanism to prevent diversion of client securities 43
Enhanced obligations and responsibilities on Qualified Stock Brokers
19. 47
(QSBs)
III. DEALINGS WITH CLIENT
20. Unique Client Code 59
21. Simplification And Rationalization Of Trading Account Opening Process 60
22. Nomination for Eligible Trading Accounts 63
Requirements relating to dealings between a Client and a Stock Broker
23. 64
(Trading Members included)
24. Regulation of Transactions Between Clients and Brokers 68
25. Collateral deposited by Clients with Brokers 70
26. Severance of connections with other businesses 71
3
Applicability of Rule 8(1)(f) and 8(3)(f) of the Securities Contract
27. 71
(Regulation) Rules, 1957
28. Mode of payment and delivery 71
29. Pre- funded instruments / Electronic fund transfers 72
30. Disclosure of proprietary trading by Broker to Client 72
31. Pro – account” trading terminal 73
32. Review of norms relating to trading by Members 74
33. Market Access through Authorised Persons 74
34. SMS and E-mail alerts to investors by Stock Exchanges 78
35. Prevention of Unauthorised Trading by Stock Brokers 80
Execution of Power of Attorney (PoA) by the Client in favour of the Stock
36. 81
Broker/ Stock Broker and Depository Participant
Execution of ‘Demat Debit and Pledge Instruction’ (DDPI) for transfer of
37. securities towards deliveries / settlement obligations and pledging / re- 85
pledging of securities
Modification of Client Codes of Non-institutional Trades Executed on
38. 87
Stock Exchanges (All Segments)
39. Margin Trading Facility 89
Collection and reporting of margins by Trading Member (TM) /Clearing
40. 94
Member (CM) in Cash Segment.
Framework to Enable Verification of Upfront Collection of Margins from
41. 96
Clients in Cash and Derivatives segments
Margin obligation to be given by way of Pledge/ Re-pledge in the
42. 97
Depository System
43. Segregation and Monitoring of Collateral at Client Level 104
44. Maintenance of current accounts in multiple banks by Stock Brokers 114
Block Mechanism in demat account of clients undertaking sale
45. 114
transactions
46. Handling of Client’s Securities by Trading Members/ Clearing Members 116
Validation of Instructions for Pay-In of Securities from Client demat
47. account to Trading Member (TM) Pool Account against obligations 118
received from the Clearing Corporations
Settlement of Running Account of Client’s Funds lying with Trading
48. 119
Member (TM)
Risk disclosure with respect to trading by individual traders in Equity
49. 122
Futures & Options Segment
Ease of Doing Investments by Investors - Facility of voluntary freezing/
50. 122
blocking of Trading Accounts by Clients
Enhancement of operational efficiency and Risk Reduction-Pay-out of
51. 123
securities directly to client demat account
IV. TECHNOLOGY RELATED PROVISIONS
52. Electronic Contract Note 125
Conditions to be met by Broker for providing Internet Based Trading 128
53.
Service
Securities Trading through Wireless medium on Wireless Application 133
54.
Protocol (WAP) platform
4
55. Securities Trading using Wireless Technology 135
Additional Requirements for Internet Based Trading (IBT) and Securities 136
56.
trading using Wireless Technology (STWT)
57. Direct Market Access facility 137
58. Smart Order Routing 147
59. Broad Guidelines on Algorithmic Trading 150
60. Testing of Software used in or related to Trading and Risk Management 158
Safeguards to avoid trading disruption in case of failure of software 164
61.
vendor
62. Cyber Security and Cyber resilience framework for Stock Brokers. 165
Reporting for Artificial Intelligence (AI) and Machine Learning (ML) 177
63.
applications and systems offered and used by market intermediaries
Advisory for Financial Sector Organizations regarding Software as a 178
64.
Service(SaaS) based solutions
Framework to address the ‘technical glitches’ in Stock Brokers’ 179
65.
Electronic Trading Systems
Advisory for SEBI Regulated Entities (REs) regarding Cybersecurity best 184
66.
practices
Framework for Adoption of Cloud Services by SEBI Regulated Entities 185
67.
(REs)
V. CHANGE IN STATUS, CONSTITUTION, CONTROL, AFFILIATION
Periodical Report – Grant of prior approval to members of Stock 188
68.
Exchanges
69. Procedure for seeking prior approval for change in control 188
Guidelines for seeking NOC by Stock Brokers / Clearing Members for
70. setting up Wholly Owned Subsidiaries, Step Down Subsidiaries, Joint 192
Ventures in GIFT IFSC
Measure for Ease of Doing Business – Facilitation to SEBI registered
Stock Brokers to undertake securities market related activities in Gujarat
71. International Finance Tech-city – International Financial Services Centre 193
(GIFT-IFSC) under a Separate Business Unit (SBU)
Facilitation to SEBI registered Stock Brokers to access Negotiated
72. Dealing System-Order Matching (NDS-OM) for trading in Government 197
Securities- Separate Business Units (SBU)
VI. FOREIGN ACCOUNTS TAX COMPLIANCE ACT RELATED PROVISIONS
Inter-Governmental Agreement with United States of America under
73. 196
Foreign Accounts Tax Compliance Act – Registration
Implementation of the Multilateral Competent Authority Agreement and
74. 197
Foreign Account Tax Compliance Act
VII. INVESTOR GRIEVANCE REDRESSAL
75. Exclusive e-mail ID for redressal of Investor Complaints 198
Redressal of investor complaints against Stock Brokers in SEBI 198
76.
Complaints Redress System (SCORES)
77. Information regarding Grievance Redressal Mechanism 199
5
Publishing Investor Charter and disclosure of Investor Complaints by 199
78.
Stock Brokers on their websites
VIII. DEFAULT RELATED PROVISIONS
Standard operating procedure in the cases of Trading Member / Clearing
79. 200
Member leading to default
Recovery of assets of defaulter member and recovery of funds from
80. debit balance clients of defaulter member for meeting the obligations of 206
clients / Stock Exchange / Clearing Corporation
IX. MISCELLANEOUS
81. Advertisement by Brokers and grant of trading terminals 208
Registration Number of Brokers to be quoted on all correspondences 208
82.
with SEBI
Maintenance of books of accounts and other documents sought by 208
83.
Enforcement Agencies from Stock Exchanges and Brokers
84. Display of details by Stock Brokers (including Trading Members) 209
Unauthenticated news circulated by SEBI Registered Market 209
85.
Intermediaries through various modes of communication
86. Guidelines on Outsourcing of Activities by Stock Brokers 210
General Guidelines for dealing with Conflicts of Interest of Stock Brokers 217
87.
and their Associated Persons in Securities Market.
Association of persons regulated by the Board and their agents with 219
88.
certain persons
89. Digital Mode of Payment 220
90. Regulatory Framework for Commodity Derivatives Brokers 220
Approach to securities market data access and terms of usage of data 221
91.
provided by data sources in Indian securities market
Introduction of Investor Risk Reduction Access (IRRA) platform in case 221
92.
of disruption of trading services provided by the Trading Member (TM)
93. Maintenance of a website by stock brokers 224
94. Framework for Regulatory Sandbox 224
Transactions in Corporate Bonds through Request for Quote (RFQ)
95. 225
platform by Stock Brokers (SBs)
96. Bank Guarantees (BGs) created out of clients’ funds 226
Upstreaming of clients’ funds by Stock Brokers (SBs) / Clearing
97. 226
Members (CMs) to Clearing Corporations (CCs)
Measures to instil confidence in securities market – Brokers’ Institutional
98. 229
mechanism for prevention and detection of fraud or market abuse
X. REPORTING REQUIREMENTS 231
Annexures
Annexure-1 - Additional information to be submitted at the time of 237
1.
registration of Stock Broker with SEBI
Annexure-2 – An Illustrative list of common violations/deficiencies 242
2.
observed by SEBI in its inspections of members
Annexure-3 - Stock Broker System Audit Framework - Terms of 245
3.
Reference (ToR) for Type I Broker
6
Annexure-4 - Stock Broker System Audit Framework – ToR for Type II 250
4.
Broker
Annexure-5 - Stock Broker System Audit Framework – ToR for Type III 257
5.
Broker
Annexure-6 - Stock Broker System Audit Framework – Executive 265
6.
Summary Reporting Format
Annexure-7 - Index of documents giving details of various documents for 267
7.
client account opening process
Annexure-8 - Additional information about the client related to trading 269
8.
account
Annexure-9 - Rights & Obligations of stock broker, and client for trading 273
9. on exchanges (including additional rights & obligations in case of internet
/ wireless technology based trading)
Annexure-10 - Uniform Risk Disclosure Documents (for all segments / 279
10.
exchanges)
Annexure-11- Guidance Note detailing Do’s and Don’ts for trading on 284
11.
exchange(s) for investors
286
12. Annexure-12 - Format for nomination form
288
13. Annexure-13 - Declaration Form for opting out of nomination
289
14. Annexure-14 - Demat Debit and Pledge Instruction
Annexure-15 - Format of the Daily Reporting by the members to the 290
15. Exchange on the amount financed by them under the Margin Trading
Facility
291
16. Annexure-16 - Allocation of collateral
Annexure-17 – Monitoring of the minimum 50% cash-equivalent 293
17.
collateral requirement
295
18. Annexure-18 - Blocking of margins
297
19. Annexure-19 - Monitoring of risk reduction mode
299
20. Annexure-20 – Change of Allocation
Annexure-21 - Procedures to be followed in the Stage-2 and the Stage- 300
21.
3 of Default Management Process
Annexure-22 - Procedures to be followed in the Stage-4 of Default 302
22.
Management Process
23. Annexure-23 - Risk disclosures 304
24. Annexure-24 - Data Format 305
Annexure-25 - Incident Reporting Form regarding cyber incidents by 307
25.
stock brokers
310
26. Annexure-26 - Form to report on AI and ML technologies
312
27. Annexure-27 - Systems deemed to be based on AI and ML technology
313
28. Annexure-28 – Consolidated Quarterly Reporting Form
Annexure-29 – Advisory for Financial Sector Organizations regarding 314
29.
Software as a Service(SaaS) based solutions
7
316
30. Annexure-30 –Root Cause Analysis (RCA) Form
Annexure-31 – Advisory for SEBI Regulated Entities (REs) regarding 318
31.
Cybersecurity best practices
Annexure-32 - Framework for Adoption of Cloud Services by SEBI 321
32.
Regulated Entities (REs)
Annexure-33 - Format for reporting changes in "status or constitution" of 363
33.
Members
364
34. Annexure-34 - Declaration cum undertaking
Annexure-35 – Application to SEBI for opening of wholly owned 366
35. subsidiaries, step down subsidiaries or entering into joint ventures in
GIFT IFSC
370
36. Annexure-36 - Information regarding Grievance Redressal Mechanism
371
37. Annexure-37 - Investor Charter - Stock Brokers
Annexure-38 – Format for Investor Complaints Data to be displayed by 377
38.
Stock Brokers on their respective websites
Annexure-39 - Affidavit of undertaking cum indemnity bond to be 379
39.
submitted by member to Stock Exchange / Clearing Corporation
382
40. Annexure-40 - Digital Mode of Payment
Annexure-41 - Details of FMC circulars which shall stand repealed and 383
41.
relevant SEBI circulars which shall be applicable
Annexure-42 - Details of FMC circulars contents/norms of which shall 387
42.
continue as they are specific to commodity derivative markets
388
43. Annexure-43 - Details of FMC circulars which shall stand repealed
Annexure-44 - Terms and conditions for allowing Bank guarantee from
44. 389
clients
45. Appendix - List of Circulars / Communication 391
List of Abbreviations
API Application Programming Interface
CC Clearing Corporation
CM Clearing Member
CTCL Computer-to-Computer Link
DP Depository Participant
EPI Early Pay-in
FII Foreign Institutional Investor
GIFT Gujarat International Finance Tec-City International Financial Services
IFSC Centre
IPF Investor Protection Fund
ISIN International Securities Identification Number
KYC Know Your Customer
LAN Local Area Network
MoA Memorandum of Association
NOC No Objection Certificate
PAN Permanent Account Number
8
PoA Power of Attorney
SGF Settlement Guarantee Fund
T-Day Trading Day
TM Trading Member
UCC Unique Client Code
VaR Value-at-Risk
9
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 (hereinafter referred to as “SEBI 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 the Securities and Exchange Board of India
(Stock Brokers) Regulations, 1992 (hereinafter referred to as “Stock Brokers
Regulations 1992”), a Stock Broker has to apply in Form A, Schedule I of the
aforesaid Regulations, 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 the format at Annexure-1 is also submitted
along with the application for all the cases sent for registration.
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.
10
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
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 Reference: Circular SMD/DBA-II/CIR-22/2002 dated September 12, 2002
11
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 the Stock Brokers
Regulations 1992, all erstwhile partner(s) should be whole-time directors
in the corporate entity so formed, and the whole-time director shall
individually (in case there is one whole-time director) or jointly (in case
there are more than one whole-time directors) have to hold at least 40%
of the paid up equity capital of the corporate entity formed for a period of
at least 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 whole-time director of the corporate
entity, will have to individually or jointly hold at least 40% of the paid-up
capital of the corporate entity so formed for a period of at least three
years from the date of such conversion.
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.
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 Rule4(c) of SEBI (Stock Brokers) 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.”
12
6. Admission of Limited Liability Partnerships as Members of Stock
Exchanges6
6.1. Securities Contract (Regulation) Rules, 1957 (hereinafter referred to as
“SCRR 1957”) do not explicitly mention Limited Liability Partnerships (LLPs)
as the Limited Liability Partnership Act, 2008 (hereinafter referred to as “LLP
Act 2008”) was a subsequent development. As per the LLP Act 2008, LLP is
a body corporate. Sub-rule 4A and 5 of Rule 8 of the SCRR 1957 provide 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 to LLC and partnership firms.
6.2. 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 1957, as far as it can apply to LLPs.
7. Single registration for Stock Brokers & Clearing Members7
7.1. As per the amendment to the Stock Brokers Regulations 1992 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.
7.2. Registration requirements will be as per the following guidelines:
7.2.1. 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 Stock Brokers
Regulations 1992. The entity shall be issued one certificate of registration,
irrespective of the Stock Exchange(s)/ Clearing Corporation(s) or number
of segment(s).
7.2.2. 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
6 Reference: Circular CIR/MIRSD/12/2011 dated July 11, 2011
7 Reference: Circular CIR/MIRSD/4/2014 dated October 13, 2014
13
concerned Stock Exchange or Clearing Corporation, as per the procedure
prescribed in the Stock Brokers Regulations 1992 for registration. The
Stock Exchange/ Clearing Corporation shall report to SEBI about such
grant of approval.
7.2.3. 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 para 7.2.2 above.
7.2.4. Fees shall be applicable for all the stock brokers, self-clearing members
and clearing members as per Schedule V of the Stock Brokers
Regulations 1992. 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 Stock Brokers
Regulations 1992.
7.3. 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:
7.3.1. The applicant, its directors, proprietor, partners and associates satisfy
the Fit and Proper Criteria as defined in the Securities and Exchange
Board of India (Intermediaries) Regulations, 2008 (hereinafter referred
to as “Intermediaries Regulations 2008”);
7.3.2. 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
7.3.3. Recovery of all pending fees/ dues payable to SEBI, Stock Exchange
and Clearing Corporation.
8. Registration of Members of Commodity Derivatives Exchanges8
8.1. 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
8 Reference: Circular CIR/MIRSD/4/2015 dated September 29, 2015
14
an exchange and conditions of registration, as specified in SCRR 1957 and
Stock Brokers Regulations 1992, respectively.
8.2. The application for registration shall be made in the manner prescribed in the
Stock Brokers Regulations 1992, 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 Annexure-1 to this circular regarding additional
information to be submitted at the time of registration of stock broker with SEBI.
8.3. The minimum net worth specified for members of commodity derivatives
exchanges, shall have to be computed as prescribed in the Stock Brokers
Regulations 1992.
8.4. “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 disqualified under Rule 8(1)(f) and
Rule 8(3)(f) of the SCRR 1957.
9. Integration of broking activities in Equity Markets and Commodity
Derivatives Markets under single entity9
9.1. A stock broker can deal in commodity derivatives and other securities under a
single entity, thereby facilitating ease of doing business.
9.2. As per the existing procedure under single registration mechanism, a one-time
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.
9.3. 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.
9.4. 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.
9 Reference: Circular SEBI/HO/MIRSD/MIRSD1/CIR/P/2017/104 dated September 21, 2017.
15
10. Uniform Membership structure across segments10
10.1. SEBI has implemented the mechanism of single registration, whereby a
registered TM /CM can operate in any segment of the recognized Stock
Exchange / Clearing Corporation under the single registration number
granted by SEBI.
10.2. In order to implement uniform membership structure across equity cash and
derivatives segments, following course of action is provided:
10.2.1. The membership structure as TM, Self-clearing Member (SCM), CM
and Professional Clearing Member (PCM) as prevalent in equity
derivatives segment has been implemented in cash segment with effect
from April 01, 2019.
10.2.2. The existing Stock Brokers in cash segment of a Stock Exchange who
are already registered as SCM / CM in derivatives segment have
automatically become SCM / CM, as the case may be, in cash segment
with effect from April 01, 2019.
10.2.3. The existing Stock Brokers in cash segment of a Stock Exchange who
are not registered as SCM / CM in derivatives segment shall continue
as SCM in cash segment with effect from April 01, 2019. However, -
10.2.3.1. Existing Stock Brokers in cash segment shall meet with the
net-worth requirement as per formula prescribed by Dr. L.C.
Gupta Committee as applicable to SCM / CM in equity
derivatives segment on or before September 30, 2019.
10.2.3.2. Existing Stock Brokers in cash segment who fail to meet the
net-worth requirement for SCM / CM on or before September
30, 2019 shall continue to trade as Trading Member in cash
segment provided that they shall tie up with a CM / PCM for
clearing and settlement of their trades on or before September
30, 2019.
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
10 Reference: Circular SEBI/HO/MIRSD/DOP/CIR/P/2019/14 dated January 11, 2019
11 Reference: Circular SEBI/HO/MIRSD/MIRSD1/CIR/P/2017/38 dated May 02, 2017
16
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 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. Transfer of business by SEBI registered intermediaries to other legal entity12
12.1 The transferee shall obtain fresh registration from SEBI in the same capacity
before the transfer of business if it is not registered with SEBI in the same
capacity. SEBI shall issue new registration number to transferee different
from transferor’s registration number in the following scenario:
“Business is transferred through regulatory process (pursuant to merger/
amalgamation / corporate restructuring by way of order of primary regulator
/government / NCLT, etc.) or non-regulatory process (as per private
agreement /MOU pursuant to commercial dealing / private arrangement)
irrespective of transferor continues to exist or ceases to exist after the said
transfer.
12.2 In case of change in control pursuant to both regulatory process and non-
regulatory process, prior approval and fresh registration shall be obtained.
While granting fresh registration to same legal entity pursuant to change in
control, same registration number shall be retained.
12.3 If the transferor ceases to exist, its certificate of registration shall be
surrendered.
12.4 In case of complete transfer of business by transferor, it shall surrender its
certificate of registration.
12 Reference: Circular SEBI/HO/MIRSD/DOR/CIR/P/2021/46 dated March 26, 2021
17
12.5 In case of partial transfer of business by transferor, it can continue to hold
certificate of registration.
II. SUPERVISION & OVERSIGHT
13. Oversight of Members (Stock Brokers/Trading Members/Clearing Members
of any Segment of Stock Exchanges and Clearing Corporations)13
13.1. Inspection of Members by Stock Exchanges / Clearing Corporations
13.1.1. 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.
13.1.2. 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.
13.1.3. 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.
13.1.4. An illustrative list of common violations/deficiencies observed by SEBI in
its inspections of members is enclosed as Annexure-2. The Stock
Exchanges and Clearing Corporations are advised to bring this list to the
13 Reference: Circular SEBI/MIRSD/MASTER CIR-04/2010 dated March 17, 2010 and Circular
CIR/MIRSD/13/2012 dated December 07, 2012.
18
notice of members with an advice to them to avoid these
violations/deficiencies.
13.1.5. 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 six months from the conclusion of
the inspection.
13.2. Internal Audit
13.2.1. 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.
13.2.2. 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 (hereinafter referred to as “SCRA
1956”), Intermediaries Regulations 2008, Stock 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.
13.2.3. 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 months from the end of the half
year period.
13.2.4. The Stock Exchange/Clearing Corporation shall analyze the audit reports
so received and take appropriate follow up action.
13.2.5. 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
19
end of the half year period.
13.3. Default in case of Multiple Membership
13.3.1. 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.
13.3.2. 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.
13.3.3. 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 Securities and Exchange
Board of India (Substantial Acquisition of Shares and Takeovers)
Regulations, 2011 (hereinafter referred to as “Takeover Regulations
2011”).
14. Policy of Annual Inspection of Members by Stock Exchanges/Clearing
Corporations14
14.1. Policy for annual inspection of members, as decided in consultations with the
Stock Exchanges/Clearing Corporations is specified below.
14.2. The criteria for selection of members for annual inspection are as follows:
14 Reference: Circular CIR/HO/MIRSD/MIRSD2/CIR/P/2017/73 dated June 30, 2017
20
14.2.1. Stock Brokers servicing investors, getting disabled on account of
funds shortages on more than three times in a month shall be
inspected irrespective of the fact of when they were last inspected.
14.2.2. Stock Brokers servicing investors, having overnight disablement on
account of margin shortage for more than two days shall be inspected
irrespective of the fact of when they were last inspected.
14.2.3. Top twenty-five 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.
14.2.4. Top twenty-five 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.
14.2.5. Stock Brokers having adverse observations in the internal audit report
on high risk issues like wrong reporting of margins, transfer of trades,
pledging of client securities, dealing with unregistered intermediaries
etc., shall be inspected irrespective of the fact of when they were last
inspected.
14.2.6. Subsidiaries of Regional Stock Exchanges shall be inspected every
year.
14.2.7. Stock Exchange shall frame internal policy for selection of stock
brokers for inspection based on inputs/alerts from Risk Based
Supervision.
14.2.8. 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.
14.2.9. Apart from the above few stock brokers shall be selected by the Stock
Exchanges on a random basis for inspection.
14.2.10. 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.
21
14.2.11. 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.
14.2.12. Inspections of Professional Clearing Members shall be conducted by
Clearing Corporations once in two years.
14.3. 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.
14.4. 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.
14.5. 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.
15. Enhanced Supervision of Stock Brokers / Depository Participants15
15.1. 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 para
15.3 to 15.11 below have been issued. These guidelines cover the following
broad areas:
15.1.1 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.
15.1.2 Monitoring of Clients’ Funds lying with the stock broker by the Stock
Exchanges, through a sophisticated alerting and reconciliation
15 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.
22
mechanism, to detect any misutilisation of clients’ fund.
15.1.3 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.
15.1.4 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.
15.1.5 Imposition of uniform penal action on stock brokers/depository
participants by the Stock Exchanges/Depositories in the event of non-
compliance with specified requirements.
15.1.6 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.
15.2. The provisions of enhanced supervision circular is not applicable to Regional
Commodity Exchanges till further notice.
15.3. Naming/Tagging of Bank and Demat Accounts by Stock Broker16
15.3.1. 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.
15.3.2. The nomenclature for bank accounts and demat accounts to be followed
is given as under:
16 Reference: Circular SEBI/HO/ MIRSD/ MIRSD_DPIEA/P/CIR/2022/83 dated June 20, 2022,
Circular SEBI/HO/MIRSD/MIRSD-PoD-1/P/CIR/2022/153 dated November 11, 2022 and Circular
SEBI/HO/MIRSD/MIRSD-PoD-1/P/CIR/2023/187 dated December 12, 2023
23
15.3.2.1. Up Streaming Client Nodal Bank Account (USCNBA): SB/CM
shall receive clients’ funds in USCNBA. The nomenclature for
such accounts shall be “Name of the SB/CM – USCNB
account”.
15.3.2.2. Down Streaming Client Nodal Bank Account (DSCNBA):
Payment to clients shall be done only from DSCNBA account.
The nomenclature for such accounts shall be “Name of the
SB/CM – DSCNB account”.
15.3.2.3. Bank account(s) held for the purpose of settlement would be
named as "Name of Stock Broker - Settlement Account".
15.3.2.4. Stock brokers are required to maintain demat accounts only
under the following 6 categories:
Table 1
S.No. Demat Account Category Purpose of Demat Account
1. Proprietary Account Hold Own Securities
2. Pool account Settlement Purpose
3. Client Unpaid Securities For pledging of Unpaid Securities
Pledgee Account of Clients
4. Client Securities Margin For Margin obligations to be
Pledge Account given by way of Pledge/ Re-
pledge
5. Client Securities under Hold funded securities in respect
Margin Funding Account of margin funding
6. Client Nodal MFOS Account For subscription/ redemption of
MFOS units
15.3.3. Naming proprietary bank accounts of the stock broker as 'Stock Broker-
Proprietary Account' is voluntary. It is however clarified that bank account
which do not fall under the above para of 15.3.2.1 and 15.3.2.2 would be
deemed to be proprietary.
15.3.4. All demat accounts maintained by stock brokers should be appropriately
tagged. Further, it is prescribed that:
15.3.4.1. Credit of securities shall not be allowed in any demat account
left untagged from July 01, 2022 onwards. Credits on account
of corporate actions shall be permitted.
15.3.4.2. Debit of securities shall also not be allowed in any demat
24
account left untagged from August 01, 2022.
15.3.4.3. Stock Broker shall obtain permission from Stock Exchanges to
allow tagging of such demat accounts from August 01, 2022
onwards. Stock Exchange shall grant such approval within two
working days after imposing penalty as per their internal policy.
15.3.4.4. The provision at 15.3.4 shall not be applicable for the demat
accounts which are used exclusively for banking activities by
stock brokers which are also banks.
15.4. Reporting of Bank and Demat accounts maintained by Stock Broker:
15.4.1. The stock brokers shall inform the Stock Exchanges of existing and
new bank account(s) in the following format:
Table 2
Name Name of Account IFSC Name Purpose of Date of
and the Number Code of Account Opening
address Branch Account (Own/Client/
of Bank Settlement)
15.4.1.1. 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.
15.4.2. The stock brokers shall inform the Stock Exchanges of existing and
new demat account(s) in the following format:
Table 3
Name of Account DP ID Name of PAN Sub-type/ tag Date
DP Number Account of Demat of
/ Client Holder Account17 Open
ID ing
15.4.3. Stock Exchanges and/or Depositories, as the case may be, shall
ensure the following:
15.4.3.1. 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
Reference: Circular SEBI/HO/ MIRSD/ MIRSD_DPIEA/P/CIR/2022/83 dated June 20, 2022
25
Exchanges within one week of the opening of the account.
15.4.3.2. 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.
15.4.3.3. 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.
15.4.3.4. Any non-compliance/non-reporting in this regard by the stock
broker shall attract penal action as per the provisions of Stock
Exchanges.
15.4.3.5. 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.
15.4.4. In line with the prevalent regulatory requirement, it is reiterated that;
15.4.4.1. Stock Broker shall not use client funds and securities for
proprietary purposes including settlement of proprietary
obligations.
15.4.4.2. Transfer of funds between "Name of Stock Broker - Client
Account" and "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.
15.4.4.3. 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.
15.4.4.4. Stock Brokers shall not grant further exposure to the clients
26
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 time.
15.5. Monitoring of Clients’ Funds lying with the Stock Broker by the Stock
Exchanges18
15.5.1. 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
15.5.2 below.
15.5.2. Stock exchanges shall put in place a mechanism for monitoring of clients’
funds (‘G’ principle) lying with the stock brokers on the principle
enumerated below:
G Principle: The total available funds i.e. cash and cash equivalent with
the stock broker and with the clearing corporation/clearing member
should always be equal to or greater than clients’ funds as per the ledger
balance.
15.5.3. 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.
15.5.4. 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.
15.5.5. Stock Brokers shall ensure due compliance in submitting the information
to the Exchanges within the stipulated time.
15.6. Internal Audit of Stock Broker
15.6.1. SEBI has mandated half yearly internal audit for stock brokers/clearing
18 Reference: SEBI Circular SEBI/HO/MIRSD/MIRSD-PoD-1/P/CIR/2024/03 dated January 12, 2024
27
members. The following additional requirements in relation to internal
auditors shall become applicable:
15.6.2. Appointment and Rotation of Internal auditors
15.6.2.1. Stock Exchanges shall ensure that;
i. 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.
ii. 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—
iii. An individual internal auditor who has completed his term
under para ii(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.
iv. An audit firm which has completed its term under para ii(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 stock broker for
a period of five years.
28
v. The block of five years shall start from FY 2016-17.
15.6.3. Formulation of objective sample criteria for Internal Audit
15.6.3.1. The Stock Exchanges shall, in consultation with each other,
develop for each theme/area of the internal audit, 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.
15.6.4. Monitoring of quality of Internal Audit Reports
15.6.4.1. 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.
15.6.4.2. 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
29
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 years.
15.6.5. Submissions of Internal Audit Report
15.6.5.1. 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:
Table 4
S. Period of Audit Due date for
No. submission
1 For half year ending September 30th November 30th
2 For half year ending March 31st May 31st
15.6.6. Other requirements
15.6.6.1. 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.
15.6.6.2. 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.
15.7. Monitoring of Financial Strength of Stock Brokers
15.7.1. The Stock Exchanges shall monitor the following financial indicators and
ratios of stock brokers.
15.7.1.1. 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.
30
d. Percentage change in inter corporate deposits given over
last year/submission.
15.7.1.2. 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) / (Net worth).
d. Value of maximum outstanding inter corporate debt
during the year) / (Share capital).
15.7.2. Stock Brokers shall submit financial statements to Stock Exchanges in the
same format as prescribed under the Companies Act, 2013 irrespective of
whether they fall under the purview of the 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 the Companies Act,
2013 for submission to Registrar of Companies.
15.7.3. No stock broker shall appoint or re-appoint—
15.7.3.1. an individual as statutory auditor for more than one term of
five consecutive years;
and
15.7.3.2. an audit firm as statutory auditor for more than two terms of
five consecutive years:
Provided that –
15.7.4. An individual statutory auditor who has completed his term under para
15.7.3.1 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.
15.7.5. A statutory audit firm which has completed its term under para 15.7.3.2
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.
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.
31
15.8. Standard Operating Procedures for Stock Brokers/Depository
Participants - Actions to be contemplated by Stock
Exchanges/Depositories for any event based discrepancies
15.8.1. 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:
15.8.1.1. Monitoring criteria for Stock Brokers
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 October
31st 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.
15.8.1.2. Monitoring criteria for Depository Participants
a. Failure to furnish Networth certificate to Depository for
year ending March 31st by October 31st.
32
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 to submit data on time.
h. Failure to submit financial statements as per timeline
prescribed by the Depositories.
15.8.1.3. 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.
15.9. Uploading clients' fund balance and securities balance by the Stock
Brokers on Stock Exchange system
15.9.1. 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:
15.9.1.1. 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.
15.9.1.2. 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).
33
15.9.1.3. 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.
15.9.1.4. The data at Para 15.9.1.1, 15.9.1.2 and 15.9.1.3 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.
15.9.1.5. 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.
15.9.2. Each Stock Exchange shall in turn forward –
15.9.2.1. Information at Para 15.9.1.1, 15.9.1.2 and 15.9.1.3 to clients
via Email on the email IDs uploaded by the stock broker to
the exchange for their clients.
15.9.2.2. Information at Para 15.9.1.1, 15.9.1.2 (only consolidated
data) and 15.9.1.3 (only consolidated data) to clients via
SMS on mobile numbers uploaded by the stock broker to the
Exchange for their clients.
15.10. Running Account Settlement19
15.10.1. The stock broker shall ensure that;
15.10.1.1. The TM, after considering the End of the Day (EOD) obligation
of funds across all the Exchanges, shall settle the running
accounts at the choice of the clients on quarterly and monthly
basis, on the dates stipulated by the Stock Exchanges.
19 Reference: Circular MIRSD/ SE /Cir-19/2009 dated December 03, 2009,
Circular SEBI/HO/MIRSD/MIRSD2/CIR/P/2016/95 dated September 26, 2016
Circular SEBI/HO/MIRSD/DOP/P/CIR/2021/577 dated June 16, 2021,
Circular SEBI/HO/MIRSD/DoP/P/CIR/2022/101 dated July 27, 2022 and
Circular SEBI/HO/MIRSD/MIRSD-PoD1/P/CIR/2023/197 dated December 28, 2023
34
15.10.1.2. Stock exchanges shall, jointly, issue the annual calendar for the
settlement of running account (quarterly and monthly) at the
beginning of the financial year.
15.10.1.3. TM shall ensure that funds, if any, received from clients, whose
running account has been settled, remain in the “Up Streaming
Client Nodal Bank Account” and no such funds shall be used
for settlement of running account of other clients. Stock
Exchanges shall evolve a monitoring mechanism for this
purpose.
15.10.1.4. 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.
15.10.1.5. 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.
15.10.1.6. In cases where physical payment instrument (cheque or
demand draft) is issued by the TM towards the settlement of
running account due to failure of electronic payment
instructions, the date of realization of physical instrument into
client’s bank account shall be considered as settlement date
and not the date of issue of physical instrument.
15.10.1.7. Once the TM settles the running account of funds of a client,
an intimation shall be sent to the client by SMS on mobile
number and also by email. The intimation should also include
details about the transfer of funds (in case of electronic transfer
– transaction number and date; in case of physical payment
instruments – instrument number and date). TM shall send the
retention statement along with the statement of running
accounts to the clients as per the existing provisions within five
working days.
15.11. Providing PAN Number
15.11.1. The stock brokers shall provide Permanent Account Numbers of all
their Directors, Key Management Personnel and dealers to the Stock
35
Exchanges. Any change in the aforesaid details/information shall be
intimated to the Stock Exchanges within seven days of such change.
16. Annual System Audit of Stock Brokers / Trading Members20
16.1. System audit guidelines for Stock Brokers / Trading members prescribed
below includes System Audit Process, Auditor Selection Norms and Terms
of Reference (TOR).
16.2. The Stock Exchanges should ensure that system audit of stock brokers /
trading members is conducted in accordance with the prescribed guidelines.
16.3. 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.
16.4. Stock Exchange should report all major non-compliances / observations of
system auditors, broker wise, on a quarterly basis to SEBI.
Table 8
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 fifty.
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
20 Reference: Circular CIR/MRD/DMS/34/2013 dated November 06, 2013.
36
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:
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-3 below);21
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-4 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-5
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 three 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
21 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
37
forwarded to the Stock Exchange by the Stock Broker along with
management comments, within one 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-6 of this Framework for the executive summary of the System
Audit report to highlight the major findings of the System Audit.
2. Auditor Selection Norms
2.1. The Auditor shall have minimum three 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).
2.3. 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.
38
17. Framework for Monitoring and Supervision of System Audit of Stock Brokers
(SBs) through Technology based Measures22
Considering the complexities of technology and system used by stock brokers and
emanating technology risk thereof, there is a need to further strengthen the system
audit framework. Therefore, it has been decided to introduce technology based
mechanism to monitor and supervise the way in which the system audits are
conducted and to prescribe eligibility criteria for the empanelment of auditors to
ensure that audits are conducted in a stipulated manner.
17.1. Monitoring and Supervision of System Audit process through online
mechanism:
i. Stock Exchanges shall develop web portal/ web based platform and
create technology based mechanisms to monitor and supervise the
entire system audit lifecycle of a stock broker.
ii. Stock Exchanges shall monitor process of carrying out of system
audit of SBs through online monitoring mechanism. As part of the
monitoring mechanism, exchanges shall capture the geo location of
the auditor to ensure that physical visit is carried out by auditor in the
premises of the stock broker.
iii. The web based monitoring & supervision framework shall be
accessed by the auditor during the audit. Exchanges shall ensure
that only the authorized auditor or person of the audit firm shall have
access to the web portal while conducting audit through secure OTP
mechanism.
17.2. Standardization System Audit Process and Audit Report:
Pre audit requirements:
i. In order to ensure that the appointed auditor conducts the audit,
Stock Exchanges shall monitor the process of carrying out of system
audit through web portal in following manner:
ii. SBs are mandated to provide following details through web portal
before the commencement of system audit:
 Details of audit members such as name, address,
registration no., membership no., PAN, qualification, mobile
number etc.
22 SEBI/HO/MIRSD/TPD/CIR/2025/10 dated January 31, 2025
39
 Date of appointment of auditor, period of audit, copy of auditor
appointment letter.
 Audit plan including proposed dates for physical visit by
auditor, list of proposed coverage of IT systems/processes,
 SBs/TMs name, address, PAN, SEBI registration no. etc
Requirements during the audit:
iii. During every visit to the SBs’ premises, auditor shall log in to the web
portal of the exchange from SBs’ location. The login into the web
portal shall be enabled only to authorized auditor through secured
mechanism such as OTP on mobile device of the auditor.
iv. Web portal shall capture the geo location of the auditor to confirm
physical visits by the auditor.
v. During audit, the auditor shall provide following details through
online web portal:
 Audit start date, Date of visit, entry time, exit time, audit team
members visited, person with whom interacted, details of
systems covered, audit end date etc.
 Evidence shall be collected by inspecting physical
assets, records/documents, testing of relevant systems,
system generated reports etc.
vi. Exchanges shall conduct surprise visit to the premises of Qualified
Stock Brokers (QSBs) to verify the audit being actually carried outby
authorized auditor or authorize persons of audit firm. The exchanges
may explore the possibilities of surprise visit to other SBs on a
sample basis.
vii. The system auditor shall carry out offsite assessments of the virtual
assets provided by third party vendors (cloud services –SaaS, PaaS,
IaaS etc.). SBs/TMs shall obtain SOC-II compliance from vendors
and provide it to the auditor. Exchanges may also prescribe suitable
certification/compliance to be obtained from third-party vendors and
maintained by SBs/TMs.
Post audit requirements:
viii. Stock Exchanges shall define standardized template for the system
audit report in order to maintain uniformity of audit reports across
SBs/TMs. The standardised template of the audit report shall be
40
made available on the web portal which can be filled up by the
auditor and submit it to SBs/TMs through the web portal.
ix. The system audit report shall be comprehensive and shall include all
areas pertaining to system and technology used by SBs including
details of locations/sites covered, IT infrastructure/applications,
systems covered during audit, distribution of critical and non-critical
IT systems, internal and external systems, sample size chosen,
criteria used to choose it, the percentage of the total that was chosen
as a sample etc.
x. The system audit report and the Action Taken Report (ATR) shall be
submitted to Exchanges through web portal. The ATR shall be
validated by the same auditor who has carried out the system audit.
xi. QSBs are mandated to submit the system audit report and the ATR
to Stock Exchanges after approval from their respective Governing
Board and Standing Committee on Technology (SCOT) or
equivalent Technology Committee (TC). Other SBs/TMs are
mandated to submit the system audit report and the ATR to Stock
Exchanges on approval of Proprietor/Partner or equivalent
responsible official through SCOT or TC.
17.3. Framework for Empanelment of System Auditors
i. Appointment of Auditor: Stock Exchanges are required to empanel
system auditors. The eligibility criteria for such empanelment shall
be prescribed such as qualification, experience, minimum no. of
partners required in an audit firm, minimum experience of conducting
audits required for the auditor, minimum no. of skilled employees
required etc. and norms for de-empanelment. The eligibility criteria
shall emphasized on the experience and qualification of auditors
rather than only on the experience of the audit firm. The list of the
empaneled auditors shall be made available on the web portal.
ii. Stock exchanges shall ensure that auditor so appointed shall be
independent and do not have any conflict of interest with stock
brokers. To address the conflict of interest and to ensure quality in
the audit report, exchange shall put in place maximum ceiling on the
appointment or reappointment of an auditor.
iii. Exchanges in consultation with SEBI, shall issue broad guideline to
ensure rationalization and standardization of the cost of conducting
41
system audit from empaneled system auditor based on certain
parameters such as no. of clients, turnover, IT infrastructure etc.
iv. Exchanges shall prescribe the additional criteria for empanelment of
system auditor for QSBs.
v. Re-appointment of auditor: After carrying out the audits of three
consecutive years, cooling off period of 2 years may be prescribed
for reappointment of the auditor/audit firm. Monitoring of compliance
of this provision shall be done by stock exchanges through web
portal.
vi. Reassessment of audit: Exchanges shall define the critical audit
area and place them in the online web portal. The reassessment
shall be carried out by the same system auditor if gaps/deficiencies
are found in such critical areas of system audit. Further, such
reassessment shall also be carried out by such auditor in case of
other stock brokers where he has conducted the audit.
vii. De-empanelment: In case it is observed by stock exchanges that
auditor has not done audit prudently or gaps/deficiencies are found
in audit report repeatedly, exchanges shall de-empanel such auditor
and also refer such matters to the National Financial Reporting
Authority(NFRA)/ICAI/ISACA, as applicable for appropriate action
against such auditor.
17.4. Enhanced obligation on the system auditor:
i. Considering the extensive use of technology by the stock brokers,
the system auditor shall verify the following aspects during the audit:
 Reporting of all technical glitches occurred in the system of
SBs to the exchanges as per the requirements.
 Remedial steps taken by SBs to resolve technical glitches
occurred in past 1 year
 Capacity planning in proportion to increase in clients/turnover
etc.
 Software testing and change management/patch
management as per prescribed guidelines (including
OMS/RMS systems provided by vendors)
 Implementation of Logging and Monitoring Mechanism
(LAMA) to detect technical glitches as prescribed by
exchanges in the technical glitch framework dated December
16,2022. Preservation of logs of LAMA parameters for the
42
prescribed period Servers/applications used for placing the
orders or routing such orders to exchange are located at SBs’
premise.
 Compliance with the requirements of DR site and conducting
live DR drill etc.
17.5. Other due diligence by stock exchanges:
i. Exchanges shall carry out due diligence to ensure authenticity of the
system audit report. In addition to the same, the system audit report
submitted by SB/TM shall be validated against the last submitted
report.
ii. Exchanges may discuss the findings of the system audit of QSBs
with the auditor after submission of audit report.
iii. Stock Exchanges shall prescribe financial disincentive on SBs for
instances where serious lacunas found in the system audit
process and/or non-closure of observations found during the audit
within defined timelines.
iv. Exchanges shall prescribe the period for preservation of documents
such as working papers, logs, screenshots, records of visit to the
premises of the entity and other evidence in support of the audit.
v. Stock Exchanges are mandated to submit summary of system audits
of SBs/TMs to SEBI on half yearly basis giving details of stock
brokers who have carried out the audit, action taken on non-
compliant stock brokers, details of surprise visits carried and findings
thereof, action taken on the auditor if any etc.
18. Early Warning Mechanism to prevent diversion of client securities23
18.1. It has been decided to put in place an Early Warning Mechanism and sharing
of information between Stock Exchanges, Depositories and Clearing
Corporations to detect the diversion of client’s securities by the stock broker
at an early stage so as to take appropriate preventive measures. The
threshold for such early warning signals shall be decided by the Stock
Exchanges, Depositories and Clearing Corporations with mutual
consultation.
23 Reference: Circular SEBI/HO/MIRSD/DOP/CIR/P/2018/153 dated December 17,2018
43
18.2. Early warning signals, for prevention of diversion of clients' securities, may
include the following:
18.2.1. Deterioration in financial health of the stock broker/ depository
participant based on any of the following parameters:
a) Significant reduction in net worth over previous half-year /year.
b) Significant losses in the previous half years / years.
c) Delay in reporting of Annual Report, Balance Sheet, Internal Audit
Reports, Risk Based Supervision (RBS) data and any other data
related to its financial health to the Stock Exchanges
/Depositories.
d) Failure to submit information sought by the Stock Exchange/
Depositories on its dealing with related parties / promoters.
e) Significant mark-to-market loss on proprietary account/ related
party accounts
f) Repeated instances of pay-in shortages.
g) Significant trading exposure or amount of loans or advances given
to and investments made in related parties/ group.
h) Sudden activation of significant number of dormant client's
accounts and / or significant activity in the dormant account/s.
i) Significant number of UCC modifications.
j) Resignation of Statutory Auditors or Directors.
18.2.2. Early warning signals in relation to securities pledge transactions by
the stock broker to be identified by the Depositories and shall be
shared with Stock Exchanges which may include:
a) Alerts for stock brokers maintaining multiple proprietary demat
accounts and opening any new demat account in the name of
stock broker for client purpose.
b) Movement of shares to / from a large number of clients' demat
accounts or large value shares to stock broker proprietary
accounts and vice a versa.
c) Transfer of large value of shares through off-market transfers
other than for settlement purposes.
d) Invocation of pledge of securities by lenders against stock broker
or his clients.
e) Significant depletion of client's shares in the stock broker client
account maintained by the stock broker.
18.2.3. Increase in number of investor complaints against the stock
broker/depository participant alleging un-authorized trading /
unauthorized delivery instructions being processed and non-receipt
of funds and securities and non-resolution of the same.
44
18.2.4. Alerts generated from the monthly / weekly submissions made by
stock broker under Risk Based Supervision (RBS) or Enhanced
Supervision to the Stock Exchanges.
a) Non-recovery of significant dues from debit balance clients over a
period of time.
b) Significant dues to credit balance clients over a period of time.
c) Failure by stock broker to upload weekly data regarding
monitoring of clients' funds as specified in SEBI's circular on
Enhanced Supervision, for three consecutive weeks.
d) Pledging securities in case of clients having credit balance and
using the funds so raised against them for own purposes or for
funding debit balance of clients.
e) Mis-reporting / wrong reporting about the client funds / securities.
f) Significant increase in RBS score.
18.2.5. Stock broker’s terminal disabled for certain number of days in any
segment / Stock Exchange in previous quarter.
18.2.6. Stock Exchanges and Depositories shall frame an internal policy
/guidelines regarding non-cooperation by stock brokers and
depository participants during inspections which shall lay down the
time period, the type of documents critical for closing the inspections,
which if not submitted, can be treated as non-cooperation.
I. Failure to submit data sought for inspections especially relating to
bank/demat accounts. client ledgers etc. despite repeated
reminders.
II. Failure to provide reasonable access to the records or any office
premises.
18.3. Stock Exchanges/ Clearing Corporations/ Depositories, shall devise a
mechanism to detect diversion of clients’ securities and to share information
among themselves in respect of:
18.3.1. Diversion of pay-out of securities to non-client accounts
18.3.2. Mis-matches between gross (client-wise) securities pay-in and pay-
out files of a stock brokers generated by the Clearing Corporation
which shall be compared with actual transfer of securities to/from the
client’s depository accounts by the Depository. The cases of any
mismatch found out by the Depository shall be informed to the
concerned Stock Exchange / Clearing Corporation.
18.3.3. Stock Exchange shall seek clarification from the concerned stock
broker on the mismatches reported by Depository and identify
transfer to a non-client/third party, without any trade obligation.
45
18.3.4. Such information on wrong / fraudulent / unauthorized transfer shall
be shared by the Stock Exchange with other Stock Exchanges.
18.4. Any other alerts as the Stock Exchanges / Clearing Corporations and
Depositories may deem fit.
18.5. Alerts triggered at one Stock Exchange / Clearing Corporation/ Depository
through early warning mechanism shall be immediately shared with other
Stock Exchanges / Depositories with respect to the stock broker / depository
participant.
18.6. Based on the analysis of the early warning data, if it is established that the
stock broker's financial health has deteriorated and/ or he has made
unauthorized transfer of funds / securities of the client, in such cases Stock
Exchanges / Depositories shall jointly take preventive actions on the stock
broker which may include one or more of, but not limited, to the following:
18.6.1. Actions to be initiated by the Stock Exchanges like:
18.6.1.1. Blocking of certain percentage of available collaterals
towards margin.
18.6.1.2. Check securities register in respect of securities received
and transferred against pay-in /pay-out against settlement
18.6.1.3. Check details of funds and securities available with the
clearing member, Clearing Corporation and the Depository
of that stock broker.
18.6.1.4. Impose limits on proprietary trading by the stock broker.
18.6.1.5. Prescribe and monitor shorter time duration for settlement
of Running Account of clients.
18.6.1.6. Conduct meeting with the designated directors of the stock
broker to seek appropriate explanation.
18.6.1.7. Uniform action of deactivation of trading terminals by all
Stock Exchanges based on the communication received
from other Stock Exchange.
18.6.1.8. Initiate inspection of the stock broker / depository
participant.
46
18.6.1.9. Cross check information submitted by stock broker with
other independent sources like collateral details with the
Clearing Corporation, transactions in Bank and
Depositories, with statement collected directly etc.
18.6.1.10. Where client money and securities diversion is suspected,
appointed forensic auditor to trace trails of entire funds and
securities of clients.
18.6.2. Actions to be taken by the Depositories:
18.6.2.1. Imposition of 100% concurrent audit on the depository
participant.
18.6.2.2. Cessation/ restriction on uses of Power of Attorney (POA)
given to stock broker by clients mapped to such brokers
only to meet settlement obligation of that client. Clients to
issue instructions electronically or through Delivery
Instruction Slip (DIS) for delivery of shares for off market
transfers.
18.6.3. Any other measures that Stock Exchanges/ Clearing Corporations/
Depositories may deem fit.
19. Enhanced obligations and responsibilities on Qualified Stock Brokers
(QSBs)24
19.1. In order to further strengthen the compliance and monitoring requirements
relating to stock brokers and to ensure efficient functioning of securities
market, SEBI, vide Gazette Notification dated January 17, 2023, amended
the SEBI (Stock Broker) Regulations, 1992 for designating certain stock
brokers, having regard to their size and scale of operations, likely impact on
investors and securities market, as well as governance and service
standards, as Qualified Stock Brokers (QSBs), on the basis of certain
parameters and appropriate weightages thereon.
19.2. The stock broker designated as a QSB shall be required to meet enhanced
obligations and discharge responsibilities to ensure appropriate governance
structure, appropriate risk management policy and processes, scalable
infrastructure and appropriate technical capacity, framework for orderly
24 Reference: Circular SEBI/HO/MIRSD/MIRSD-PoD-1/P/CIR/2023/24 dated February 06, 2023
and Circular SEBI/HO/MIRSD/MIRSD-PoD-1/P/CIR/2024/14 dated March 11, 2024
47
winding down, robust cyber security framework, and investor services
including online compliant redressal mechanism.
19.3. This circular details the parameters which shall be considered for designating
a stock broker as QSB, enhanced obligations and responsibilities which shall
be cast on such QSBs and guidelines on enhanced monitoring of QSBs
which shall be carried out by Market Infrastructure Institutions (MIIs).
19.4. Parameters for designating a stock broker as QSB:
19.4.1. The following parameters shall be considered for designating a stock
broker as QSB:
19.4.1.1. the total number of active clients of the stock broker;
19.4.1.2. the available total assets of clients with the stock broker;
19.4.1.3. the trading volumes of the stock broker (excluding the
proprietary trading volume of the stock broker);
19.4.1.4. the end of day margin obligations of all clients of a stock
broker (excluding the proprietary margin obligation of the
stock broker in all segments)
19.4.1.5. the proprietary trading volumes of the stock broker;
19.4.1.6. compliance score of the stock broker; and
19.4.1.7. grievance redressal score of the stock broker.
Procedure for identifying a stock broker as QSB:
19.4.2. The following procedure shall be followed for identifying a stock broker
as QSB:
19.4.2.1. For each stock broker, the percentage (%) of a particular
parameter compared to aggregate of the respective
parameter summed across all stock brokers shall be
calculated, viz. % of count of active clients for a particular
broker shall be calculated by dividing the individual count of
active clients for a particular broker by total number of active
clients of all the stock brokers and the value is multiplied by
100. Similarly, individual % shall be calculated for all the
parameters mentioned at para 18.4.1.1 to 18.4.1.7 above.
19.4.2.2. Based on the % of various parameters calculated above, the
following stock brokers shall be identified as QSBs:
19.4.2.2.1. Stock brokers with a total sum of individual % of
the parameters mentioned at para 18.4.1.1 to
18.4.1.5, greater than or equal to six point two five
(6.25) shall be identified as QSBs.
19.4.2.2.2. In case of the parameter mentioned at para
18.4.1.6, i.e., compliance score of the stock
48
broker, all stockbrokers (subject to maximum of
5) shall be considered as QSBs, if their individual
compliance score is equal to or more than 2%.
19.4.2.2.3. In case of the parameter mentioned at para
18.4.1.7, i.e., grievance redressal score of the
stock broker, all stockbrokers (subject to
maximum of 5) shall be considered as QSBs, if
their individual grievance redressal score is equal
to or more than 5%.
19.4.3. The values shall be calculated on an annual basis and the revised list
of QSBs shall be released jointly by stock exchanges, in consultation
with SEBI. For calculating the values for a particular year, parameters
as on December 31st of such year shall be considered.
19.4.4. Once the revised list of QSBs is released, those QSBs which no longer
belong to the list, shall continue to comply with the enhanced
obligations and responsibilities, for an additional period of 3 financial
years or such time, as may be specified by Market Infrastructure
Institutions (MIIs), in consultation with SEBI.
Facilitating stockbrokers to voluntarily get designated as QSBs:
19.4.5. In order to strengthen the compliance culture among stock brokers
and thereby, encourage stock brokers to follow the enhanced
obligations and responsibilities, it has been decided to facilitate
stockbrokers to voluntarily get designated as QSBs, who otherwise
would not have qualified to become QSBs by virtue of the parameters
enumerated at para 19.4.1.
19.4.6. Such voluntarily designated QSBs shall have to abide by all the
enhanced obligations and responsibilities for QSBs stated at paras
18.5 and 18.6 of this circular including such other provisions as may
be prescribed by SEBI/stock exchanges from time to time. The
detailed operational modalities in this regard shall be issued by stock
exchanges, in consultation with SEBI.
19.5. Enhanced obligations and responsibilities for QSBs:
19.5.1. Governance structure and processes:
19.5.1.1. The Board of Directors (BoD) or analogous body of QSBs
shall exercise oversight over incidents/vulnerabilities
having an impact on functioning of the QSB in the
securities market and investor protection including data
security breaches that can affect investor data.
49
19.5.1.2. Further, QSBs shall have committees of the Board of
Directors (BoD) or analogous body such as Audit
Committee (for listed QSBs), Nomination and
Remuneration Committee, Risk Management Committee,
Information Technology (IT) Committee, Cybersecurity
Committee and any other committee as mandated by
SEBI from time to time.
a) The Chief Financial Officer (CFO) or analogous person
of the QSB shall submit to the audit committee, details
in respect of financial status of the entity, disclosure of
any related party transactions, inter-corporate loans and
investments, internal financial controls and risk
management systems, compliance with listing and other
legal requirements relating to financial statements,
adherence to regulatory provisions etc.
b) QSBs shall, before appointing directors, Key Managerial
Personnel (KMP) and other employees, consult the
nomination and remuneration committee with regard to
their appointment, tenure and remuneration.
c) QSBs shall seek inputs from various committees such
as risk management committee and cybersecurity
committee while framing policies relating to respective
areas such as risk management of the organization and,
establishing a robust cyber security framework and
augmenting IT infrastructure and scalability of
operations.
19.5.1.3. QSBs shall submit an annual report to the stock
exchanges regarding the observations of the committees
of BOD or analogous body, corrective action taken by the
QSB and measures taken to prevent recurrence of such
incidents.
19.5.2. Risk Management Policy and Processes:
19.5.2.1. QSBs shall devise a clear and a well-documented risk
management policy which encompasses the following:
a) List of all relevant risks which may have to be borne by
the QSBs such as:
i. risks which can arise during KYC and account
50
opening process such as submission of incomplete
KYC forms by the clients, submission of fake
information with an intention to commit frauds and
non-updation of information submitted as and when
there is any change in the information submitted
during KYC;
ii. operational risks such as faulty systems which can
cause erroneous execution of orders from clients’
account and/or unauthorized trading on behalf of the
client and misutilization of client’s sensitive
information by any employee of the QSBs;
iii. technology risks which include technical glitches and
cyber-attacks; and
iv. general risks such as fraud risk, credit risk, market
risk, legal risk, reputation risk and risk due to
outsourcing of activities to third parties.
19.5.2.2. Such risk management policy shall:
a) strive to address the root cause of the risks and try to
prevent recurrence of such risks;
b) enable early identification and prevention of risk;
c) assess the likely impact of a probable risk event on
various aspects of the functioning of the QSB such as
impact on investors, financial loss to the QSB, impact on
other stakeholders in the market, reputational loss etc.
and lay down measures to minimize the impact of such
event and
d) assign accountability and responsibility of Key
Managerial Personnel (KMP) in the organization.
Surveillance of client behaviour:
19.5.2.3. The risk management framework shall have measures for
carrying out surveillance of client behaviour through
analyzing the pattern of trading done by clients, detection of
any unusual activity being done by such clients, reporting the
same to stock exchanges and taking necessary measures
to prevent any kind of fraudulent activity in the market in
51
terms of the regulatory requirements prescribed by SEBI and
MIIs.
Ensuring Integrity of Operations:
19.5.2.4. QSBs shall maintain adequate human resources, systems,
processes and procedures for seamless running of
operations and protection of investor data.
19.5.2.5. The staff of the QSBs shall be given the necessary
resources and support to carry out their duties effectively
and efficiently. The QSBs shall train their employees at
regular intervals in matters relating to the activities being
handled by them.
19.5.2.6. A CXO level officer shall be designated as responsible for
managing key risks, i.e., Chief Compliance Officer
(responsible for all regulatory compliance related activities),
Chief Information Security Officer (responsible for all cyber
security related activities), Chief Risk Officer (responsible for
overall risk management associated with functioning of the
QSB).
19.5.2.7. QSBs shall employ adequate tools to automate process of
risk management, reporting and compliance.
19.5.2.8. The risk management policy shall be reviewed on half yearly
basis by the QSB and a report in this regard shall be
submitted by the risk management committee of the QSB to
the stock exchange.
19.5.2.9. The BoD/senior management shall view any recurrence of a
particular incident seriously and take prompt and appropriate
action including fixation of accountability.
19.5.3. Scalable infrastructure and appropriate technical capacity:
19.5.3.1. The QSBs shall put in place a policy framework, approved
by its IT committee, for upgradation of infrastructure and
technology from time to time to ensure smooth functioning
and scalability for delivering services to investors at all
times. Such framework should be reviewed on half-yearly
basis.
19.5.3.2. QSBs shall, at all times, maintain adequate technical
capacity to process 2 times the peak transaction load
encountered during the preceding half year and shall also
52
fulfill all other requirements as specified by SEBI/MIIs from
time to time, in this regard.
19.5.4. Framework for orderly winding down:
19.5.4.1. QSB shall put in place, a framework for orderly wind down
of its business to ensure continuity of services to its clients
in case of closure of business by the QSB due to its inability
to provide services to its clients or meet the prescribed
regulatory requirements or any other reason. Such wind-
down framework shall encompass the following:
a) Seamless portability of its clients to other SEBI
registered stock brokers while protecting the funds and
securities of such clients;
b) Providing all necessary support to the clients to ensure
a smooth and secure transfer process;
c) Providing adequate notice to the clients before winding
down of the operations after taking approval of the stock
exchanges; and
d) Preventing any significant impact on the market and
inconvenience to the investors.
19.5.4.2. In case of wind down which may happen due to regulatory
action, erosion of networth of the QSB etc., such wind down
of operations of the QSB will be implemented under the
supervision of the stock exchange.
19.5.5. Robust cyber security framework and processes:
19.5.5.1. Digitalization and online platforms have given rise to need
for effective mitigation of information and cyber risks. SEBI,
has specified the framework on cybersecurity and cyber
resilience to be followed by all stock brokers.
19.5.5.2. However, QSBs handle sensitive data of a large number of
the investors in the securities market and any cyber-attack
on the systems of a QSB can compromise the
confidentiality and integrity of such data.
19.5.5.3. Hence, QSBs shall have additional features in their cyber
security framework which would be commensurate with the
amount of data handled by them. The cyber security
committee of the QSB shall review the framework on half-
53
yearly basis and review the instances of cyber-attacks, if
any, and take steps to strengthen the cyber security
framework of the QSB.
19.5.5.4. The QSBs shall have a dedicated team of security analysts,
which may include domain experts in the field of cyber
security and resilience, network security and data security
which shall carry out the following activities:
a) Prevention of cyber security incidents through
continuous threat analysis, network and host scanning
for vulnerabilities and breaches, deploying adequate
and appropriate technology to prevent attacks
originating from external environment and internal
controls to manage insider threats etc.
b) Monitoring, detection and analysis of potential
intrusions/security incidents in real time and through
historical trending on security-relevant data sources.
c) Operating network defence technologies such as
Intrusion Detection Systems (IDSes) and data
collection/analysis systems.
d) Conducting cyber-attack simulation on quarterly basis to
aid in developing cyber resiliency measures and test the
adequacy and effectiveness of the framework adopted.
e) Conducting awareness and training programs for its
employees with regard to cyber security and situational
awareness on quarterly basis.
f) Prevention of attacks similar to those already faced.
19.5.5.5. Such dedicated team shall submit a quarterly report to the
BoD of QSB, on above mentioned activities carried out by
them along with details of cybersecurity incidents which
occurred and details of incidents which were prevented
from occurring.
19.5.5.6. The dedicated team of security analysts shall report to
Chief Information Security Officer (CISO) of the QSB and
such CISO shall be designated as a Key Managerial
Personnel (KMP) and shall directly report to the MD &CEO
of the QSB.
54
19.5.5.7. The QSB should have well-defined and documented
processes for monitoring of its systems and networks,
analysis of cyber security threats and potential intrusions /
security incidents, usage of appropriate technology tools,
classification of threats and attacks, escalation hierarchy of
incidents, response to threats and breaches, and reporting
of the incidents.
Vulnerability Assessment and Penetration Testing (VAPT)
19.5.5.8. QSBs shall carry out continuous assessment of the threat
landscape faced by them and on half yearly basis, conduct
vulnerability assessment to detect security vulnerabilities in
their IT environments exposed to internet.
19.5.5.9. QSB shall also carry out penetration tests on half-yearly
basis, in order to conduct an in-depth evaluation of the
security posture of the system through simulations of actual
attacks on its systems and networks that are exposed to
the internet.
Business Continuity Plan:
19.5.5.10. QSB shall put in place a comprehensive Business
Continuity Plan (BCP) and such policy shall be reviewed on
half-yearly basis to minimize the incidents affecting the
business continuity.
19.5.5.11. QSB shall develop and document mechanisms and
standard operating procedures to recover from the cyber-
attacks within the stipulated Recovery Time Objective
(RTO) of the QSB, various scenarios and standard
operating procedures for resuming operations from
Disaster Recovery (DR) site of QSB.
19.5.5.12. The CISO of the QSB shall review the implementation of
the BCP and SOP on DR on monthly basis and submit a
report to the board of QSBs.
19.5.5.13. All the provisions applicable to specified stock brokers (as
stated in SEBI circular SEBI/HO/MIRSD/TPD-
1/P/CIR/2022/160 dated November 25, 2022 regarding
Framework to address the ‘technical glitches’ in Stock
Brokers’ Electronic Trading Systems) shall also be
applicable to the QSBs.
Periodic Audit
19.5.5.14. QSBs shall arrange to have their systems audited on half-
yearly basis by a CERT-IN empanelled auditor to check
55
compliance with the above mentioned requirements related
to cyber security and other circulars of SEBI on
cybersecurity and technical glitches, to the extent they are
relevant to them and shall submit the report to stock
exchanges along with the comments of the cybersecurity
committee within one month of completion of the half year.
19.5.6. Investor Services including online complaint redressal
mechanism:
19.5.6.1. QSBs must have investor service centers in all cities where
they have branches.
19.5.6.2. QSBs shall have online capabilities for engaging with clients,
responding to investor queries and seamless facility for filing
complaints by investors and clearly defined escalation
procedures.
19.5.6.3. The complaints redressal mechanism should be investor
friendly and convenient. The same should have capabilities
of being retrieved easily by the complainant online through
complaint reference number, e-mail id, mobile no. etc.
19.6. Enhanced Monitoring of QSBs:
19.6.1. QSBs shall be subjected to enhanced monitoring and surveillance
including additional submissions to be made to MIIs/SEBI, as and
when sought.
19.6.2. Stock Exchanges, in consultation with SEBI, shall carry out annual
inspection of QSBs and communicate the findings of such inspection
along with action taken report to SEBI.
19.6.3. Stock Exchanges shall devise a comprehensive framework to carry
out enhanced monitoring of such QSBs. An illustrative list of areas
is as follows:
i. Funds and securities of clients which are handled by the QSB;
ii. Significant changes in net-worth of the QSB;
iii. Significant changes in profits/losses, as compared to previous
financial year;
iv. Adverse findings in audit reports;
v. Adherence to prescribed timelines in case of various periodic
submissions to be made by QSB;
56
vi. Timely submission of any information sought by SEBI/MIIs;
vii. Adherence to enhanced obligations and responsibilities stated in
this circular; and
viii. Quality of services being provided to investors.
19.6.4. In case of any deviation/violation observed, Stock Exchanges shall
take necessary steps to ensure that the same is corrected by QSBs
including initiating disciplinary action, wherever found necessary, in
accordance with the relevant regulatory provisions/bye-laws.
19.7. The effective date of implementation for different QSBs based on the
parameter by which they are designated as QSBs has been prescribed in
the table below:
Parameters based on which a broker Applicability of the circular
is designated as QSB
Parameters mentioned at para 19.4.1.1 June 1st of the subsequent year
to 19.4.1.5 above
Parameters mentioned at para 19.4.1.6 September 1st of the subsequent
and 19.4.1.7 above year
19.8. Trading supported by Blocked Amount in Secondary Market25
19.8.1. In addition to the current mode of trading, the Qualified Stock Brokers
(QSBs) shall provide either the facility of trading supported by
blocked amount in the secondary market (cash segment) using UPI
block mechanism or the 3-in-1 Trading Account facility, to their
clients.
19.8.2. The 3-in-1 trading account facility offered/ to be offered by the TMs
shall, at least have the following features:
a. Integration of the trading account with the demat and bank
accounts of the client.
b. Blocking of funds, to the extent of the obligation, in the bank
account of the client on placement of buy orders. In case the buy
orders are not executed the funds blocked are released.
c. Blocking of securities in the demat account of the client on
placement of sell orders. In case the sell orders are not
25 SEBI/HO/MRD-PoD2/CIR/P/2024/153 dated November 11, 2024
57
executed, the block on the securities is removed.
d. The pay-in (transfer of Funds / securities) blocked at the time of
order placement, from the bank / demat account of the client is
carried out post market hours and is upstreamed to the Clearing
Corporation. The client earns interest on the available fund still
the pay-in.
19.8.3. Clients of the QSBs will have the option, to either continue with the
existing facility of trading by transferring funds to TMs or opt for either
of the facilities stated at Para 19.8.1 above, as provided by the
QSBs.
58
III. DEALING WITH CLIENT
20. Unique Client Code26
20.1. 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.
20.2. In case of other entities –
20.2.1. Brokers shall verify the documents with respect to the unique code
and retain a copy of the document.
20.2.2. 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 seven
working days of the following month.
20.2.3. 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 seven
years by the exchanges.
20.3. Mapping of Unique Client Code(UCC) with demat account of clients:27
For mapping of UCC with the demat account of the clients, the following
Mechanism has been implemented in discussion with the Stock exchange
and Depositories.
20.3.1. UCC allotted by the trading member (TM) to the client shall be
mapped with the demat account of the client.
20.3.2. A client may trade through multiple TMs in which case each such
UCC shall be mapped with one or more demat account(s).
20.3.3. Stock Exchanges shall share the UCC data with the Depositories
which shall include the PAN, segment, TM/CM code and UCC
26 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.
27 Reference: Circular SEBI/HO/MIRSD/DOP/CIR/P/2019/136 dated November 15, 2019
59
allotted. Such UCC data, in respect of new UCCs created, shall be
shared with the Depositories, on a daily basis.
20.3.4. Depositories shall map the UCC data in the demat account based on
the PAN provided in the UCC database.
20.3.5. Clients may make a request to their depository participants to delink
or add UCC details which shall be processed by the Depository
through depository participants. Before any addition of UCC in the
demat account, the Depositories shall validate the same with the
Stock Exchanges / client.
20.3.6. Stock Exchanges and Depositories shall have a mechanism in place
to address clients’ complaints with regard to UCC mapping with their
demat accounts.
20.3.7. Stock Exchanges and Depositories shall have a mechanism in place
to ensure that inactive, non-operational UCCs are not misused and
also a mechanism to ensure that inactive, non-operational UCCs are
weeded out in the process of mapping clients’ UCC with their demat
account.
21. Simplification and Rationalization of Trading Account Opening Process28
21.1. 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:
21.1.1. Index of documents giving details of various documents for client
account opening process: Annexure-7
21.1.2. Client Account Opening Form in two parts:
21.1.2.1. Know Your Client (KYC) form capturing the basic
information about the client and instruction/check list to fill
up the form:
The KYC template finalised by Central Registry of
Securitization and Asset Reconstruction and Security
interest of India (CERSAI) and as specified by SEBI
through various circulars issued from time to time, shall
be used by the registered intermediaries as Part I of AOF
for individuals and legal entities.
28 Reference: Circular CIR/MIRSD/16/2011 dated August 22, 2011
60
21.1.2.2. Document capturing additional information about the client
related to trading account: Annexure-8
21.1.3. Document stating the Rights & Obligations of stock broker, and client
for trading on exchanges (including additional rights & obligations in
case of internet / wireless technology based trading): Annexure-9
21.1.4. Uniform Risk Disclosure Documents (for all segments / exchanges):
Annexure-10
21.1.5. Guidance Note detailing Do’s and Don’ts for trading on exchanges:
Annexure-11
21.1.6. Most Important Terms and Conditions
21.2. In the account opening process, the stock brokers / trading members would
also give the following useful information to the clients:
21.2.1. A tariff sheet specifying various charges, including brokerage,
payable by the client to avoid any disputes at a later date.
21.2.2. 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.
21.3. 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.
21.4. 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
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, Demat Debit and Pledge Instruction29
etc., he would have to give specific authorization to the stock broker in order
to avoid any dispute in the future. The client would also be required to give
acknowledgement of Most Important Terms and Conditions (MITC).
29 Reference: Circular SEBI/HO/MIRSD/DoP/P/CIR/2022/44 dated April 04, 2022
61
21.5. In order to ensure that clients are permitted to access all the stock exchanges
in which the stock brokers are registered for the same segment, the format
of “Trading Preferences” has been standardized as specified at Para C of
Annexure-8.
21.6. All stock brokers are mandated to register their new clients on all the active
stock exchanges after obtaining the trading preferences as per the
aforementioned format. For existing clients, the stock brokers are mandated
to offer them access on all the active stock exchanges for the segments
already opted by them, as a default mode, within three months from the
effective date of the circular and inform their respective clients through email
/ SMS. Clients shall be given a choice to opt out of such access by providing
negative consent in this regard. Further, the stock brokers shall activate /
deactivate the segments based on the preference of the clients.
21.7. The aforementioned format of “Trading Preferences” shall not be made
applicable to members registered exclusively with commodity derivatives
exchanges. Such members shall use the format as prescribed by the
erstwhile Forward Markets Commission (FMC) vide its circular no.
FMC/COMPL/IV/KRA-05/11/14 dated February 26, 2015.
21.8. The opting out facility should be provided to new as well as existing clients,
and negative consent should be obtained separately from clients in writing.
Stock brokers shall be mandated to maintain records of such written negative
consent provided by the clients for at least five years.
21.9. The aforementioned provisions at para 20.5 and 20.6 shall also be applicable
to the clients registered in accordance with SEBI Circular No.
SEBI/HO/MIRSD/DOP/CIR/P/2020/73 dated April 24, 2020.
21.10. With regards to compliances related to MITC, as stated in para 21.1.6 and
para 21.4 above, the date of implementation shall be as follows:
21.10.1. For onboarding of new clients, the date of the implementation and
compliance by the market participants shall be April 01, 2024.
21.10.2. For existing clients, the MITC shall be informed to clients via email or any
other suitable mode of communication (which can be preserved) by June
01, 2024.
21.11. In case the stock broker is also a depository participant, he can use the same
KYC form (as specified at para 21.1.2.1 above) for basic details and take
additional information pertaining to demat account.
21.12. Stock Broker shall make available these standard documents to the clients,
either in electronic or physical form, depending upon the preference of the
62
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 shall maintain logs of the same.
21.13. Stock Exchanges / stock brokers shall continue to make the documents
mentioned in para 21.1.3 to 21.1.5 above, available on their website and
keep the clients informed about the same.
21.14. Further, with a view to bring about uniformity in securities markets, the KYC
form at para 21.1.2.1 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.
22. Nomination for Eligible Trading Accounts30
22.1. Submission of ‘choice of nomination’ for trading accounts has been made
voluntary as a step towards ease of doing business.
22.2. In line with Section 72 of Companies Act, 2013 on nomination by a holder of
securities, investors opening new trading account(s) may have the choice of
providing nomination or opting out nomination, as follows;
a. The format for nomination form is given in Annexure-12 to this circular
b. Opt out of nomination through ‘Declaration Form’, as provided in
Annexure-13 to this circular.
22.3. The nomination and Declaration form shall be signed under wet signature of
the account holder(s) and witness shall not be required. However, if the
account holder(s) affixes thumb impression (instead of wet signature), then
witness signature shall be required in the forms.
22.4. The on-line nomination and Declaration form may also be signed using e-
Sign facility and in that case witness will not be required.
22.5. Trading Members shall ensure that adequate systems are in place including
for providing for e-Sign facility and also take all necessary steps to maintain
confidentiality and safety of client records.
30 Reference: Circular SEBI/HO/MIRSD/RTAMB/CIR/P/2021/601 dated July 23, 2021, Circular
SEBI/HO/MIRSD/MIRSD_RTAMB/P/CIR/2022/23 dated February 24, 2022, Circular
SEBI/HO/MIRSD/MIRSD-PoD-1/P/CIR/2023/42 dated March 27, 2023 and
SEBI/HO/MIRSD/POD-1/P/CIR/2023/158 dated September 26, 2023.
63
22.6. Existing investors who have not submitted nomination details till date and
intend to submit their nomination or opt out of nomination (not to nominate
any one) may also be allowed to do so by way of two factor authentication
(2FA) login on the internet trading platform for Stock Brokers providing such
services.
22.7. Stock Brokers shall encourage their clients to update ‘choice of nomination’
by sending a communication on fortnightly basis by way of emails and SMS
to all such UCCs wherein the ‘choice of nomination’ is not captured. The
communication shall provide guidance through which the client can provide
his/her ‘choice of nomination’.
22.8. Re-submission of nomination details shall be optional for the existing
investors who have already provided the nomination details prior to July 23,
2021.
22.9. The details required in the form at Annexure-12 of the circular viz. mobile
number, e-mail ID and identification details of the nominee(s)/ guardian(s) of
the minor nominee(s) are optional.
23. Requirements relating to dealings between a Client and a Stock Broker
(Trading Members included)31
23.1. Running Account Authorization32
23.1.1. Unless otherwise specifically agreed to by a Client, the settlement of
funds shall be done within twenty-four 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
31 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.
32 Reference: Circular SEBI/HO/MIRSD/DOP/P/CIR/2021/577 dated June 16, 2021,
Circular SEBI/HO/MIRSD/DoP/P/CIR/2022/101 dated July 27, 2022 and
Circular SEBI/HO/MIRSD/MIRSD-PoD1/P/CIR/2023/197 dated December 28, 2023
64
running account authorisation would continue until it is
revoked by the clients.
c. The TM, after considering the End of the Day (EOD)
obligation of funds across all the Exchanges, shall settle the
running accounts at the choice of the clients on quarterly and
monthly basis, on the dates stipulated by the Stock
Exchanges.
d. Stock exchanges shall, jointly, issue the annual calendar for
the settlement of running account (quarterly and monthly) at
the beginning of the financial year.
e. TM shall ensure that funds, if any, received from clients,
whose running account has been settled, remain in the “Up
Streaming Client Nodal Bank Account” and no such funds
shall be used for settlement of running account of other
clients. Stock Exchanges shall evolve a monitoring
mechanism for this purpose.
f. Once the TM settles the running account of funds of a client,
an intimation shall be sent to the client by SMS on mobile
number and also by email. The intimation should also
include details about the transfer of funds (in case of
electronic transfer – transaction number and date; in case of
physical payment instruments – instrument number and
date). TM shall send the retention statement along with the
statement of running accounts to the clients as per the
existing provisions within five working days.
g. Client shall bring any dispute on the statement of running
account, to the notice of TM within thirty working days from
the date of the statement.
h. 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)33.
33 Refer “Eligibility of bank instruments as collateral” as specified at para 92 of this circular.
65
i. 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 the same are lying with the Clearing
Member/Clearing Corporation.
j. There shall be no inter-client adjustments for the purpose of
settlement of the ‘running account’.
k. These conditions shall not apply to institutional clients
settling trades through custodians. The existing practice may
continue for them.
23.2. Authorization for Electronic Contract Notes
23.2.1. 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.
23.3. 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.
23.4. There shall be a mandatory document dealing with policies and procedures
for each of the following under appropriate headings:
23.4.1. refusal of orders for penny stocks
23.4.2. setting up client’s exposure limits
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23.4.3. applicable brokerage rate
23.4.4. 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)
23.4.5. 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)
23.4.6. shortages in obligations arising out of internal netting of trades
23.4.7. conditions under which a client may not be allowed to take further
position or the broker may close the existing position of a client
23.4.8. temporarily suspending or closing a client’s account at the client’s
request, and
23.4.9. deregistering a client
23.5. All the documents in both the mandatory and the non-mandatory parts shall
be printed in minimum font size of 11.
23.6. A copy of all the documents executed by client shall be given to him, free of
charge, within seven days from the date of execution of documents by the
client. The stock broker shall take client’s acknowledgement for receipt of the
same.
23.7. 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.
23.8. 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.
23.9. 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.
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24. Regulation of Transactions Between Clients and Brokers34
24.1. 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.
24.1.1. 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
24.1.2. 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 24.1.4(b).
24.1.3. 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 para 24.1.4 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.
34 Reference: Circular SMD/SED/CIR/93/23321 dated November 18, 1993 and Circular
CIR/HO/MIRSD/DOP/CIR/P/2019/75 dated June 20, 2019.
68
24.1.4. What moneys to be withdrawn from "clients account". No money shall
be drawn from clients account other than
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 para 24.1.3(b) or 24.1.3(d) given
above;
c. money which may by mistake or accident have been paid into
such account in contravention of para 24.1.3 above.
24.1.5. Right to lien, set-off etc., not affected. Nothing in this para 24.1 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.
24.2. 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:
24.2.1. Securities received for sale or kept pending delivery in the market.
24.2.2. Securities fully paid for, pending delivery to clients.
24.2.3. Securities received for transfer or sent for transfer by the Member, in
the name of client or his nominee(s).
24.2.4. 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.
24.2.5. Fully paid for client’s securities registered in the name of Member, if
any, towards margin requirements etc.
24.2.6. Securities given on Vyaj-badla. Member shall obtain authorization
from clients for the same.
24.3. Member Brokers shall make payment to their clients or deliver the securities
purchased within 24 hours of pay-out unless the client has requested
otherwise.
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24.4. Member brokers shall issue the contract note for purchase/sale of securities
to a client within 24 hours of the execution of the contract.
24.5. 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.
25. Collateral deposited by Clients with Brokers35
25.1. For brokers to maintain proper records of client collateral and to prevent
misuse of client collateral, it is advised that:
25.1.1. 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.
25.1.2. 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 Stock
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.
25.1.3. The records should be periodically reconciled with the actual
collateral deposited with the broker.
25.1.4. 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
35 Reference: Circular MRD/DoP/SE/CIR-11/2008 dated April 17, 2008.
70
client) with break up in terms of cash, Fixed Deposit Receipts
(FDRs), Bank Guarantee36 and securities.
25.1.5. 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.
25.2. In case client collateral is found to be mis-utilised, the broker would attract
appropriate deterrent penalty for violation of norms provided under SCRA
1956, SEBI Act 1992, SEBI Regulations and circulars, Exchange Byelaws,
Rules, Regulations and circulars.
26. Severance of connections with other businesses37
26.1. Rule 8(1)(f) and Rule 8(3)(f) of the SCRR 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
27. Applicability of Rule 8(1)(f) and 8(3)(f) of the Securities Contract (Regulation)
Rules, 195738
27.1. 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 SCRR 1957.
28. Mode of payment and delivery39
28.1. 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.
28.2. All payments shall be received / made by the stock brokers from / to the
clients strictly by account payee crossed cheques/ demand drafts or by way
of direct credit into the bank account through electronic fund transfer, or any
other mode permitted by the Reserve Bank of India. The stock brokers shall
accept cheques drawn only by the clients and also issue cheques in favour
of the clients only, for their transactions. Stock Brokers shall not accept cash
36 Refer “Eligibility of bank instruments as collateral” as specified at para 92 of this circular.
37 Reference: Circular SMD/VRN/1476/95 dated April 27, 1995.
38 Reference: Circular SMD/POLICY/CIR-6/97 dated May 07, 1997
39 Reference: Circular SEBI/MRD/SE/CIR-33/2003/27/08 dated August 27, 2003 and
Circular: SEBI/HO/MIRSD/DOP/CIR/P/2018/113 dated July 12, 2018
71
from their clients either directly or by way of cash deposit to the bank account
of stock broker.
28.3. 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.
29. Pre- funded instruments / Electronic fund transfers40
29.1. To address the concerns regarding flow of third party funds / unidentified
money, following guidelines shall be followed:
29.1.1. If the aggregate value of pre-funded instruments is Rs. 50,000/- (fifty
thousand rupees) 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.
29.1.2. Maintain an audit trail of the funds received through electronic fund
transfers to ensure that the funds are received from their clients only.
30. Disclosure of proprietary trading by Broker to Client41
30.1. 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.
30.2. The broker shall disclose this information upfront to his new clients at the
time of entering into the Know Your Client agreement.
40 Reference: Circular CIR/MIRSD/03/2011 dated June 09, 2011
41 Reference: Circular SEBI/MRD/SE/CIR-42/2003 dated November 19, 2003.
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30.3. In case of a broker who at present does not trade on proprietary account,
chooses to do so at a later date, he shall be required to disclose this to his
clients before carrying out any proprietary trading.
31. Pro – account” trading terminal42
31.1. 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:
31.1.1. 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.
31.1.2. 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.
31.2. The aforementioned practices clearly violate the requirement of putting the
orders of clients under the appropriate client code through trading terminals.
31.3. With a view to check such misuse of the above facility, if any, Stock
Exchanges are directed to ensure the following: -
31.3.1. 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.
31.3.2. 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.
31.3.3. 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.
42 Reference: Circular SEBI/MRD/SE/CIR-32/2003/27/08 dated August 27, 2003
73
32. Review of norms relating to trading by Members43
32.1. Stock Exchanges are directed to ensure the following:
32.1.1. A stock broker of an exchange cannot deal with the 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 for dealing with brokers of the same
exchange and after carrying out due diligence allow such brokers to
deal with only one stock broker of the same exchange.
32.1.2. A stock broker of an exchange can deal with only one broker of
another exchange for proprietary trading after intimating the names
of such stock broker to his parent Stock Exchange.
33. Market Access through Authorised Persons44
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
33.1. 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.
33.2. 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.
33.3. Procedure for Appointment
43 Reference: Circular SEBI/MIRSD/CIR-06/2004 January 13, 2004
44 Reference: Circular MIRSD/DR-1/CIR-16/09 dated November 06, 2009 and Circular
SEBI/CIR/MIRSD/AP/8/2010 dated July 23, 2010
74
33.3.1. 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.
33.3.2. 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.
33.4. Eligibility Criteria
33.4.1. 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;
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
33.4.2. 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 para 33.4.1 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.
33.4.3. 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.
33.4.4. The approved users and/or sales personnel of Authorised Persons
shall have the necessary certification of the respective segments at all
points of time.
33.5. Conditions of Appointment
33.5.1. The following are the conditions of appointment of an authorised
person:
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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.
33.6. Withdrawal of Approval
33.6.1. 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 para 33.4 above.
33.7. Obligations of Stock Broker
33.7.1. 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.
33.7.2. 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.
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33.7.3. 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.
33.7.4. 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.
33.7.5. Stock Broker shall conduct periodic inspection of branches assigned
to authorised persons and records of the operations carried out by
them.
33.7.6. 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.
33.7.7. 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 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.
33.8. Obligations of Exchange
33.8.1. 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
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person.
All the above details, except (a) above, shall be made available on
web site of the Stock Exchange.
33.8.2. 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.
33.8.3. 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.
33.8.4. 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.
34. SMS and E-mail alerts to investors by Stock Exchanges45
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:
34.1. Applicability –
34.1.1. These guidelines are applicable to equity - cash and derivative -
segments of the Stock Exchanges.
34.2. Uploading of mobile number and E-mail address by stock brokers
34.2.1. Stock Exchanges shall provide a platform to stock brokers to upload
the details of their clients, preferably, in sync with the UCC updation
module.
34.2.2. Stock Brokers shall upload the details of clients, such as, name,
mobile number, address for correspondence and E-mail address.
34.2.3. Stock Brokers shall ensure that the mobile numbers/E-mail addresses
of their employees /remisiers/authorized persons are not uploaded on
behalf of clients.
45 Reference: Circular CIR/MIRSD/15/2011 dated August 02, 2011 and SEBI communication
SE/10118 dated October 12, 1992 and SEBI/HO/MIRSD/MIRSD-PoD1/P/CIR/2024/169 dated December
03, 2024
78
34.2.4. 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 (in case of
individual clients) or such client is the authorised person of an HUF,
Corporate, Partnership or Trust (in case of non-individual clients).
Family / Authorised person for this purpose shall include:
a. In case of individuals, self, spouse, dependent children and
dependent parents.
b. In case of HUF, Karta or any of the Co-parceners as per prior
approval of Karta.
c. In case of Partnership firm, any of the partners as per prior
approval of all / authorised partners.
d. In case of a Trust, any of the trustees or beneficiaries as per
resolution passed by the Trust.
e. In case of Corporates, the Authorised person operating the
trading account as per the Board Resolution passed by the
Corporate.
34.3. Verification by the Stock Exchanges
34.3.1. 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.
34.4. Sending of alerts by the Stock Exchanges
34.4.1. 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.
34.5. Handling of discrepancies, if any
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34.5.1. 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.
34.6. Meeting out the expenses for providing SMS and E-mail alerts
34.6.1. 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.
35. Prevention of Unauthorised Trading by Stock Brokers46
35.1. 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”.
35.2. 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.
35.3. 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.
35.4. 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
46 Reference: Circular SEBI/HO/MIRSD/DOP1/CIR/P/2018/54 dated March 22, 2018
80
of its records.
35.5. The Brokers are required to maintain the records specified at para 35.2
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.
35.6. If SEBI desires that specific records be preserved, then such records shall
be kept till further intimation by SEBI.
36. Execution of Power of Attorney (PoA) by the Client in favour of the Stock
Broker/ Stock Broker and Depository Participant47
36.1. 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.
36.2. 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.
36.3. 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.
36.4. 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 para 36.7, 36.8, 36.9, 36.10 and 36.11 below,
shall be made applicable to stock brokers/ stock broker and depository
participants.
36.5. 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
47 Reference: Circular CIR/MRD/DMS/13/2010 dated April 23, 2010, Circular CIR/MRD/DMS/28/2010 dated
August 31, 2010 and Circular SEBI/HO/MIRSD/DOP/CIR/P/2020/158 dated August 27, 2020
81
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.
36.6. 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.
36.7. PoA favouring Stock Brokers
36.7.1. PoA executed in favour of a stock broker by the client should be
limited to the following:
36.7.1.1. Securities48
a) For transfer of securities held in the beneficial owner accounts
of the client towards Stock Exchange related deliveries /
settlement obligations arising out of trades executed by clients
on the Stock Exchange through the same stock broker.
b) For pledging / re-pledging of securities in favour of TM / CM
for the purpose of meeting margin requirements of the clients
in connection with the trades executed by the clients on the
Stock Exchange.
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. Further, redemptions are also
included in PoA pursuant to client’s instructions.
36.7.1.2. Funds
Transfer of funds from the bank account(s) of the clients for the
following:
48 Refer to para 37 of this Master Circular
82
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.
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.
36.8. PoA favouring Stock Brokers and Depository Participants
36.8.1. PoA executed in favour of a stock broker and Depository Participant
by the client should:
36.8.1.1. 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.
36.8.1.2. 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.
36.8.1.3. 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.
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36.8.1.4. Not provide the authority to transfer the rights in favour of
any assignees of the stock broker/depository participant.
36.8.1.5. 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.
36.8.1.6. 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).
36.8.1.7. 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.
36.8.1.8. 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.
36.8.1.9. 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.
36.9. General Guidelines
36.9.1. The PoA shall not facilitate the stock broker to do the following:
36.9.1.1. Off-market trades between parties other than the related
parties as mentioned in the PoA.
36.9.1.2. Transfer of funds from the bank account(s) of the Clients
for trades executed by the clients through another stock
broker.
36.9.1.3. Open a broking / trading facility with any stock broker or
for opening a beneficial owner account with any
depository participant.
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36.9.1.4. Execute trades in the name of the client(s) without the
client(s) consent.
36.9.1.5. Prohibit issue of Delivery Instruction Slips (DIS) to
beneficial owner (client).
36.9.1.6. Prohibit client(s) from operating the account.
36.9.1.7. Merging of balances (dues) under various accounts to
nullify debit in any other account.
36.9.1.8. 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.
36.9.1.9. 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.
36.10. Stock Broker / Depository Participant should ensure that:
36.10.1. A duplicate/ certified true copy of the PoA is provided to the
Client(s) after execution.
36.10.2. 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.
36.11. All off-market transfer of securities shall be permitted by the Depositories
only by execution of Physical Delivery Instruction Slip (DIS) duly signed
by the client himself or by way of electronic DIS. The Depositories shall
also put in place a system of obtaining client’s consent through One Time
Password (OTP) for such off market transfer of securities from client’s
demat account.
37. Execution of ‘Demat Debit and Pledge Instruction’ (DDPI) for transfer of
securities towards deliveries / settlement obligations and pledging / re-
pledging of securities49
49 Reference: Circular SEBI/HO/MIRSD/DoP/P/CIR/2022/44 dated April 04, 2022
Circular SEBI/HO/MIRSD/MIRSD-PoD-1/P/CIR/2022/137 dated October 06, 2022
85
37.1. While executing a PoA, authorization is given by client to the stock broker /
stock broker and depository participant, to access the Beneficial Owner
(BO) account of the client to meet settlement obligations of the trade
executed by the client. In order to make the process more transparent and
simpler, the following conditions shall be made part of a separate document
viz. ‘Demat Debit and Pledge Instruction’ (DDPI) (Annexure-14):
37.1.1. Transfer of securities held in the beneficial owner accounts of the
client towards Stock Exchange related deliveries / settlement
obligations arising out of trades executed by clients on the Stock
Exchange through the same stock broker.
37.1.2. Pledging / re-pledging of securities in favour of TM/ CM for the
purpose of meeting margin requirements of the clients in
connection with the trades executed by the clients on the Stock
Exchange.
37.1.3. Mutual Fund transactions being executed on stock exchange order
entry platforms and which shall be in compliance with SEBI
circulars SEBI/HO/IMD/IMD-I DOF5/P/CIR/2021/634 dated
October 04, 2021, SEBI/HO/IMD/IMD-I DOF5/P/CIR/2021/635
dated October 04, 2021 and SEBI/HO/IMD/IMD-I
DOF5/P/CIR/2022/29 dated March 15, 2022 or any other circular
which may be issued in this regard; and
37.1.4. Tendering shares in open offers which shall be in compliance with
SEBI circular SEBI/HO/CFD/DCR-III/CIR/P/2021/615 dated
August 13, 2021 or any other circular which may be issued in this
regard.
The DDPI shall serve the same purpose of PoA and significantly mitigate the
misuse of PoA. The use of DDPI shall be limited only for the purposes as
mentioned in para 37.1.1, 37.1.2, 37.1.3 and 37.1.4 above.
37.2. The client may use the DDPI or opt to complete the settlement by issuing
physical Delivery Instruction Slip (DIS) or electronic Delivery Instruction Slip
(eDIS) themselves. Hence, PoA shall no longer be executed for the
conditions specified in para 37.1.1 and 37.1.2.
37.3. The DDPI, which is indexed as part of the Voluntary Documents in
Annexure-7 of this master circular, shall be executed only if the client
provides his/her explicit consent for the same, including internet based
trading. The DDPI shall also be adequately stamped. The DDPI can be
digitally signed by the clients.
86
37.4. The existing PoAs shall continue to remain valid till the time client revokes
the same. Thus, the stock broker/stock broker and depository participant
shall not directly / indirectly compel the clients to execute the DDPI or deny
services to the client if the client refuses to execute the DDPI.
37.5. PoA is optional and should not be insisted upon by the stock broker / stock
broker depository participant for opening of the client account.
37.6. For the execution of the DDPI for fulfilling delivery / settlement obligations,
prior to executing actual transfer of securities based on details provided by
stock broker/stock broker and depository participant, the Depositories shall
ensure matching and confirming the transfer of securities with client-wise
net delivery obligation arising from the trade executed on the exchange, as
provided by the Clearing Corporation to Depositories for each settlement
date.
37.7. Securities transferred on the basis of the DDPI provided by the client shall
be credited to client’s TM pool account / CM pool account / demat account
of clearing corporation, as the case may be. The DDPI provided by the
client shall be registered in the demat account of the client by TM /CM.
Stock Exchanges and Depositories shall ensure that stock broker/stock
broker and depository participant providing DDPI facility, has enabled its
clients to revoke / cancel the DDPI provided by them.
37.8. For the clients who issue the DDPI to stock broker/stock broker and
depository participant, the following provisions of the SEBI circulars issued
with respect to PoA shall stand replaced with DDPI:
37.8.1. Para 36.7.1.1. (a) and (b) of this circular,
37.8.2. Para 36.7.1.1. (c) of this circular to the extent applicable for
Mutual Fund transactions and tendering shares in open offers.
38. Modification of Client Codes of Non-Institutional Trades executed on Stock
Exchanges (All Segments)50
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.
50 Reference: Circular CIR/DNPD/6/2011 dated July 05, 2011, Circular CIR/MRD/DP/29/2014 dated October
21, 2014 and Circular SEBI/HO/CDMRD/DMP/CIR/P/2016/73 dated August 19, 2016
87
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
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:
Table 9
‘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.
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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.
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 Facility51
39.1. Equity Shares and units of Equity Exchange Traded Funds (ETFs)52 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 eighty
percent of the days over the previous six months and impact cost for which
over the previous six months is less than or equal to one percent. (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:
51 Reference: Circular CIR/MRD/DP/54/2017 dated June 13, 2017, Circular CIR/MRD/DP/86/2017 dated
August 01, 2017 and Circular SEBI/HO/MRD/MRD-PoD-3/P/CIR/2022/166 dated November 30, 2022
52 Equity ETFs were included vide circular SEBI/HO/MRD/MRD-PoD-3/P/CIR/2022/166 dated November 30,
2022, which shall come into force with effect from 30th day of issuance of that circular.
89
Table 10
Category of Stock Applicable margin
Group I stocks available for VaR + 3 times of
trading in the F & O Segment applicable ELM*
Group I stocks other than F&O VaR + 5 times of
stocks and units of Equity applicable ELM*
ETFs
*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 or units of
Group I Equity ETFs, with appropriate haircut as specified by SEBI.
39.2.3. The stock brokers shall be required to comply with the following
conditions53:
a. The stocks or units of Equity ETFs deposited as collateral
with the stock broker for availing margin trading facility
(Collaterals) and the stocks or units of Equity ETFs purchased
under the margin trading facility (‘Funded stocks’) shall be
identifiable separately and no comingling shall be permitted for
the purpose of computing funding amount. Further, in case the
broker has collected cash collateral from the client in form of
margin for availing margin trading facility and the Trading Member
has giventhe said cash collateral to the Clearing Corporation (CC)
towards settlement obligation of the said client, then same can be
considered as maintenance margin to the extent of securities
received from CC against such cash collateral given to CC and
such shares are pledged in favor of trading member in form of
funded stock;
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.
e. In case the funded stock is considered towards maintenance
margin to the extent of cash collateral provided by the client, the
Trading Members shall ensure that the funded stock considered is
under Group1 securities. The applicable margin shall be VaR+5
53 SEBI/HO/MRD/MRD-PoD-2/P/CIR/2024/118 dated September 11, 2024
90
times the Extreme Loss Margin, irrespective of whether the funded
stock is available in F&O segment or not.
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 three 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 the Stock 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 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 the Reserve Bank of
India, borrow funds by way of issuance of Commercial Papers (CPs)
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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 relevant RBI Guidelines. The borrowing by way
of unsecured long term loans from the promoters and directors shall
be subject to the compliance with appropriate provisions of the
Companies Act, 2013.
39.5.2. A stock broker shall not be permitted to borrow funds from any other
source, other than the sources stated above 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 five 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 fifty percent
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
ten percent of the broker’s maximum allowable exposure, as
specified in para 39.6.2 above.
b) exposure towards stocks and/or Equity ETFs purchased under
margin trading facility and collateral kept in the form of stocks
and/or units of Equity ETFs are well diversified. Stock Brokers
shall have appropriate Board approved policy in this regard.
39.6.4. For the purpose of applicable haircuts for units of Equity ETFs as
collateral for margin trading facility, it is clarified that the haircuts
applicable to Liquid (Group I) Equity Shares (under “Other Liquid
Assets” category) as per SEBI circular MRD/DoP/SE/Cir-07/2005
dated February 23, 2005 shall be applicable to units of Equity ETFs.
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
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client, Category of holding (Promoter/promoter group or Non-
promoter), clients' 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 6:00 PM on T+1 day. The format for
this disclosure by the stock broker to the stock exchange is enclosed
at Annexure-15.
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 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
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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.
40. Collection and reporting of margins by Trading Member (TM) /Clearing
Member (CM) in Cash Segment54
40.1. Collection of margins from the clients by TM/CM in cash segment:
40.1.1. The ‘margins’ for this purpose shall mean VaR margin, extreme loss
margin (ELM), mark to market margin (MTM), delivery margin,
special / additional margin or any other margin as prescribed by the
Exchange to be collected by TM/CM from their clients.
40.1.2. Henceforth, like in derivatives segment, the TMs/CMs in cash
segment are also required to mandatorily collect upfront VaR
margins and ELM from their clients. The TMs/CMs will have time till
54 Reference: Circular CIR/HO/MIRSD/DOP/CIR/P/2019/139 dated November 19, 2019,
Circular SEBI/HO/MIRSD/DOP/CIR/P/2020/146 dated July 31,2020 and
Circular SEBI/HO/MIRSD/DOP/CIR/P/2020/173 dated September 15, 2020
SEBI/HO/MIRSD/MIRSD-PoD/P/CIR/2025/57 dated April 28, 2025
94
settlement day to collect margins (except VaR margins and ELM)
from their clients. (The clients must ensure that the VaR margins and
ELM are paid in advance of trade and other margins are paid as soon
as margin calls are made by the Stock Exchanges/TMs/CMs. The
period till settlement has been allowed to TMs/CMs to collect margin
from clients taking into account the practical difficulties often faced
by them only for the purpose of levy of penalty and it should not be
construed that clients have been allowed time till settlement day to
pay margin due from them).
40.1.3. If pay-in (both funds and securities) is made by settlement day, the
other margins would deemed to have been collected and penalty for
short / non collection of other margins shall not arise.
40.1.4. If Early Pay-In of securities has been made to the Clearing
Corporation (CC), then all margins would deemed to have been
collected and penalty for short / non-collection of margin including
other margins shall not arise.
40.1.5. If client fails to make pay-in by settlement day and TM / CM do not
collect other margins from the client by settlement day, the same
shall also result in levy of penalty as applicable.
40.1.6. As prescribed in clause 7 of SEBI circular MRD/DoP/SE/Cir-07/2005
dated February 23, 2005, the TM/CM shall be exempted from
collecting upfront margins from the institutional investors carrying out
business transactions and in cases where early pay-in of securities
is made by the clients.
40.1.7. If the TM/CM had collected adequate initial margins from the client
to cover the potential losses over time till pay-in, he need not collect
MTM from the client.
40.1.8. As like in derivatives segments, the TMs/CMs shall report to the
Stock Exchange on T+5 day the actual short-collection/ non-
collection of all margins from clients.
40.2. It is reiterated that CC shall continue to collect upfront VaR plus ELM and
other margins from TM / CM as applicable from time to time.
40.3. Penalty structure for short-collection/non-collection of margins and
false/incorrect reporting of margin collection from the clients by TMs/CMs:
40.3.1. For short-collection / non-collection of client margins, the Stock
Exchanges shall take the disciplinary action as per the framework
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specified in SEBI Circular CIR/DNPD/7/2011 dated August 10,
2011.
40.3.2. If TM / CM collects minimum 20% upfront margin in lieu of VaR and
ELM from the client, then penalty for short-collection / non-
collection of margin shall not be applicable.
40.3.3. For false/incorrect reporting of margin collection from the clients by
TMs/CMs, the Stock Exchanges shall take disciplinary action as per
the framework CIR/HO/MIRSD/DOP/CIR/P/2019/88 dated August
01, 2019.
41. Framework to Enable Verification of Upfront Collection of Margins from
Clients in Cash and Derivatives segments55
41.1. With an objective to enable uniform verification of upfront collection of
margins from clients by TM/ CM and levy of penalty across segments, it has
been decided that the Stock Exchanges/ Clearing Corporations shall adopt
the framework specified in paras 41.2 to 41.5 below, for the purpose of
‘Mechanism for regular monitoring of and penalty for short collection/ non-
collection of margins from clients’ in Cash and Derivatives segments.
41.2. Clearing Corporations shall send minimum four snapshots of client wise
margin requirement to TMs/CMs for them to know the intraday margin
requirement per client in each segment. The number of times snapshots
need to be sent in a day may be decided by the respective Clearing
Corporation depending on market timings subject to a minimum of four
snapshots in a day. The snapshots would be randomly taken in pre-defined
time windows.
Further, for commodity derivatives segment, clearing corporations shall
send an additional minimum two snapshots for commodity derivative
contracts which are traded till 9:00 PM and additional minimum three
snapshots for the commodity derivatives contracts which are traded till
11:30/11:55 PM. Margins/EOD margins shall be determined as per the
relevant Risk Parameter Files.
41.3. The client wise margin file (MG-12/13) provided by the CCs to TMs/CMs shall
contain the EOD margin requirements of the client as well as the peak margin
requirement of the client, across each of the intra-day snapshots.
55 Reference: Circular SEBI/HO/MRD2/DCAP/CIR/P/2020/127 dated July 20, 2020,
Circular SEBI/HO/CDMRD/CDMRD_DRM/P/CIR/2021/689 dated December 16, 2021,
Circular SEBI/HO/MRD2/DCAP/P/CIR/2022/60 dated May 10, 2022 and
Circular SEBI/HO/MRD/MRD-PoD-2/P/CIR/2023/016 dated February 01, 2023
96
41.4. The member shall have to report the margin collected from each client, as at
EOD and peak margin collected during the day, in the following manner:
41.4.1. EOD margin obligation of the client shall be compared with the
respective client margin available with the TM/CM at EOD.
AND
41.4.2. Peak margin obligation of the client, across the snapshots, shall be
compared with respective client peak margin available with the
TM/CM during the day.
41.5. Higher of the shortfall in collection of the margin obligations at para 41.4.1
and 41.4.2 above, shall be considered for levying of penalty as per the extant
framework.
41.6. The verification of availability of margins with TM/ CM, as at para 41.4.1 and
41.4.2 above, shall be done by exchanges/ clearing corporations on a weekly
basis by verification of the balances in the books/ ledgers of the TM/ CM in
respect of the client.
41.7. The margin requirements to be considered for the intra-day snapshots in
derivatives segments (including commodity derivatives), shall be calculated
based on the fixed Beginning of Day (BOD) margin parameters. The BOD
margin parameters would include all SPAN margin parameters as well as
ELM requirements.
41.8. The End of Day (EOD) margin collection requirement from clients, in
derivatives segments (including commodity derivatives), shall also be
calculated based on the fixed BOD margin parameters.
41.9. The provisions at para 41.7 and 41.8 are only for the purpose of verification
of upfront collection of margins from clients. The margin parameters
applicable for collection of margin obligation by Clearing Corporations shall
continue to be updated on intra-day and EOD basis, as per the extant
provisions.
42. Margin obligation to be given by way of Pledge/ Re-pledge in the Depository
System56
42.1. TM / CM shall, inter alia, accept collateral from clients in the form of
securities, only by way of ‘margin pledge’, created in the Depository system
56 Reference: Circular SEBI/HO/MIRSD/DOP/CIR/P/2020/28 dated February 25,2020 and Circular no.
SEBI/HO/MIRSD/DOP/CIR/P/2020/88 dated May 25,2020 and SEBI/HO/MIRSD/MIRSD-
PoD//P/CIR/2025/82 dated June 03, 2025
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in accordance with Section 12 of the Depositories Act, 1996 read with
Regulation 79 of the Securities and Exchange Board of India (Depositories
and Participants) Regulations, 2018 and the relevant Bye Laws of the
Depositories.
42.2. The above sections and regulations clearly enumerate the manner of
creating pledge of the dematerialised securities. Any procedure followed
other than as specified under the aforesaid provisions of law for creating
pledge of the dematerialised securities is prohibited. It is clarified that an off-
market transfer of securities leads to change in ownership and shall not be
treated as pledge.
42.3. Transfer of securities to the demat account of the TM / CM for margin
purposes (i.e. title transfer collateral arrangements) shall be prohibited. In
case, a client has given a power of attorney in favour of a TM / CM, such
holding of power of attorney shall not be considered as equivalent to the
collection of margin by the TM / CM in respect of securities held in the demat
account of the client.
42.4. The TM / CM shall open a separate demat account for accepting margin
pledge, which shall be tagged as ‘Client Securities Margin Pledge Account’.
42.5. For the purpose of providing collateral in form of securities as margin, a client
shall pledge securities with TM, and TM shall re-pledge the same with CM,
and CM in turn shall re-pledge the same to Clearing Corporation (CC). The
complete trail of such re-pledge shall be reflected in the de-mat account of
the pledgor.
42.6. The TM shall re-pledge securities to the CM’s ‘Client Securities Margin
Pledge Account’ only from the TM’s ‘Client Securities Margin Pledge
Account’. The CM shall create a re-pledge of securities on the approved list
to CC only out of ‘Client Securities Margin Pledge Account’ (Re-pledge would
mean endorsement of pledge by TM / CM in favour of CM/CC, as per
procedure laid down by the Depositories)
42.7. The TM and CM shall ensure that the client’s securities re-pledged to the CC
shall be available to give exposure limit to that client only. Dispute, if any,
between the client, TM / CM with respect to pledge, re-pledge, invocation
and release of pledge shall be settled inter-se amongst client and TM / CM
through arbitration as per the bye-laws of the Depository. CC and
Depositories shall not be held liable for the same.
42.8. Securities that are not on the approved list of a CC may be pledged in favour
of the TM / CM. Each TM / CM may have their own list of acceptable
securities that may be accepted as collateral from client.
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42.9. Funded stocks held by the TM / CM under the margin trading facility shall be
held by the TM / CM only by way of pledge. For this purpose, the TM / CM
shall be required to open a separate demat account tagged ‘Client Securities
under Margin Funding Account’ in which only funded stocks in respect of
margin funding shall be kept/ transferred, and no other transactions shall be
permitted. Such funded stocks shall be transferred to respective client’s
demat account followed by creation of an auto-pledge (i.e. without the
requirement of a specific instruction from the client) with suitable reason, in
favor of ‘Client Securities under Margin Funding Account’.
42.10. The TM / CM shall be required to transfer all client’s securities lying in such
accounts to the respective clients’ demat accounts. Thereafter, TM / CM are
prohibited from holding any client securities in any beneficial owner accounts
of TM/CM, other than specifically tagged accounts as indicated above, and
in pool account(s), unpaid securities account.
42.11. The operational mechanism for margin pledge is provided below:
INITIATION OF MARGIN PLEDGE
42.11.1. For the purpose of providing collateral in form of dematerialised
securities as margin, a client shall initiate the margin pledge only in
favour of the TM / CM’s separate client securities margin account
tagged as ‘Client Securities Margin Pledge Account’ through
physical instruction or electronic instruction mechanism provided by
the Depositories. Such instructions shall have details of client UCC,
TM, CM and Default Segment.
42.11.2. In cases where a client has given a Power of Attorney (“POA”) to the
TM / CM, the TM / CM may be allowed to execute the margin pledge
on behalf of such client to the demat account of the TM / CM tagged
as ‘Client Securities Margin Pledge Account’.
42.11.3. The ‘pledge request form’ shall have a clause regarding express
consent by the client for re-pledge of the securities by the TM to CM
and further by the CM to CC.
42.11.4. On receipt of the margin pledge instruction either from the client or
by TM / CM as per the POA, DP of a client shall initiate a margin
pledge in the client’s account and the status of instruction will remain
pending till confirmation is received from client / pledgor. The client
will submit acceptance by way of One Time Password (the “OTP”)
confirmation on mobile number / registered e-mail id of the client or
other verifiable mechanism. Further no other OTP confirmation from
client shall be required, if securities of such client are being re-
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pledged by TM/CM. The Depositories shall develop a verifiable
mechanism for confirmation of the pledge by the client.
42.11.5. In client account, margin pledge or re-pledge shall be reflected
against each security, if it is pledged / re-pledged and in whose
favour i.e. TM / CM / CC.
42.11.6. The TM can re-pledge only in favour of CM’s demat account tagged
as ‘Client Securities Margin Pledge Account’. The CM shall create a
re-pledge of securities on the approved list only to the CC out of
‘Client Securities Margin Pledge Account’. While re-pledging the
securities to the CC, CM/TM shall fully disclose the details of the
client wise pledge to the CC/CM. CM would need to have visibility of
client level position and client collateral so that CM shall allow
exposure and / or margin credit in respect of such securities to that
client to whom such securities belong.
RELEASE OF MARGIN PLEDGE
42.11.7. In case of a client creating pledge of the securities in favour of the
TM / CM against margin, the TM / CM may release the ‘margin
pledge’ after their internal exposure and risk management checks.
The request for release of pledge can be made by the client to its DP
or to the TM / CM, who shall release the pledge in the Depository
system.
42.11.8. For release of client securities given to TM/CM as margin pledge and
which are re-pledged in favour of the CC, the CM shall make a
request to the CC. The client through TM, or the TM on his own, may
request the CM to make an application to the CC for the release of
margin pledge. CC shall do margin utilisation check at the CM level
before releasing the re-pledge of securities to the CM. The CC will
release the re-pledged client securities to CM after blocking other
available free collateral of CM. The CM /TM in turn after doing their
risk management shall release the securities to TM / client, as the
case may be.
42.11.9. In case where client sells the securities, which are pledged in favor
of TM/CM as Margin pledged securities (including pledged funded
stock) / CUSPA pledge, depositories shall provide a functionality of
single instruction in the form of ‘Pledge release for early pay in’ to
TM/CM wherein pledge will be released and early pay in block will
be set up immediately in client demat account subject to pay in
validation i.e. only to the extent of delivery obligation of that client as
provided by CCs to depositories without the need for physical
instruction or electronic instruction or DDPI/POA.
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INVOCATION OF MARGIN PLEDGE
42.11.10. In case of default by a client of TM where the clients securities are
re- pledged with the CM/ CC, the invocation request shall be made
by the TM to CM and CM in turn will make request to CC as per the
procedure laid down by the Depositories under their bye-laws.
42.11.11. In case of default by a client of TM who has pledged securities with
TM, the TM shall invoke the pledge.
42.11.12. In case of default by a client of TM whose securities are re-pledged
by TM with CM, the invocation request shall be made by TM to the
CM. The CM, after doing its internal exposure and risk management,
shall release the re-pledged securities to the ‘Client Securities
Margin Pledge Account’ of the TM. The TM in turn will invoke the
pledge of client’s securities.
42.11.13. In the event of default by a client of a TM, whose securities are re-
pledged by TM with CM and CM in turn has re-pledged with CC, the
TM shall make a request for invocation of pledge with CM and CM in
turn shall file a request with CC to release the re-pledged securities
for invocation. The CC shall block equivalent available free collateral
provided by CM and shall release the re-pledged securities of that
defaulting client of TM to CM in “Client Securities Margin Pledge
Account” of CM. The CM shall do his own risk assessment of TM
and would release re-pledged securities of the defaulting client of TM
in “Client Securities Margin Pledge Account” of TM and TM shall
invoke the pledge in Demat account of the client.
42.11.14. In case of default by a client/ TM of CM whose securities are re-
pledged with CC, CM shall file a request with CC for invocation of
the pledged/ re-pledged securities of that client/TM. CC shall block
the equivalent available free collateral provided by CM and shall
release the re-pledged securities of that defaulting client/TM in
“Client Securities Margin Pledge Account” of CM and the CM shall
invoke the pledge in Demat account of the client/ TM.
42.11.15. In case of default by TM or client of TM, CM shall be entitled to invoke
pledged/ re-pledged securities of the TM. CM shall also be entitled
to invoke directly the repledged securities of client of TM having open
position with CM to close out such positions.
42.11.16. In case of default by the CM, CC shall invoke securities pledged by
the CM. After exhausting the CM own collateral, CC may also invoke
re-pledge securities of that client who has open position and their re-
pledged securities are blocked by CC to close out their open
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positions. The re-pledge securities of other clients who did not have
any open position with CC, their securities shall not be available to
CC for invocation to meet settlement default of the CM.
42.11.17. In case of invocation of margin pledged securities (including pledged
funded stock) of client by Trading member (TM), the invoked
securities, other than mutual fund units that are not traded on the
exchanges, shall be blocked for early pay-in in the client’s demat
account with a trail being maintained in TM/CM’s ‘Client Securities
Margin Pledge Account’ / ‘Client Securities under Margin Funding
Account’. The pay in block in client’s demat account shall be subject
to pay in validation i.e. only to the extent of delivery obligation of that
client as provided by CCs to depositories.
In case of invocation of Mutual fund (MF) units that are not traded on
the exchange, depositories shall provide a functionality of single
instruction in the form of ‘invocation cum redemption’ wherein
invoked MF units will come to the TM/CM’s ‘Client Securities Margin
Pledge Account’, and go for auto redemption from the said account.
In scenarios, where client’s trading account is frozen or client trading
codes are marked as ‘Not permitted to trade’ or equivalent at the
stock exchanges subsequent to creation of pledge, the invoked
securities will come to demat account of TM/CM and the same shall
be sold by TM/CM under the proprietary code. In order to prevent the
accumulation of client securities in the demat account of TM/CM, it
must be ensured by TM/CM that pay-in of securities is done on the
same day of invocation.
42.12. The framework for utilisation of pledged clients’ securities for exposure and
margin is provided below:
42.12.1. At present, the margin requirement is computed in real time at client
level by the CC and is aggregated at the level of CMs to arrive at the
total margin requirement. The CC maintains and monitor the
collateral at the level of CM. The CM is required to provide the
collateral in various acceptable forms such as Cash, Bank
Guarantee57, Government Securities, pledge of acceptable shares,
etc.
42.12.2. The day to day real time risk management with respect to client / TM
exposure, and the margin requirement shall continue to be the
57 Refer “Eligibility of bank instruments as collateral” as specified at para 96 of this circular
102
responsibility of the CM, and CC shall not monitor the client level
exposure against the available client level collateral in real time.
42.12.3. In order to provide exposure to CM and/or to the clients / TM of a
CM, CC shall aggregate margin requirement at CM level that shall
be compared against the available collateral in real time as
aggregate of;
a. cash and cash equivalent deposited by CM,
b. own securities pledged by CM with CC,
c. CC requires minimum fifty percent of the collateral to be deposited
in cash and cash equivalent, if the total securities pledged by CM
with CC exceed the total cash and cash equivalent, the value of
securities will be restricted to amount of cash and cash equivalent.
d. The TM’s proprietary margin requirement will be treated as a client
of CM and aggregated along with other clients.
42.12.4. CM shall be allowed to re-pledge acceptable/approved client
securities with the CC by furnishing the UCC wise client details. CC
shall not allow any exposure to the CM on re-pledged securities of
the client / TM. In case of a trade by a client / TM whose securities
are re-pledged with CC, the CC shall first block the available
collateral provided by CM as mentioned in point 42.12.3 above.
However, at periodical interval (latest by end of day), CC shall
release the blocked securities collateral of CM to the extent of re-
pledged securities collateral of that client / TM available with the CC.
42.12.5. In the event of default by a client of TM, the TM shall make good the
default to CM. In the event of default by a client or TM on its
proprietary position, the CM shall make good the default to CC.
However, in the event of default by client/s leading to default of TM
and also the CM, the following process shall be applied by
TM/CM/CC for invocation of pledged and re-pledged securities of
client/TM/CM:
a. In case of default by a client of TM/CM or default of TM leading to
the default of CM, CC shall:
i. encash the available collateral including cash, cash equivalent
collateral, CM’s own pledged securities.
ii. After encashing the available collateral of CM, also be entitled to
directly invoke the re-pledged securities of client / TM who has
any open position so as to close out the open positions of that
client.
iii. not be entitled to invoke re-pledged securities of those clients who
did not have any open position to meet settlement obligation of
the defaulting CM
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b. In case of default by a client of TM or default of TM, CM Shall:
i. be entitled to liquidate available cash, cash equivalent collateral
and TM’s own pledged /or re-pledged securities with CM/ CC to
meet settlement/margin obligations of defaulting TM or client(s) of
that TM.
ii. After encashing the available collateral of TM, be entitled to
directly invoke re-pledged securities of the client of defaulting TM
who has open position through CM so as to close out his position.
iii. not be entitled to invoke re-pledged securities of those clients of
defaulting TM who did not have any open position,
iv. ensure that the client securities of TM/ CM re-pledged with the CC
are not utilized for meeting the margin requirement/ settlement
obligation of a TM’s/CM’s own proprietary position or margin
requirement/ settlement obligation of any other client of TM / CM.
43. Segregation and Monitoring of Collateral at Client Level58
43.1. In order to strengthen the mechanism of protection of client collateral from
(i) misappropriation/ misuse by TM/ CM and (ii) default of TM/CM and/or
other clients, the following framework for segregation and monitoring of
collateral at client level is specified:
Reporting Mechanism by TMs and CMs
43.2. With a view to providing visibility of client-wise collateral (for each client) at
all levels, viz., TM, CM and Clearing Corporation (CC), a reporting
mechanism, covering both cash and non-cash collateral, shall be specified
by the CCs. Details in respect of the same are as under:
a) The reporting structure shall entail disaggregated information (segment-
wise and asset type wise break-up) of each client collateral in the
following manner:
• TM shall report disaggregated information on collaterals up to the
level of its clients to the CM.
• CM shall report disaggregated information on collaterals up to the
level of clients of TM and proprietary collaterals of the TMs to the
Stock Exchanges (SEs) and CCs in respect of each segment.
b) The details to be submitted in the report shall essentially cover the
following information, in order to provide a holistic view of the entire client
collateral at various levels up to the level of CC:
58 Reference: Circular SEBI/HO/MRD2_DCAP/CIR/2021/0598 dated July 20,2021
104
Table 11
TM CM CM SE & CC
Client collateral received by TM Client collateral received by TM
Client collateral retained by TM Client collateral retained by TM
Client collateral placed with CM Client collateral placed with CM
Client collateral retained by CM
Client collateral placed with CC
c) The aforementioned information shall be required to be reported on a
daily basis.
43.3. A web portal facility shall be provided by the CCs/SEs to allow clients to
view aforesaid disaggregated collateral reporting by TM/CM.
Collateral Deposit and Allocation
43.4. In case of securities collateral provided to CC through margin pledge/re-
pledge in the Depository system, CC has visibility of the client to whom such
securities belong to, and accordingly is able to assign the value of the
securities collateral, based on applicable haircut, to that client’s account.
43.5. Similarly, for other forms of collateral placed with the CC, the CCs shall
provide a facility to CMs for upfront segment-wise allocation of collateral to
a TM/ client or CM’s own account. The CCs shall use such collateral
allocation information to ensure that the collateral allocated to a client is
used towards the margin obligation of that client only.
43.6. There shall be no change in the procedures pertaining to placing of
securities as collateral through the margin pledge/re-pledge mechanism in
the Depository system, and this collateral will be identified as belonging to
a client or as being proprietary securities of the TM or CM, as the case may
be, as per the existing procedures.
43.7. While depositing other forms of collateral i.e. Cash, Fixed Deposits (FDs),
Bank Guarantees (BGs) or Government Securities provided through the
SGL/CSGL route, etc, the CM shall allocate these collaterals into
proprietary account of CM, and/or proprietary account of any TM clearing
through the CM, and/or account of any of the clients (including Custodial
Participants (CPs)) clearing through the CM, and/or of any of the clients
trading through the TM who in turn is clearing through the CM, segment-
wise.
43.8. In case of such collateral received by the CM from any TM, the CM shall
not accept the same without the TM specifying break-up of such collateral
into proprietary account of the TM and/or uniquely identified client account.
Similarly, the CC shall not accept such collateral without the CM specifying
105
appropriate break-up of such collateral into proprietary account of CM/
proprietary account of TM/ client account. The CM shall ensure that the sum
of break-up of such collateral provided by TM is equal to the total value of
such collateral provided by TM, and that the allocation of such collateral to
any entity as reported to the CC does not exceed the allocation of collateral
reported by the TM for that entity.
43.9. The amount of collateral allocated shall not exceed the amount of collateral
received by the TM/CM from the client and reported as such under the
reporting mechanism (refer Para 43.2 above), excluding the securities
collateral re-pledged to CC through margin pledge mechanism. Further, the
sum of client collateral retained by the TM/CM and client collateral passed
on to CM/CC shall equal the amount of collateral received by the TM/CM
from the client. Also, the allocation of collateral at CC shall not be lower
than the amount of collateral (except securities collateral repledged to CC)
reported as having been passed on by the CM to the CC. The CC shall
have appropriate validations in place in respect of allocations and reporting
done by CMs. Further, CMs shall also perform validations at their end in
respect of allocations and reporting done by TMs.
43.10. An illustration is provided at Annexure-16 regarding permitted and non-
permitted allocation of collateral.
43.11. …….59
43.12. The allocation thus provided by the CM to CC and by TM to CM shall be
considered as final by the CC and CM respectively for the purpose of
granting exposure and utilization during default.
43.13. The TM/CM shall ensure that sufficient collateral is allocated to clients to
cover their margin requirements. However, if the client margin applicable at
the CC for a client in a segment exceeds the collateral allocated to the client
plus the securities collateral re-pledged to CC (from that client’s account) in
the respective segment, then the proprietary collateral of the TM/CM shall
be blocked (including repledged/pledged securities and allocated
collateral). Such margin blocked from the proprietary collateral towards a
client’s margin shall be deemed to have been the collateral allocated to that
client. This provision shall include deemed allocation of TM’s proprietary
collateral towards client margins and deemed allocation of CM’s proprietary
collateral towards TM/CP/client margins.
43.14. The members shall ensure that allocated collateral plus value of securities
collateral re-pledged to the CC for a client is at all times greater than or
equal to the minimum margin collection requirement for the respective client
59 Deleted in view of Circular SEBI/HO/MIRSD/MIRSD-PoD-1/P/CIR/2023/061 dated April 25, 2023
106
in the respective segment, since the amount of minimum margin collection
requirement for a client may be different from the margin applicable at CC.
CCs shall put in place effective deterrent mechanisms (penalty structure) in
consultation with SEBI, which shall be applicable in cases where the
allocated collateral plus the securities collateral re-pledged to CC in respect
of a client, is falling short of minimum margin collection requirement in the
respective segment.
43.15. Information regarding the collateral allocated by the CM shall be made
available on a daily basis on the web portal facility to clients to view
disaggregated collateral reporting by TM/CM (refer Para 43.3). Further, CC
shall also provide a facility to the TMs of the clients to view such collateral
allocation to the clients by the CM.
Collateral Valuation
43.16. CMs are required to maintain at least 50% of the total collateral in the form
of cash or cash equivalents. At individual client level, a client may have
allocation of cash equivalent, less than the value of non-cash collateral
provided by the client. In other words, the minimum 50% cash equivalent
collateral requirement may not be applied at the client level. For the purpose
of monitoring of at least 50% cash-equivalent collateral at the level of CM,
the excess cash-equivalent collateral of a client shall not be considered for
other client or for proprietary account of TM/CM. However, the excess cash-
equivalent collateral of proprietary account of TM/CM can be considered for
clients trading/clearing through them, for the purpose of monitoring
minimum 50% cash-equivalent requirement.
43.17. An illustration of the above requirement is provided at Annexure-17.
Blocking of Margins
43.18. The procedure for blocking of margins only specifies the order of blocking
of collateral available with the CC. There shall be no change in the
requirement of collection of upfront margins by the TM/CM. The TM/CM
shall be required to ensure that sufficient collateral is allocated to clients to
cover their margin requirements. (refer 43.12 and 43.13 above)
43.19. The terms “Client Collateral”, “TM Collateral”, “CP Collateral” and “CM
Collateral” shall mean the total of the allocated collateral value plus the
value of demat securities collateral provided through margin pledge/re-
pledge by any individual client, TM, CP and CM respectively to the level of
CC. The TM/CM collateral shall mean the proprietary collateral of the
TM/CM only and shall not include the collateral of any of their clients.
107
43.20. On receipt of a trade from a client account by the CC, the margin shall first
be blocked from the value of the client collateral. If the client collateral is not
sufficient, the residual margin shall be blocked from the TM proprietary
collateral of the TM of such client. If the TM proprietary collateral is also not
sufficient, then the residual margin shall be blocked from the CM proprietary
collateral of the CM of such TM.
43.21. In case of a trade from the proprietary account of a TM, the margin shall
first be blocked from the TM proprietary collateral, and in case such
collateral is not sufficient, then the residual margin shall be blocked from
the CM proprietary collateral.
43.22. Margins based on trades from proprietary account of the CM shall be
blocked from the proprietary collateral of the CM only.
43.23. An illustration of blocking of margins is provided at Annexure-18.
43.24. For monitoring of the risk reduction mode (90% utilization or such applicable
limit), the following procedure shall be adopted:
a.) TM level risk reduction mode: Client margin in excess of 90% of the client
collateral shall be identified for each client under a TM. The total of such
client margin in excess of 90% of the client collateral, plus the proprietary
TM margin shall be assessed against the TM proprietary collateral for
monitoring of TM level risk reduction mode.
b.) CM level risk reduction mode: Sum of client margin in excess of 90% of
the client collateral for each client under a TM plus the proprietary TM
margin, in excess of 90% of TM proprietary collateral shall be calculated
as TM margin in excess of 90% of TM collateral. Sum of such margin for
each TM clearing through a CM, plus sum of client margin in excess of
90% of the client collateral for each client clearing through such CM, plus
the proprietary CM margin shall be assessed against the proprietary CM
collateral for monitoring of CM level risk reduction mode.
43.25. An illustration for monitoring of risk reduction mode is provided at Annexure-
19.
43.26. In case of CP trades executed by TMs, the margin shall be blocked in the
following order- (i) CP collateral through the executing TM, if any, (ii)
residual margin from the proprietary collateral of the executing TM, and (iii)
residual margin from the proprietary collateral of the CM of the executing
TM. Upon confirmation of such trades by CM of the CP, the margin so
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blocked prior to the confirmation shall be released, and shall be blocked in
the following order- (i) CP collateral through the confirming CM, and (ii)
residual margin from the proprietary collateral of the confirming CM. In case
of CP trades, the requirement to ensure that sufficient collateral is allocated
to clients to cover their margin requirements shall be on the confirming CM.
However, if the trade is confirmed under the auto approval facility provided
by the CC, then margin shall be directly blocked in the following order- (i)
CP collateral through the confirming CM, and (ii) residual margin from the
proprietary collateral of the confirming CM.
Change of Allocation
43.27. CMs shall be permitted to change the allocation of collateral deposited with
the CC, subject to the value allocated to any client not exceeding the value
of actual collateral received from that client (excluding the securities
collateral re-pledged to CC through margin pledge mechanism). However,
such change of allocation shall be permitted subject to adequacy of
available collateral with the CC after the change vis-à-vis the margin
obligation. An illustration is provided at Annexure-20.
43.28. CC shall also provide notification of such change of allocation of collateral
to the concerned client, in respect of whom the allocation has been
changed, pursuant to the change of allocation.
Client Margin Reporting
43.29. There shall be no change in the client margin reporting process.
Settlement
43.30. There shall be no change in the settlement process.
Withdrawal of Collateral
43.31. Subject to the CM not being in default and fulfilling all obligations on a going
concern basis, the CM may place requests for withdrawal of collateral to
the CC.
43.32. After validation of such requests, if the collateral is found to be releasable,
the CC shall release the collateral to the CM. CM may return the collateral
to TM/CP/Clients or utilize collateral of the entities who are in default.
109
43.33. CC shall also provide notification of such withdrawal of allocation of
collateral to the concerned clients, in respect of whom the allocation has
been withdrawn, pursuant to the withdrawal of allocation.
Default Management Process
43.34. The default management process by the CCs in case of default by a CM
shall take place in four stages:
a. Stage 1: Completion of settlement to non-defaulting CMs
b. Stage 2: Portability or immediate return of collateral
c. Stage 3: Close-out of positions and provisional appropriation of collateral
d. Stage 4: Identification of defaulting clients and final appropriation of
collateral
Stage 1: Completion of settlement to non-defaulting CMs
43.35. CC shall utilize available financial resources to complete settlement in a
timely manner and complete the pay-outs to the non-defaulting members.
Stage 2: Portability or immediate return of collateral
43.36. CC shall put in place a mechanism/ process for TMs/clients/CPs of
defaulting CM to establish that they are not in default to the defaulting CM
and have deposited collateral to the extent of allocation (including deemed
allocation). This process shall be completed within a pre-specified time
period. On identification of such non-defaulting TMs/clients/CPs, CC shall
provide them opportunity for either porting of their positions and collateral
to another CM or immediate return of their collateral.
43.37. Portability of Positions and Collateral:
a.) Entities desirous of availing the facility of portability shall be required to
have established alternative trading/clearing arrangements with other
TMs/CMs other than the defaulting CM.
b.) If any pay-out is due to such entities, such pay-out shall be made to the
entities. As a result, the amount of such pay-out shall be added to the
pay-in shortfall of the defaulting CM.
43.38. Immediate return of collateral:
a.) Collateral of such entities shall only be utilized to the extent of losses due
to liquidation of their respective positions, and the remaining collateral
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shall be returned, along with the pay-out due to such entities, if any. As a
result, the amount of such pay-out shall be added to the pay-in shortfall of
the defaulting CM.
43.39. In some circumstances, it may be desirable to liquidate the positions and
even the collateral, since both are subject to risks. Under such
circumstances, not closing out positions/collateral to allow for portability
may lead to accumulation of losses. Considering the nature of positions,
market conditions and such other risk assessment, the CC may at any
stage decide to not provide the facility of portability. If the CC decides to not
provide the opportunity for portability, the CC shall crystalize the
profits/losses on close-out of positions and the value of collateral arrived at
after liquidation of the same.
Stage 3: Close-out of positions and provisional appropriation of collateral
43.40. For the remaining entities after Stage 2, i.e., entities other than the ones
who could avail the opportunity of either porting or immediate return of
collateral in Stage 2, following process shall be followed:
a.) CC shall close out all open positions of the defaulting CM, including the
positions of TMs/clients/CPs clearing through such CM.
b.) CC shall first utilize the CM/TM/Client/CP collateral for meeting any losses
in close-out of respective positions. It is clarified that TM/Client/CP
collateral shall include both allocated collateral (including deemed
allocated collateral) and the value of securities collateral provided through
margin pledge/re-pledge to the level of CC.
c.) In case of any shortfall in collateral of any entity under the CM, any excess
proprietary collateral of the TM / CM of such entity shall be used. This shall
follow the same order of utilization as in case of blocking of margins. Any
shortage in the proprietary collateral of the TM / CM shall be met by
applying the default waterfall of the CC.
d.) With regard to the defaulted settlement obligations, following process shall
be followed:
i.) Any pay-out made to the non-defaulting clients in Stage 2 shall be
added to the defaulted obligations.
ii.) The defaulted obligations (including pay-out in Para (i) above) shall
be first adjusted with the proprietary obligation of the defaulting CM to
the extent of funds/securities payable for the proprietary trades.
111
•Any shortage in the proprietary collateral of the defaulting CM shall
be met by applying the default waterfall of the CC.
•Any excess proprietary collateral of the CM shall also be used for
meeting the defaulted obligations.
iii.) Remaining defaulted obligations shall be attributed pro-rata: funds
payin shortfall shall be attributed pro-rata among TM/clients/CP
having funds payable and securities pay-in shortfall shall be attributed
pro-rata among TM/clients/CP having deliverable positions in the
security. Such losses shall be recovered from the collateral of the
TM/clients/CP available, if any.
• Any shortage in the collateral of such TM/clients/CP shall be met by
applying the default waterfall of the CC.
iv.) In case of any defaulted obligations attributed to a TM in Para (iii)
above (and in turn to its clients), the process enunciated above at Para
(ii) and (iii) above for a defaulting CM and its constituents shall apply,
mutatis mutandis, to the TM.
e.) The aforesaid pro-rata attribution of shortages shall be provisional. The
actual attribution of shortages to clients shall be done in Stage-4.
f.) In case there is any profit to a TM/client/CP during the close-out process,
such close-out profit shall be considered as pay-out due to the
TM/client/CP.
43.41. An Illustration on the procedures to be followed in the Stage-2 and the
Stage-3 are given at Annexure-21.
Stage 4: Identification of defaulting clients and final appropriation of collateral
43.42. The procedure for verification and settlement of claims of constituents of
defaulting CM shall be as follows:
a.) The process for identification of defaulting TM/CP/clients and the return of
collateral of non-defaulting TM/CP/clients shall be administered by the
appropriate committee viz., Member and Core Settlement Guarantee
Fund Committee (MCSGFC) of the Exchange or the CC.
b.) The amount that can be claimed by the non-defaulting TM/CP/clients from
the CC shall be limited to the allocated collateral (including deemed
allocated) and the value of securities collateral provided through margin
pledge/re-pledge to the level of CC, plus the pay-out (including profit if any
112
during close-out) due to the constituent, less the losses in close-out of
positions of the constituent.
c.) The MCSGFC of the CC/Exchange shall implement the relevant
procedures for verification and settlement of claims of the non-defaulting
TM/CP/clients of the defaulting CM.
d.) The constituents actually in default shall be identified and the pro-rata
attribution of shortages performed in Stage-3 shall be replaced by the
actual attribution of shortages. If there has been any excess collateral
appropriated at Stage-3 due to pro-rata attribution, such excess
appropriation shall be corrected, and the constituents shall be returned
the collateral in full along with the pay-out due to such entities. This
amount shall be recovered from the constituents who have higher
shortage (pursuant to actual attribution) than the one attributed on pro-
rata basis. If such clients do not have sufficient collateral, then the default
waterfall of the CC (including its Core Settlement Guarantee Fund (Core
SGF), as per the specified order of waterfall) shall be applied.
e.) For any collateral of a client retained by TM/CM, and not allocated to that
client’s account, the Exchange or the CC shall initiate suitable actions
before appropriate court of law for liquidating the assets (movable and
immovable) of the defaulter member as per the existing provisions.
Further, eligible clients will also have the access to compensation from the
Investor Protection Fund, as per the existing provisions.
43.43. Illustration on procedures to be followed in Stage-4 are provided at
Annexure-22.
Default of TMs to CMs
43.44. The following procedure shall be adopted in case of default of TM to CM:
a.) The CM shall continue to meet its obligations towards its other
constituents, as well as the CC.
b.) The CM shall close-out all open positions of the defaulting TM (including
clients under the TM).
c.) Under the supervision of the CC, the CM shall appropriate the collateral
towards losses. The losses in closing-out open positions and the
settlement obligations due from clients of the TM shall be appropriated
first from the allocated collateral (as per allocation provided by TM to CM,
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including deemed allocated) and securities collateral provided through
margin pledge/ repledge to the level of CM/CC of respective clients. Any
residual losses as well as the losses in closing-out open positions and the
settlement obligations of the TM proprietary account shall be appropriated
from the TM proprietary collateral. In case of TM proprietary collateral
being insufficient, the losses shall not be appropriated from any other
constituent of the CM or any constituent of the defaulting TM.
d.) After the above utilization towards losses in closing-out open positions of
the defaulting TM (and clients under the TM) and net settlement shortfall,
all remaining collateral/funds received from the defaulting TM (lying with
CM/CC) shall be provided by the CM to the Stock Exchanges.
e.) Since the TM will be leading to default, the Stock Exchanges shall institute
relevant applicable procedures against the TM as per existing regulatory
provisions, byelaws, rules and regulations of the Stock Exchanges.
Violations
43.45. Any false allocation by members shall be treated as a violation and
disciplinary action shall be taken against the members.
43.46. The aforementioned framework for segregation and monitoring of collateral
at client level shall be applicable to all segments and product classes at
Stock Exchanges/ Clearing Corporations.
44. Maintenance of current accounts in multiple banks by Stock Brokers60
44.1. The Stock Brokers should maintain current accounts in appropriate number of
banks (subject to the maximum limit prescribed by Stock Exchanges/SEBI
from time to time) for holding the client funds (i.e., Client Account), for
settlement purposes (i.e., Settlement Account) and any other accounts
mandated by Stock Exchanges such as Exchange Dues Account subject to
the condition that brokers are using these accounts for their defined purposes.
45. Block Mechanism in demat account of clients undertaking sale
transactions61
45.1. When the client intends to make a sale transaction, shares will be blocked
in the demat account of the client in favour of Clearing Corporation. If sale
60 Reference: Circular SEBI/HO/MIRSD/DOP/P/CIR/2021/653 dated October 28,2021
61 Reference: Circular SEBI/HO/MIRSD/DOP/P/CIR/2021/595 dated July 16,2021, Circular
SEBI/HO/MIRSD/DOP/P/CIR/2022/109 dated August 18, 2022 and Circular
SEBI/HO/MIRSD/DoP/P/CIR/2022/143 dated October 27, 2022
114
transaction is not executed, shares shall continue to remain in the client's
demat account and will be unblocked at the end of the T day. Thus, this
mechanism will do away with the movement of shares from client's demat
account for early pay-in and back to client's demat account if trade is not
executed.
45.2. Process for Block Mechanism:
45.2.1. The securities lying in client's demat account will be blocked either
by client himself using depository's online system or eDIS mandate
or through depository participant based on physical DIS given by
client or Power of Attorney (POA) holder.
45.2.2. Depositories may keep block on the securities in client's demat
account in respect of Intra or Inter depository transfer instruction till
pay-in day. The blocked securities will be transferred only after
checking against the client level net delivery obligation received from
CCs.
45.2.3. Depositories will provide the details of transfer instructions viz., UCC,
TM ID, Exchange ID etc. to CCs for clients to avail EPI benefit.
45.2.4. CC will match the client level net obligations with the Block details
provided by depositories and CC will provide EPI benefit to client if
the client level net obligation exists for that client.
Matched orders:
45.2.5. In case of matched orders, block securities will be debited from
Client's demat account and will be credited to linked TM Pool
account upto pay-in day. TM shall further transfer such securities to
CM Pool account.
45.2.6. TM shall not transfer the securities to any other pool account other
than CM pool account mapped to the TM account. Pool to Pool
transfers except TM pool to CM pool shall not be permitted.
45.2.7. Inter-settlement shall not be allowed from TM Pool account and CM
pool account.
45.2.8. Securities lying in CM pool account will be delivered in settlement
process on the Pay-in date. If TM Pool Account is also mapped as a
CM Pool Account, then, securities lying in such TM/CM Pool Account
can also be delivered in the settlement process.
115
Unblocking of Securities:
45.2.9. After receiving client level net obligations on T day from CCs,
depositories will match the Intra or Inter depository transfer
instruction details with CC obligation details based on UCC, TM ID,
CM ID, Exchange ID, etc.
45.2.10. ln case of unmatched orders, CCs shall upload cancellation of Block
instruction on T day so that securities are unblocked and become
free in client's demat account on T day itself.
45.2.11. Broker or client shall not be allowed to unblock securities if EPI
benefit is provided by CC to client for the same.
Margining of Trades:
45.2.12. When the client intends to block securities for a sale transaction,
shares will remain blocked in favour of CC. If securities are blocked
in favour of CC, then all Margin would deemed to have been
collected and penalty for short/non collection of margin including
other margins shall not arise.
45.2.13. Blocking shall be on 'time basis' and would mean if the order is not
executed by the end of the T day, the block shall be released.
45.3. The facility of block mechanism shall be mandatory for all Early Pay-In
transactions.
45.4. The block mechanism shall not be applicable to clients having
arrangements with custodians registered with SEBI for clearing and
settlement of trades.
46. Handling of Client’s Securities by Trading Members/ Clearing Members62
46.1. In order to provide clarity with respect to a TM/CM maintaining a running
account for client securities and pledging the client securities with
Banks/NBFCs, after discussions with the Exchanges, Depositories and
Clearing Corporations, the following advice is issued:
46.1.1. All the securities received in pay-out, shall be transferred to the
demat account of the respective clients directly from the pool
account of the TM/CM within one working day of the pay-out.
62 Reference: Circular CIR/HO/MIRSD/DOP/CIR/P/2019/75 dated June 20, 2019 and Circular
SEBI/HO/MIRSD/MIRSD-PoD-1/P/CIR/2022/153 dated November 11, 2022.
116
46.1.2. With regard to the unpaid securities (i.e., the securities that have not
been paid for in full by the clients), such securities shall be
transferred to respective client’s demat account followed by creation
of an auto-pledge (i.e., without any specific instruction from the
client) with the reason “unpaid”, in favor of a separate account titled
– “client unpaid securities pledgee account”, which shall be opened
by TM/CM.
46.1.3. After the creation of pledge, a communication (email / SMS) shall be
sent by TM/CM informing the client about their funds obligation and
also about the right of TM/CM to sell such securities in event of
failure by client to fulfill their obligation.
46.1.4. If the client fulfills its funds obligation within five trading days after the
pay-out, TM/CM shall release the pledge so that the securities are
available to the client as free balance.
46.1.5. If the client does not fulfill its funds obligation, TM / CM shall dispose
off such unpaid securities in the market within five trading days after
the pay-out. TM/CM, before disposing the securities, shall give an
intimation (email / SMS) to the client, one trading day before such
sale.
46.1.6. The unpaid securities shall be sold in the market with UCC of the
respective client. Profit/loss on the sale transaction of the unpaid
securities, if any, shall be transferred to/adjusted from the respective
client account.
46.1.7. TM / CM shall invoke the pledge only against the delivery obligation
of the client. On invocation, the securities shall be blocked for early
pay-in in the client’s demat account with a trail being maintained in
the TM/CM’s client unpaid securities pledgee account.
46.1.8. Once such securities are blocked for early pay-in in client’s demat
account, the depositories shall verify the block details against the
client level obligation.
46.1.9. In case, such pledge is neither invoked nor released within seven
trading days after the pay-out, the pledge on securities shall be auto
released and the securities shall be available to the client as free
balance without encumbrance.
46.1.10. Such unpaid securities pledged in client’s account shall not be
considered for the margin obligations of the client.
46.2. Monitoring with respect to handling of clients securities:
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Stock Exchanges, Clearing Corporations and Depositories shall put in place
a mechanism for monitoring of the following:
46.2.1. Handling of unpaid clients’ securities by the TM/CM – Mechanism of
matching of transfer of securities with the securities obligation as
obtained from the clearing corporation with respect to the following:
i. Securities transferred from the client unpaid securities account
to the pool account
ii. Securities transferred from the client unpaid securities account
to the concerned client account,
iii. Securities transferred from pool account to the concerned client
account
46.2.2. Securities lying with TM/CM in client unpaid securities account shall
not be permitted to be pledged/transferred to Banks/NBFCs for
raising funds by TM/CM.
47. Validation of Instructions for Pay-In of Securities from Client demat account
to Trading Member (TM) Pool Account against obligations received from the
Clearing Corporations63
47.1. Depositories, prior to executing actual transfer of the securities for Pay-In
from client demat account to TM Pool account, shall validate the transfer
instruction received through any of the available channels for the purpose of
Pay-in, i.e. either initiated by clients themselves or by the Power of Attorney
(POA) / Demat Debit and Pledge Instruction (DDPI) holder against the client-
wise net delivery obligation received from CCs.
47.2. For Early Pay-In transactions, the existing facility of Block mechanism shall
continue.
47.3. In order to validate the Pay-In Instructions, the following process shall be put
in place by the Depositories:
Validation of transfer instruction details with CC obligation details
47.3.1. Depositories receive the debit instruction for the purpose of Pay-In,
given either by client himself using depository’s online system or eDIS
mandate or through depository participant based on physical DIS /
digitally signed DIS given by client or POA / DDPI holder.
63 Reference: Circular SEBI/HO/MIRSD/DoP/P/CIR/2022/119 dated September 19, 2022
118
47.3.2. CCs shall provide client-wise net delivery obligations on T day to the
depositories.
47.3.3. Based on the obligation data provided by CCs, Depositories shall
validate the depository transfer instruction details with CC obligation
details based on UCC, TM ID, CM ID, Exchange ID, ISIN, quantity,
settlement details etc.
Matched instruction:
47.3.4. In case of matching of all details like UCC, TM ID, CM ID, ISIN,
quantity, settlement details etc. of the transfer instruction with the
obligation data, the instruction shall be carried out by the Depositories
and such securities will be debited from client’s demat account and
credited to linked TM Pool account on or before the settlement day.
Unmatched instruction:
47.3.5. In case of discrepancies in details like UCC, TM ID, CM ID, ISIN etc.,
between instruction and obligation, such transfer instructions will be
rejected by the depositories.
47.3.6. In case of discrepancies in quantity of securities between instruction
and obligation, the following shall be noted:
47.3.6.1. If the quantity in instruction is less than the obligation
provided by CC, then the instruction will be carried out by
the depositories.
47.3.6.2. If the quantity in instruction is more than the obligation
provided by CC, then the instruction will be partially
processed by the depositories (i.e., upto the matching
obligation quantity).
Trades Confirmed by Custodians:
47.3.7. This process shall not be applicable to clients having arrangements
with custodians registered with SEBI for clearing and settlement of
trades.
48. Settlement of Running Account of Client’s Funds lying with Trading Member
(TM)64
48.1. Regarding Settlement of running account, following shall be complied with:
64 Reference: Circular SEBI/HO/MIRSD/DOP/P/CIR/2021/577 dated June 16,2021,
Circular SEBI/HO/MIRSD/DOP/P/CIR/2022/101 dated July 27, 2022 and
Circular SEBI/HO/MIRSD/MIRSD-PoD1/P/CIR/2023/197 dated December 28, 2023
SEBI/HO/MIRSD/MIRSD-PoD1/P/CIR/2025/1 dated January 06, 2025
119
48.1.1. The TM, after considering the End of the Day (EOD) obligation of
funds across all the Exchanges, shall settle the running accounts at
the choice of the clients on quarterly and monthly basis, on the dates
stipulated by the Stock Exchanges.
48.1.2. Stock exchanges shall, jointly, issue the annual calendar for the
settlement of running account (quarterly and monthly) at the beginning
of the financial year.
48.1.3. TM shall ensure that funds, if any, received from clients, whose
running account has been settled, remain in the “Up Streaming Client
Nodal Bank Account” and no such funds shall be used for settlement
of running account of other clients. Stock Exchanges shall evolve a
monitoring mechanism for this purpose.
48.2. In case of client having any outstanding trade position on the day on which
settlement of running account of funds is scheduled, a TM may retain funds
calculated in the manner specified below:
48.2.1. Entire pay-in obligation of funds outstanding at the end of the day on
settlement of running account, of T day & T-1 day.
48.2.2. Margin liability as on the date of settlement of running account, in all
segments and additional margins (maximum upto 125% of total
margin liability on the day of settlement). The margin liability shall
include the end of the day margin requirement excluding the MTM and
pay-in obligation, therefore, TM may retain 225% of the total margin
liability in all the segments across exchanges. Computation for
arriving at retention of excess client funds based on above points
would be as under:
Table 12
Scen Fund pay EOD/pea 225% of Securitie Client Excess
ario in k margin the margin s fund client
obligation requirem pledged/ balance funds
of T day & ent repledge retained
T-1 day d
A B C=225%*B D E F=E-
[(C-D)
+A]
1 110000 100000 225000 200000 300000 165000
2 50000 20000 45000 15000 50000 0
3 150000 100000 225000 280000 180000 30000
^
120
^ Excess securities of Rs. 55,000 (i.e. 280000-225000) is not required to
be unpledged.
48.3. Client’s running account shall be considered settled only by making actual
payment into client’s bank account and not by making any journal entries.
Journal entries in client account shall be permitted only for levy / reversal
of charges in client’s account.
48.4. For the clients having credit balance, who have not done any transaction in
the 30 calendar days since the last transaction and any amount of such
client’s funds is lying with member for more than such 30 calendar days,
the entire credit balance of client shall be returned to the client by TM, on
the upcoming settlement dates of monthly running account settlement cycle
(irrespective of settlement cycle preferred by the client) as stipulated by
stock exchanges.
However, if the client trades after 30 calendar days and before aforesaid
upcoming settlement dates of monthly running account settlement cycle,
the settlement of account of client shall continue to be done by the Trading
member as per the preference of quarterly/monthly as indicated by the
client for running account settlement.
48.5. In cases where physical payment instrument (cheque or demand draft) is
issued by the TM towards the settlement of running account due to failure
of electronic payment instructions, the date of realization of physical
instrument into client’s bank account shall be considered as settlement date
and not the date of issue of physical instrument.
48.6. Retention of any amount towards administrative / operational difficulties in
settling the accounts of regular trading clients (active clients), shall be
discontinued.
48.7. The Authorized person is not permitted to accept client’s funds and
securities. The TM should keep a proper check. Proprietary trading by
Authorized person should be permitted only on his own funds and securities
and not using any of the client’s fund.
48.8. Once the TM settles the running account of funds of a client, an intimation
shall be sent to the client by SMS on mobile number and also by email. The
intimation should also include details about the transfer of funds (in case of
electronic transfer – transaction number and date; in case of physical
payment instruments – instrument number and date). TM shall send the
retention statement along with the statement of running accounts to the
clients as per the existing provisions within 5 working days.
48.9. Client shall bring any dispute on the statement of running account, to the
notice of TM within 30 working days from the date of the statement.
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48.10. Stock Exchanges shall develop online system for effective monitoring of
timely settlement of running account for funds of client and to verify that
excess clients’ funds are not retained by the TM as on the date of settlement
of running account. The intent of the online system shall be to discourage
TM from retaining excess funds of clients after settlement of running
account, by considering all the client obligations across exchanges. The
responsibility of monitoring settlement of running account compliance of TM
may be shared among Stock Exchanges.
49. Risk disclosure with respect to trading by individual traders in Equity
Futures & Options Segment65
49.1. With a view to facilitating informed decision making by the investors trading
in derivatives segment, it has been decided to introduce ‘Risk disclosures’
with respect to trading in equity Futures & Options (F&O) segment.
49.2. Accordingly, all stock brokers shall display the ‘Risk disclosures’ given at
Annexure-23 on their websites and to all their clients in the manner as
specified below:
49.2.1. Upon login into their trading accounts with brokers, the clients may
be prompted to read the ‘Risk disclosures’ (which may appear as a
pop-up window upon login) and shall be allowed to proceed ahead
only after acknowledging the same.
49.2.2. The ‘Risk disclosures’ shall be displayed prominently, covering at
least 50 percent area of the screen.
49.3. All Qualified Stock Brokers (QSBs) shall maintain the Profit and Loss (P&L)
data of their clients on continuous basis as per the format given at Annexure-
24. The P&L data of the clients shall be retained for at least 5 years.
50. Ease of Doing Investments by Investors- Facility of voluntary freezing/
blocking of Trading Accounts by Clients66
50.1. To enhance ease of doing business and ease of investment, it has been
decided that the framework for Trading Members to provide the facility of
voluntary freezing/blocking the online access of the trading account to their
clients on account of suspicious activities shall be laid down on or before
April 01, 2024, by the ISF, under the aegis of stock exchanges, in
consultation with SEBI and the same shall, inter-alia, contain necessary
guidelines with respect to the following:
65 Reference: Circular SEBI/HO/MIRSD/MIRSD-PoD-1/P/CIR/2023/73 dated May 19, 2023
66 Reference: Circular SEBI/HO/MIRSD/POD-1/P/CIR/2024/4 dated January 12, 2024
122
50.1.1. Detailed policy for voluntary freezing/ blocking the online access of
the trading account of the client including the following:
 modes through which a client can request/communicate to the
Trading Member for voluntarily blocking the trading accounts;
 issuing of acknowledgement to the clients on receipt of
message;
 time period within which the request shall be processed and the
trading account shall be frozen/blocked.
50.1.2. Action to be taken by the Trading Member pursuant to the receipt of
request for freezing/blocking of the trading account;
50.1.3. Process for re-enabling the client for trading/transfers;
50.1.4. Intimation to be provided by the trading member to the clients w.r.t.
introduction of the facility to block the trading accounts.
50.2. Further, the Stock Exchanges shall ensure that the guidelines so issued
under the aforesaid framework are implemented by Trading Members with
effect from July 01, 2024. Stock Exchanges shall also put in place an
appropriate reporting requirement by Trading Members to enforce the above
system. A compliance report to this effect shall be submitted to SEBI by
Stock Exchanges latest by August 31, 2024.
51. Enhancement of operational efficiency and Risk Reduction-Pay-out of
securities directly to client demat account67
51.1. To protect the clients’ securities from misuse, it has been decided to make
the process of securities pay-out directly to client demat account mandatory,
as detailed below:
51.1.1. The securities for pay-out shall be credited directly to the respective
client’s demat account by the CCs.
51.1.2. CCs shall provide a mechanism for Trading Member(TM)/Clearing
Members (CM) to identify the unpaid securities and funded stocks
under the margin trading facility.
51.1.3. With regard to unpaid securities, the processes as specified at para
46 above shall be applicable.
51.2. The processes specified at para 51.1 above, shall not be applicable to clients
having arrangements with custodians registered with SEBI for clearing and
settlement of trades.
51.3. Handling of shortages arising due to inter se netting of positions between
clients: In case of any shortages arising due to inter se netting of positions
between clients i.e., internal shortages, the following measures shall be
67 Reference Circular SEBI/HO/MIRSD/MIRSD-PoD1/P/CIR/2024/75 dated June 05, 2024
123
taken to streamline the processes of handling of such shortages across the
market:
51.3.1. TM/CM shall handle such shortages through the process of auction
as specified by CCs.
51.3.2. In such cases, the brokers shall not levy any charges on the client
over and above the charges levied by the CCs.
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IV. TECHNOLOGY RELATED PROVISIONS
52. Electronic Contract Note68
52.1. 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 Information and Technology
Act, 2000 (hereinafter referred to as “IT Act 2000”).
52.2. Contract notes can be issued by the brokers in electronic form
authenticated by means of digital signatures.
52.3. All the members of stock exchanges who are desirous of issuing Electronic
Contract Notes (ECNs) to their clients shall comply with the following
conditions:
52.3.1. 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.
52.3.2. 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
68 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
125
confirmation shall be as per the agreement entered into with
the clients.
52.3.3. 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.
52.3.4. 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.
52.3.5. 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.
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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.
52.3.6. When to issue or send in Physical mode
a. 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. 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 contract note to the client in any of the
following manner within the stipulated time under the extant
regulations of SEBI/stock exchanges and maintain the proof of
delivery of such contract notes
i. A physical contract note; or
ii. An ECN through electronic instant messaging services
provided following safeguards are ensured:-
 Members shall send ECN through SMS / electronic instant
messaging services only to the applications linked to the
registered mobile number/ email id of clients as uploaded by
members on the Exchange portal/database.
 ECN sent through SMS / electronic instant messaging
services, shall be sent as an attachment and not as a link.
The attached file may be secured with the digital signature,
encrypted, non tamperable and password protected.
 The messages sent through SMS / electronic instant
messaging services not to be covered under the auto delete
facility at the option of the members.
 The members shall ensure that all ECNs are sent from the
same ID and appropriate logs (sent/delivered/seen/not
delivered/blocked etc.) are maintained by the members
regarding the same. In case of not delivered/blocked etc,
member shall issue physical contract note.
52.3.7. General requirements
127
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 web-site 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.
53. Conditions to be met by Broker for providing Internet Based Trading
Service69
53.1. 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:
53.2. Application for permission by Brokers
53.2.1. 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 thirty calendar
days of the date of completed application submitted to the
exchange.
69 Reference: Circular SMDRP/POLICY/CIR-06/2000 dated January 31, 2000 and Circular FITTC/DC/CIR-
1/98 dated June 16, 1998
128
53.2.2. 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 rupees fifty 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 prescribed in the Stock Brokers Regulations 1992
will apply.
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
129
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.
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
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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 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 twenty-four 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
131
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
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
132
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.
54. Securities Trading through Wireless medium on Wireless Application
Protocol (WAP) platform70
54.1. 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 52 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:
54.2. Network Security
54.2.1. 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.
54.2.2. Suitable firewalls should be installed between trading set-up directly
connected to an Exchange trading system and the WAP server.
54.2.3. 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.
54.2.4. 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.
54.2.5. The following security measures applicable for fixed Internet based
systems should be made mandatory:
a. User ID
b. First Level password (Private code)
70 Reference: Circular SMDRP/POLICY/CIR-48/2000 dated October 11, 2000
133
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.
54.2.6. 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.
54.2.7. In case of failure of the network, alternative means of communication
such as telephone, Internet or e-mail should be available.
54.3. Price Quotes/ Order/ Trade Confirmations
54.3.1. Stock quotes should be time-stamped.
54.3.2. 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 WAP.
54.3.3. Trade confirmation should be provided to the user through e-mail
and/or on the mobile phone.
54.4. System operations
54.4.1. Brokers should follow the similar logic/priorities used by the
Exchange to treat client orders.
54.4.2. Orders/ trades placed through either fixed Internet or WAP system
should be accessible from both systems.
54.4.3. Brokers should maintain all activities/ alerts log with audit trail facility.
54.4.4. Broker Web Server should have internally generated unique
numbering for all client order/trades.
54.5. Risk Management
54.5.1. 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.
134
55. Securities Trading using Wireless Technology71
55.1. 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.
55.2. Securities Trading using Wireless technology shall include devices such as
mobile phone, laptop with data card, etc, that use Internet Protocol (IP).
55.3. In addition, the stock exchange shall ensure that the broker complies with
the following:
55.3.1. 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.
55.3.2. Adequate measures should be taken for user identification,
authentication and access control using means such as user-id,
passwords, smart cards, biometric devices or other reliable means,
to prevent misuse of facility by unauthorized persons.
55.3.3. Unique identification number as given in case of internet based
trading shall be made applicable for securities trading using
wireless technology.
55.3.4. In case of failure of the wireless network, alternative means of
communication for placing orders should be available.
55.3.5. 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.
55.3.6. 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.
55.3.7. Order confirmation should be provided to the user on submitting the
order. Order modification / cancellation facilities should also be
71 Reference: Circular CIR/MRD/DP/ 25/2010 dated August 27, 2010
135
provided. Trade confirmation should be provided to the user, along
with history of trades for the day.
55.3.8. Session login details should not be stored on the devices used for
internet based trading and securities trading using wireless
technology.
55.3.9. 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.
55.3.10. The broker’s server routing orders to the exchange trading system
shall be located in India.
55.3.11. Stock exchanges shall arrange for periodic systems audits of
broker systems to ensure that requirements specified in the
circulars are being met.
55.3.12. Stock exchange shall also include securities trading using wireless
technology in their ongoing investor awareness and educational
programme.
55.4. 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.
56. Additional Requirements for Internet Based Trading (IBT) and Securities
trading using Wireless Technology (STWT)72
56.1. The stock exchange shall ensure that the broker comply with the following
56.1.1. The broker shall capture the IP (Internet Protocol) address (from
where the orders are originating), for all IBT/ STWT orders.
56.1.2. The brokers system should have built-in high system availability to
address any single point failure.
56.1.3. 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.
56.1.4. The broker system should have adequate safety features to ensure
it is not susceptible to internal/ external attacks
72 Reference: Circular CIR/MRD/DP/08/2011 dated June 30, 2011
136
56.1.5. In case of failure of IBT/ STWT, the alternate channel of
communication shall have adequate capabilities for client
identification and authentication.
56.1.6. 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.
56.1.7. In case of no activity by the client, the system should provide for
automatic trading session logout.
56.1.8. Further to the above, the following practice is advisable –
56.1.9. 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.
57. Direct Market Access facility73
57.1. 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.
57.2. While ensuring conformity with the provisions of the SCRA 1956, Stock
Exchanges may facilitate Direct Market Access for investors subject to the
following conditions:
57.3. Application for Direct Market Access (DMA) facility
57.3.1. Brokers interested to offer DMA facility shall apply to the respective
stock exchanges giving details of the software and systems
73 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.
137
proposed to be used, which shall be duly certified by a Security
Auditor as reliable.
57.3.2. The stock exchange should grant approval or reject the application
as the case may be and communicate its decision to the member
within thirty calendar days of the date of completed application
submitted to the exchange.
57.3.3. The stock exchange, before giving permission to brokers to offer
DMA facility shall ensure the fulfillment of the conditions specified
below.
57.4. Operational specifications
57.4.1. 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.
57.4.2. 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 five years.
57.4.3. 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 need basis.
57.4.4. 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.
57.4.5. In case where the clients access the DMA server of the broker
through a third party service provider, the password maintenance
and authentication can be done either by the broker of by third party
network service provider, so long as the exchange/broker ensures
secured access and communication and a sound audit trail for all
DMA orders/ trades. The authorized user and client details should
be part of the order details received and authenticated at the DMA
server of the broker.74
57.4.6. Brokers should follow the similar logic/priorities used by the
Exchange to treat DMA client orders. Brokers should maintain all
74 Letter no MRD/DoP/NSE/129791/2008 dated June 24, 2008
138
activities/ alerts log with audit trail facility. The DMA Server should
have internally generated unique numbering for all such client
order/trades.
57.4.7. 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.
57.4.8. The exchanges and brokers should provide for adequate systems
and procedures to handle the DMA trades.
57.5. Risk Management
57.5.1. 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.
57.5.2. 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.
57.5.3. 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 the Reserve Bank of India.
57.5.4. The broker may provide for additional risk management parameters
as they may consider appropriate.
57.6. Broker to be liable for DMA trades
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
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ensure that only clients who fulfill the eligibility criteria are permitted to use
the DMA facility.
57.7. Cross Trades
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.
57.8. Other legal provisions
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.
57.9. 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).
57.10. 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).
57.11. 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.
57.12. The terms and Conditions for the purpose of DMA is specified in paras
57.13 to 57.49 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 paras 57.13 to 57.30 shall be applicable. In case the DMA
facility provided by the stock broker is used by the client through an
investment manager the paras 57.31 to 57.48 shall be applicable and
additionally, the investment manager shall provide to the stock broker the
details as specified at para 57.49 (Table 13).
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DMA FACILITY USED BY THE CLIENT
57.13. 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.
57.14. 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.
57.15. 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.
57.16. 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.
57.17. 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.
57.18. The client shall provide the names of authorized individual users to the
broker prior to placing DMA orders.
57.19. 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.
57.20. 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 exchanges. The client shall ensure that
it has necessary checks and balances, in place to identify and control
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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.
57.21. 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.
57.22. 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.
57.23. 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.
57.24. 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.
57.25. 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.
57.26. 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.
57.27. 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 DMA service is provided on an "as
is", "as available" basis without warranties of any kind, either express or
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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.
57.28. The Broker shall have the right to withdraw the DMA facility in case of:-
57.28.1. Breach of the limits imposed by the broker or any regulatory
authority.
57.28.2. On account of any misuse of the DMA facility by the client or on
instructions from SEBI/Exchanges.
57.28.3. Any other reason, at the discretion of the broker.
Broker shall endeavor to give reasonable notice to the client in such
instances.
57.29. 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.
57.30. 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.
DMA FACILITY USED BY THE CLIENT THROUGH AN INVESTMENT MANAGER
57.31. 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.
57.32. 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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57.33. 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 –
57.33.1. 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).
57.33.2. The investment manager shall comply with any applicable laws,
rules and regulations affecting or relating to trading operations.
57.33.3. The investment manager and the client(s) are bound by the terms
and conditions hereof;
57.33.4. 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.
57.33.5. 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.
57.34. 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.
57.35. 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.
57.36. The investment manager shall ensure that no person authorized by them
to place orders through DMA facility provided by the broker has been / is
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involved in any adverse action by any regulatory authorities in any
jurisdiction.
57.37. The investment manager shall provide the names of authorized individual
users to the broker prior to placing DMA orders.
57.38. 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.
57.39. 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.
57.40. 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.
57.41. 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.
57.42. 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.
57.43. 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.
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57.44. 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.
57.45. 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.
57.46. The Broker shall have the right to withdraw the DMA facility in case of:-
57.46.1. Breach of the limits imposed by the broker or any regulatory
authority.
57.46.2. On account of any misuse of the DMA facility by the client/
investment manager or on instructions from SEBI/Exchanges.
57.46.3. Any other reason, at the discretion of the broker.
57.47. 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.
57.48. 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.
57.49. DETAILS TO BE PROVIDED TO THE STOCK BROKER
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Table 13
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:
SEBI REGISTRATION NUMBER:
PART B
CLIENT(s) DETAILS:
S. NAME OF NAME OF REGULATED REGISTRATION PAN
No. THE THE IN INDIA AS NUMBER
ENTITY REGULATOR
58. Smart Order Routing75
58.1. 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.
58.2. Stock Exchanges are advised to ensure the following conditions with regard
to the Smart Order Routing facility:
58.2.1. Stock broker interested to offer Smart Order Routing facility shall
apply to the respective stock exchanges.
58.2.2. 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.
58.2.3. Stock broker shall provide the following to the respective stock
exchanges:
75 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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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.
58.2.4. Stock exchange shall communicate its decision to the broker within
thirty 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 thirty calendar days.
58.2.5. 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.
58.2.6. Stock exchange shall ensure that brokers adhere to the best
execution policy while using Smart Order Routing.
58.2.7. Smart Order Routing facility shall be provided to all class of
investors.
58.2.8. Stock Broker shall communicate to all clients the features, possible
risks, rights, responsibilities and liabilities associated with the smart
order routing facility, as part of ‘Rights and Obligation of Stock
brokers and clients’ placed at Annexure 9 of this Master Circular.
58.2.9. 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.
58.2.10. 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.
58.2.11. 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,
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b. Material changes in the software/system of the smart order routing
facility.
58.2.12. 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.
58.2.13. 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.
58.2.14. Stock exchange shall ensure that Smart Order Routing is not used
to place orders at venues other than the recognised stock
exchanges.
58.2.15. The stock broker shall carry out appropriate validation of all risk
parameters before the orders are placed in the Smart Order Routing
system.
58.2.16. 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.
58.2.17. Stock exchange shall have necessary surveillance mechanism in
place to monitor trading done through Smart Order Routing.
58.2.18. Stock broker shall ensure that alternative mode of trading system is
available in case of failure of Smart Order Routing facility.
58.2.19. 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.
58.2.20. 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.
58.2.21. Stock exchange shall synchronise their system clocks with atomic
clock before the start of market.
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58.2.22. 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.
58.2.23. All other existing obligations for the broker as per current regulations
and circulars will continue.
58.2.24. Stock exchange may specify additional safeguards as they deem fit
for allowing Smart Order Routing facility to their brokers.
59. Broad Guidelines on Algorithmic Trading76
59.1. Any order that is generated using automated execution logic shall be known
as algorithmic trading.
Guidelines to the stock exchanges and the stock brokers
59.2. Stock exchanges shall ensure the following while permitting algorithmic
trading:
59.2.1. 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.
59.2.2. 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.
59.2.3. 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
76 Reference: Circular CIR/MRD/DP/09/2012 dated March 30, 2012, Circular CIR/MRD/DP/16/2013 dated
May 21, 2013 and Circular SEBI/HO/MIRSD/DOP/P/CIR/2022/117 dated September 02, 2022.
150
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.
59.2.4. 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 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.
59.2.5. 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.
59.2.6. The stock exchange may seek details of trading strategies used by
the algo for such purposes viz. inquiry, surveillance, investigation,
etc.
59.2.7. 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.
59.2.8. 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.
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59.2.9. 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.
59.3. 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.
59.4. For stock brokers already providing algo trading, the stock exchange shall
ensure that the risk controls specified herein are implemented by the stock
broker.
59.5. The stock brokers / trading members that provide the facility of algorithmic
trading shall subject their algorithmic trading system to a system audit every
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:
59.5.1. CISA (Certified Information System Auditors) from ISACA;
59.5.2. DISA (Post Qualification Certification in Information Systems Audit)
from Institute of Chartered Accountants of India (ICAI);
59.5.3. CISM (Certified Information Securities Manager) from ISACA;
59.5.4. CISSP (Certified Information Systems Security Professional) from
International Information Systems Security Certification Consortium,
commonly known as (ISC).
59.6. 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.
59.7. In case of serious deficiencies / issues or failure of the stock broker / trading
member to take satisfactory corrective action, the stock exchange shall not
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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.
59.8. 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 -
59.8.1. Price check – Algo orders shall not be released in breach of the
price bands defined by the exchange for the security.
59.8.2. Quantity check – Algo orders shall not be released in breach of the
quantity limit as defined by the exchange for the security.
59.8.3. Order Value check - Algo orders shall not be released in breach of
the ‘value per order’ as defined by the stock exchanges.
59.8.4. Cumulative Open Order Value check – The individual client level
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.
59.8.5. 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.
59.8.6. All algorithmic orders are tagged with a unique identifier provided
by the stock exchange in order to establish audit trail.
59.9. 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.
59.10. The stock broker, desirous of placing orders generated using algos, shall
submit to the respective stock exchange an undertaking that -
59.10.1. The stock broker has proper procedures, systems and technical
capability to carry out trading through the use of algorithms.
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59.10.2. The stock broker has procedures and arrangements to safeguard
algorithms from misuse or unauthorized access.
59.10.3. 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.
59.10.4. 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.
59.10.5. The stock broker shall inform the stock exchange on any
modification or change to the approved algos or systems used for
algos.
59.11. The stock exchange, if required, shall seek conformance of such modified
algo or systems to the requirements specified above.
59.12. 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
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.
59.13. Stock Brokers who provide services relating to algorithmic trading shall not:
59.13.1. directly or indirectly make any reference to the past or expected
future return/performance of the algorithm; and/or
59.13.2. directly or indirectly associate with any platform providing any
reference to the past or expected future return/performance of the
algorithm.
59.14. The above restrictions mentioned in para 59.13 shall not apply in case
reference is made to risk-return metrics of algorithms verified by Past Risk
and Return Verification Agency (PaRRVA),in the manner specified by
SEBI.
Safer participation of retail investors in Algorithmic trading77
59.15. Use of Application Programming Interface (API)78 for Algo trading
77 SEBI/HO/MIRSD/MIRSD-PoD/P/CIR/2025/0000013 dated February 04, 2025
78 An API (Application Programming Interface) is a set of rules and protocols that allows different software
applications to communicate and exchange data with each other.
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59.15.1. For the purpose of provision of algo trading through APIs, brokers
shall be the principal while any algo provider or fintech/vendor
(hereinafter referred to as “Algo Provider”) shall act as its agent,
while using the API provided by the broker.
59.15.2. All algo orders originating/flowing through Application
Programming Interface (API) extended by brokers to algo
providers, shall be tagged with a unique identifier provided by
Stock Exchange.
59.15.3. Algos developed by tech-savvy retail investors themselves, using
programming knowledge, shall also be registered with the
Exchange, through their broker, only if they cross the specified
order per second threshold79. Further, the same registered Algo
shall be permitted to be used by such retail investors for their
family (but not for other investors). ‘Family’ for this purpose would
mean self, spouse, dependent children and dependent parents.
59.15.4. Brokers shall:
 ensure that they have systems and procedures in place to
detect/identify and categorize all orders above the specified
threshold as algo orders;
 not permit open APIs and allow access only through a unique
vendor client specific API key and static IP whitelisted by the
broker to ensure identification and traceability of the algo
provider and the end user (i.e. investor);
 have OAuth (Open Authentication)80 based authentication
only and all other authentication mechanisms shall be
discontinued;
 authenticate access to API through two factor authentication;
 deal with empaneled algo providers only and handle all
related complaints, as such algo providers are agents of such
broker.
59.16. Roles and responsibilities of Stock Brokers:
79 Specified threshold for categorization as an Algo shall be evolved by the Broker’s Industry Standards Forum,
under the aegis of the stock exchanges and in consultation with SEBI.
80 A secure authorization framework that allows third-party applications to access user data without requiring
users to share their login credentials or other sensitive information.
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Brokers providing the facility of algo trading to investors shall continue to
abide by the extant provisions related to algo trading including (but not
limited to) the following –
a) The facility of algo trading shall be provided by the broker only after
obtaining requisite permission of the stock exchange for each algo.
b) All algo orders shall be tagged with a unique identifier provided by the
Exchange in order to establish audit trail and the broker shall seek
approval from the Exchange for any modification or change to the
approved algos.
c) Brokers shall be solely responsible for handling investor grievances
related to algo trading and the monitoring of APIs for prohibited
activities.
59.17. Empanelment and Registration of Algo Providers:
a) While algo providers shall not be regulated by SEBI, for better
oversight, any algo provider, providing the facility to place algo orders
with Brokers through API, shall require to be empaneled with
Exchanges in a manner as stipulated by Exchanges.
b) Exchanges shall specify the empanelment criteria for the algo
providers.
c) Before onboarding an empaneled algo provider on its platform, the
broker shall also do the necessary due diligence.
d) Algo providers and brokers may share the subscription charges and
brokerage collected from the client. However, prominent and complete
disclosures of all the charges shall be made to the client. The broker
shall also ensure that such arrangements do not result in any conflict
of interest.
59.18. Role and Responsibilities of Exchanges:
a) Exchanges shall continue to be responsible for supervising algorithmic
trading while ensuring the following:
i. putting in place a comprehensive Standard Operating Procedure
(SOP) for testing of algos;
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ii. surveillance on all algo orders and monitoring their behaviour at all
times including simulation testing of all algos;
iii. continue to have the ability to use the kill switch81 for orders
emanating from a particular algo id;
iv. defining the roles and responsibilities of brokers; and
v. defining the roles, criteria and process of empanelment of algo
providers;
b) Exchanges shall supervise/inspect that brokers have the ability to
distinguish between algo and non algo Orders.
c) The detailed operational modalities and/or Frequently asked questions
(FAQs), covering the following aspects, shall be issued by stock
exchanges, in consultation with SEBI,
 roles and responsibilities of the brokers including risk management
system of brokers for orders through API.
 roles of algo providers along with the criteria and process of
empanelment of algo providers.
 registration process for algos and the circumstances in which a re-
approval shall be required.
 measures to enhance the confidentiality of retail algo strategies
including confidentiality clauses, non-disclosure agreements,
encrypted submissions etc.
 data flow between the algo provider, broker and the Exchange,
while ensuring that the broker remains responsible for compliance
with the outsourcing guidelines specified by SEBI from time to
time.
d) Exchanges shall specify the turnaround time (TAT) to register certain
types of algos (eg. Execution algos) on a fast track basis while
registering other types of algos on a normal basis. For both these
scenarios, TAT shall be decided by the stock exchanges and
mentioned in their SOP, disclosed on their website.
59.19. Categorization of Algos
81 The kill switch is an emergency function and the last level of defence against any Algorithm malfunction. It is
expected to automatically trigger a halt on trading activity based on pre-defined conditions.
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a) Algos shall be categorized into two categories:
i. Algos where logic is disclosed and replicable i.e. Execution Algos
or White box82 Algos;
ii. Algos where the logic is not known to the user and is not replicable,
i.e. Black box83 Algos –
For Algos in category (ii), the algo provider shall:
 Register as a Research Analyst and maintain a detailed
research report for each such algo and confirm to the
exchanges that such report has been maintained.
 In case of any change in the logic governing the algo, register
such algo as a fresh algo and maintain a detailed research
report for the new algo, and confirm to the exchanges that
such report has been maintained.
59.20. Exchanges and brokers shall continue to comply with existing provisions
prescribed with regard to Algorithmic trading.
60. Testing of software used in or related to Trading and Risk Management84
60.1. 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.
60.2. Testing of Software
60.2.1. 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
82 Execution Algos or White Box Algos are automated trading strategies/systems that execute orders based on
fully transparent Algorithms, where the logic, decision making processes and underlying rules are accessible and
understandable to users.
83 Black box Algos are Algos where the user cannot see the internal workings and rationale of the Algo or an Algo
where the logic is not known to the user and is not replicable.
84 Reference: Circular CIR/MRD/DP/24/2013 dated August 19, 2013 and Circular CIR/MRD/DP/06/2014 dated
February 07, 2014 and Circular SEBI/HO/MRD1/DSAP/CIR/P/2020/234 dated November 24, 2020.
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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 undergone change or not, shall participate in the
mock trading sessions.
iv. The requirement of mandatory mock trading sessions to
facilitate testing of new software or existing software that has
undergone any change of functionality shall be optional if a
Stock Exchange provides suitable simulated test
environment to test new software or existing software that
has undergone any change of functionality and ensures the
following:
i. The test environment shall be made available to all the
members.
ii. The test environment shall be made available for at least
two hours after market hours and at least on two trading
days in a week.
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iii. For the purpose of testing, Stock Exchange shall make
available data from at least one trading day in all
segments and the same shall not be older than one
month from the day of the testing environment.
iv. All trading members (excluding those who use only
Exchange provided front end and/or ASP services)
having approved Algorithms available with the member,
irrespective of the algorithm having undergone change
or not, shall participate in the Simulated Environment at
least on one trading day during each calendar month at
all the exchanges where they are members. This shall
be audited and reported in the System Auditors report.
v. Exchange shall provide a daily log, including Algos used,
of members participation in Simulated Environment to all
participating members. The Exchange shall provide
summary report of such activity to SEBI in the monthly
development report (MDR).
c. 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.
d. 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.
60.2.2. 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.
60.2.3. 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.
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60.2.4. 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.
60.2.5. 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 59.5.1 to 59.5.4 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 not
directly or indirectly related to the current directors or promoters
of stock broker / trading member.
60.3. Approval of Software of stock broker / trading member
60.3.1. 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.
60.3.2. 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.
60.3.3. Before granting approval to use software in securities market,
stock exchange shall ensure that the requirements specified by
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SEBI / stock exchange with regard to software are met by the
stock broker / trading member.
60.3.4. 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.
60.3.5. 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.
60.4. Undertaking to be provided by stock brokers / trading members
60.4.1. 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 / 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)…….
60.4.2. Stock exchanges may include additional clauses as deemed
necessary in the undertaking.
60.5. Sharing of Application Programming Interface (API) specifications by the
stock exchange with stock brokers / trading members:
60.5.1. 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
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specifications to facilitate interaction of the developed software
with the systems of the stock exchanges.
60.5.2. 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.
60.5.3. 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.
60.5.4. 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.
60.6. Penalty on malfunction of software used by stock broker / trading
member:
Stock exchanges shall examine the cases of malfunctioning of software
used by stock brokers / trading members and apply deterrent penalties
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:
60.6.1. 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,
60.6.2. consider taking suitable insurance cover to meet probable losses
in case of software malfunction.
60.7. 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.
60.8. Stock exchanges shall direct their stock brokers to put in place adequate
mechanism to restore their trading systems to 'production state' at the
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end of testing session so as to ensure integrity of stock brokers' trading
system.
61. Safeguards to avoid trading disruption in case of failure of software vendor85
61.1. 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.
61.2. 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.
61.3. Stock exchanges may advise the stock brokers to take the following
measures:
61.3.1. Explore the possibility of establishing a 'software escrow
arrangement' with their existing software vendors.
61.3.2. 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.
61.3.3. 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.
85 Reference: Circular CIR/MRD/DP/07/2014 dated February 11, 2014.
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62. Cyber Security and Cyber resilience framework for Stock Brokers86
62.1. Stock brokers perform significant functions in providing services to holder
of securities. So it is desirable that these entities have robust cyber security
and cyber resilience framework in order to provide essential facilities and
perform systematically critical functions relating to securities market.
Accordingly, a framework on Cyber security and cyber resilience has been
designed and prescribed at paras 62.3 to 62.6 below.
62.2. The Stock Brokers are mandated to conduct comprehensive cyber audit at
least once in a financial year. All Stock Brokers shall submit with Stock
Exchange a declaration from the MD/ CEO/ Partners/ Proprietors certifying
compliance by the Stock Brokers with all SEBI Circulars and advisories
related to Cyber security from time to time, along with the Cyber audit
report.
62.3. Cyber-attacks and threats attempt to compromise the Confidentiality,
Integrity and Availability (CIA) of the computer systems, networks and
databases (Confidentiality refers to limiting access of systems and
information to authorized users, Integrity is the assurance that the
information is reliable and accurate, and Availability refers to guarantee of
reliable access to the systems and information by authorized users). Cyber
security framework includes measures, tools and processes that are
intended to prevent cyber-attacks and improve cyber resilience. Cyber
Resilience is an organization’s ability to prepare and respond to a cyber-
attack and to continue operation during, and recover from, a cyber-attack.
Governance
62.4. As part of the operational risk management framework to manage risk to
systems, networks and databases from cyber-attacks and threats, Stock
Brokers should formulate a comprehensive Cyber Security and Cyber
Resilience policy document encompassing the framework mentioned
hereunder. In case of deviations from the suggested framework, reasons
for such deviations, technical or otherwise, should be provided in the policy
document. The policy document should be approved by the Board /
Partners / Proprietor of the Stock Broker. The policy document should be
reviewed by the aforementioned group at least annually with the view to
strengthen and improve its Cyber Security and Cyber Resilience
framework.
86 Reference: Circular SEBI/HO/MIRSD/CIR/PB/2018/14 dated December 03, 2018, Circular
CIR/HO/MIRSD/DOS2/CIR/PB/2019/038 dated March 15, 2019, Circular
SEBI/HO/MIRSD/DOP/CIR/P/2019/109 dated October 15, 2019, Circular
SEBI/HO/MIRSD/TPD/P/CIR/2022/80 dated June 07, 2022 and Circular
SEBI/HO/MIRSD/TPD/P/CIR/2022/93 dated June 30, 2022
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62.5. The Cyber Security Policy should include the following process to identify,
assess, and manage Cyber Security risk associated with processes,
information, networks and systems:
a. ‘Identify’ critical IT assets and risks associated with such assets.
b. ‘Protect’ assets by deploying suitable controls, tools and measures.
c. ‘Detect’ incidents, anomalies and attacks through appropriate monitoring
tools/processes.
d. ‘Respond’ by taking immediate steps after identification of the incident,
anomaly or attack.
e. ‘Recover’ from incident through incident management and other
appropriate recovery mechanisms.
62.6. The Cyber Security Policy of Stock Brokers trading through APIs based
terminal should consider the principles prescribed by National Critical
Information Infrastructure Protection Centre (NCIIPC) of National Technical
Research Organization (NTRO), Government of India (titled ‘Guidelines for
Protection of National Critical Information Infrastructure’) and subsequent
revisions, if any, from time to time.
62.7. Stock Brokers trading through APIs based terminal may refer to best
practices from international standards like ISO 27001, COBIT 5, etc., or
their subsequent revisions, if any, from time to time.
62.8. Stock Brokers should designate a senior official or management personnel
(henceforth, referred to as the “Designated Officer”) whose function would
be to assess, identify, and reduce security and Cyber Security risks,
respond to incidents, establish appropriate standards and controls, and
direct the establishment and implementation of processes and procedures
as per the Cyber Security Policy.
62.9. The Board / Partners / Proprietor of the Stock Brokers shall constitute a
Technology Committee comprising experts. This Technology Committee
should on a half yearly basis review the implementation of the Cyber
Security and Cyber Resilience policy approved by their Board / Partners /
Proprietor, and such review should include review of their current IT and
Cyber Security and Cyber Resilience capabilities, set goals for a target level
of Cyber Resilience, and establish plans to improve and strengthen Cyber
Security and Cyber Resilience. The review shall be placed before the Board
/ Partners / Proprietor of the Stock Brokers for appropriate action.
62.10. Stock Brokers should establish a reporting procedure to facilitate
communication of unusual activities and events to the Designated Officer
in a timely manner.
62.11. The Designated officer and the technology committee of the Stock Brokers
should periodically review instances of cyber-attacks, if any, domestically
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and globally, and take steps to strengthen Cyber Security and cyber
resilience framework.
62.12. Stock Brokers should define responsibilities of its employees, outsourced
staff, and employees of vendors, members or participants and other
entities, who may have privileged access or use systems / networks of
Stock Brokers towards ensuring the goal of Cyber Security.
Identification
62.13. Stock Brokers shall identify and classify critical assets based on their
sensitivity and criticality for business operations, services and data
management. The critical assets shall include business critical systems,
internet facing applications /systems, systems that contain sensitive data,
sensitive personal data, sensitive financial data, Personally Identifiable
Information (PII) data, etc. All the ancillary systems used for
accessing/communicating with critical systems either for operations or
maintenance shall also be classified as critical system. The
Board/Partners/Proprietor of the Stock Brokers shall approve the list of
critical systems. To this end, Stock Brokers shall maintain up-to date
inventory of its hardware and systems, software and information assets
(internal and external), details of its network resources, connections to its
network and data flows.
62.14. Stock Brokers should accordingly identify cyber risks (threats and
vulnerabilities) that it may face, along with the likelihood of such threats and
impact on the business and thereby, deploy controls commensurate to the
criticality.
Protection
Access controls
62.15. No person by virtue of rank or position should have any intrinsic right to
access confidential data, applications, system resources or facilities.
62.16. Any access to Stock Brokers systems, applications, networks, databases,
etc., should be for a defined purpose and for a defined period. Stock
Brokers should grant access to IT systems, applications, databases and
networks on a need-to-use basis and based on the principle of least
privilege. Such access should be for the period when the access is required
and should be authorized using strong authentication mechanisms.
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62.17. Stock Brokers should implement an access policy which addresses strong
password controls for users’ access to systems, applications, networks and
databases. Illustrative examples for this are given in Illustration C.
62.18. All critical systems of the Stock Broker accessible over the internet should
have two-factor security (such as VPNs, Firewall controls etc.)
62.19. Stock Brokers should ensure that records of user access to critical systems,
wherever possible, are uniquely identified and logged for audit and review
purposes. Such logs should be maintained and stored in a secure location
for a time period not less than two years.
62.20. Stock Brokers should deploy controls and security measures to supervise
staff with elevated system access entitlements (such as admin or privileged
users) to Stock Broker’s critical systems. Such controls and measures
should inter-alia include restricting the number of privileged users, periodic
review of privileged users’ activities, disallow privileged users from
accessing systems logs in which their activities are being captured, strong
controls over remote access by privileged users, etc.
62.21. Employees and outsourced staff such as employees of vendors or service
providers, who may be given authorized access to the Stock Brokers critical
systems, networks and other computer resources, should be subject to
stringent supervision, monitoring and access restrictions.
62.22. Stock Brokers should formulate an Internet access policy to monitor and
regulate the use of internet and internet based services such as social
media sites, cloud-based internet storage sites, etc. within the Stock
Broker’s critical IT infrastructure.
62.23. User Management must address deactivation of access of privileges of
users who are leaving the organization or whose access privileges have
been withdrawn.
Physical Security
62.24. Physical access to the critical systems should be restricted to minimum and
only to authorized officials. Physical access of outsourced staff/visitors
should be properly supervised by ensuring at the minimum that outsourced
staff/visitors are accompanied at all times by authorized employees.
62.25. Physical access to the critical systems should be revoked immediately if the
same is no longer required.
62.26. Stock Brokers should ensure that the perimeter of the critical equipment
room, if any, are physically secured and monitored by employing physical,
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human and procedural controls such as the use of security guards, CCTVs,
card access systems, mantraps, bollards, etc. where appropriate.
Network Security Management
62.27. Stock Brokers should establish baseline standards to facilitate consistent
application of security configurations to operating systems, databases,
network devices and enterprise mobile devices within their IT environment.
The LAN and wireless networks should be secured within the Stock
Brokers’ premises with proper access controls.
62.28. For algorithmic trading facilities, adequate measures should be taken to
isolate and secure the perimeter and connectivity to the servers running
algorithmic trading applications.
62.29. Stock Brokers should install network security devices, such as firewalls,
proxy servers, intrusion detection and prevention systems (IDS) to protect
their IT infrastructure which is exposed to the internet, from security
exposures originating from internal and external sources.
62.30. Adequate controls must be deployed to address virus / malware /
ransomware attacks. These controls may include host / network /
application based IDS systems, customized kernels for Linux, anti-virus and
anti-malware software etc.
Data security
62.31. Critical data must be identified and encrypted in motion and at rest by using
strong encryption methods. Illustrative measures in this regard are given in
Illustration A and B.
62.32. Stock Brokers should implement measures to prevent unauthorized access
or copying or transmission of data / information held in contractual or
fiduciary capacity. It should be ensured that confidentiality of information is
not compromised during the process of exchanging and transferring
information with external parties. Illustrative measures to ensure security
during transportation of data over the internet are given in Illustration B.
62.33. The information security policy should also cover use of devices such as
mobile phones, faxes, photocopiers, scanners, etc., within their critical IT
infrastructure, that can be used for capturing and transmission of sensitive
data. For instance, defining access policies for personnel, and network
connectivity for such devices etc.
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62.34. Stock Brokers should allow only authorized data storage devices within
their IT infrastructure through appropriate validation processes.
Hardening of Hardware and Software
62.35. Stock Brokers should only deploy hardened hardware / software, including
replacing default passwords with strong passwords and disabling or
removing services identified as unnecessary for the functioning of the
system.
62.36. Open ports on networks and systems which are not in use or that can be
potentially used for exploitation of data should be blocked and measures
taken to secure them.
Application Security in Customer Facing Applications
62.37. Application security for Customer facing applications offered over the
Internet such as IBTs (Internet Based Trading applications), portals
containing sensitive or private information and Back office applications
(repository of financial and personal information offered by Brokers to
Customers) are paramount as they carry significant attack surfaces by
virtue of being available publicly over the Internet for mass use. An
illustrative list of measures for ensuring security in such applications is
provided in Illustration C.
Certification of off-the-shelf products
62.38. Stock Brokers should ensure that off the shelf products being used for core
business functionality (such as Back office applications) should bear Indian
Common criteria certification of Evaluation Assurance Level 4. The
Common criteria certification in India is being provided by (STQC)
Standardisation Testing and Quality Certification (Ministry of Electronics
and Information Technology). Custom developed / in-house software and
components need not obtain the certification, but have to undergo intensive
regression testing, configuration testing etc. The scope of tests should
include business logic and security controls.
Patch management
62.39. Stock Brokers should establish and ensure that the patch management
procedures include the identification, categorization and prioritization of
patches and updates. An implementation timeframe for each category of
patches should be established to apply them in a timely manner.
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62.40. Stock Brokers should perform rigorous testing of security patches and
updates, where possible, before deployment into the production
environment so as to ensure that the application of patches do not impact
other systems.
Disposal of data, systems and storage devices
62.41. Stock Brokers should frame suitable policy for disposal of storage media
and systems. The critical data / Information on such devices and systems
should be removed by using methods such as crypto shredding / degauss
/ Physical destruction as applicable.
62.42. Stock Brokers should formulate a data-disposal and data retention policy to
identify the value and lifetime of various parcels of data.
Vulnerability Assessment and Penetration Testing (VAPT)
62.43. Stock Brokers shall carry out periodic Vulnerability Assessment and
Penetration Tests (VAPT) which inter-alia include critical assets and
infrastructure components like Servers, Networking systems, Security
devices, load balancers, other IT systems pertaining to the activities done
as Stock Brokers etc., in order to detect security vulnerabilities in the IT
environment and in-depth evaluation of the security posture of the system
through simulations of actual attacks on its systems and networks.
62.44. Stock Brokers shall conduct VAPT at least once in a financial year. All Stock
Brokers are required to engage only CERT-In empaneled organizations for
conducting VAPT. The final report on said VAPT shall be submitted to the
Stock Exchanges after approval from Technology Committee of respective
Stock Brokers, within 1 month of completion of VAPT activity. In addition,
Stock Brokers shall perform vulnerability scanning and conduct penetration
testing prior to the commissioning of a new system which is a critical system
or part of an existing critical system.
62.45. In case of vulnerabilities discovered in off-the-shelf products (used for core
business) or applications provided by exchange empanelled vendors, Stock
Brokers should report them to the vendors and the exchanges in a timely
manner.
62.46. Any gaps/vulnerabilities detected shall be remedied on immediate basis
and compliance of closure of findings identified during VAPT shall be
submitted to the Stock Exchanges within three months post the submission
of final VAPT report.
Monitoring and Detection
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62.47. Stock Brokers should establish appropriate security monitoring systems
and processes to facilitate continuous monitoring of security events / alerts
and timely detection of unauthorised or malicious activities, unauthorised
changes, unauthorised access and unauthorised copying or transmission
of data / information held in contractual or fiduciary capacity, by internal and
external parties. The security logs of systems, applications and network
devices exposed to the internet should also be monitored for anomalies.
62.48. Further, to ensure high resilience, high availability and timely detection of
attacks on systems and networks exposed to the internet, Stock Brokers
should implement suitable mechanisms to monitor capacity utilization of its
critical systems and networks that are exposed to the internet, for example,
controls such as firewalls to monitor bandwidth usage.
Response and Recovery
62.49. Alerts generated from monitoring and detection systems should be suitably
investigated in order to determine activities that are to be performed to
prevent expansion of such incident of cyber-attack or breach, mitigate its
effect and eradicate the incident.
62.50. The response and recovery plan of the Stock Brokers should have plans
for the timely restoration of systems affected by incidents of cyber-attacks
or breaches, for instance, offering alternate services or systems to
Customers. Stock Brokers should have the same Recovery Time Objective
(RTO) and Recovery Point Objective (RPO) as specified by SEBI for Market
Infrastructure Institutions vide SEBI circular CIR/MRD/DMS/17/20 dated
June 22, 2012 as amended from time to time.
62.51. The response plan should define responsibilities and actions to be
performed by its employees and support / outsourced staff in the event of
cyber-attacks or breach of Cyber Security mechanism.
62.52. Any incident of loss or destruction of data or systems should be thoroughly
analyzed and lessons learned from such incidents should be incorporated
to strengthen the security mechanism and improve recovery planning and
processes.
62.53. Stock Brokers should also conduct suitable periodic drills to test the
adequacy and effectiveness of the aforementioned response and recovery
plan.
Sharing of Information
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62.54. All Cyber-attacks, threats, cyber-incidents and breaches experienced by
Stock Brokers shall be reported to Stock Exchanges & SEBI within six hours
of noticing / detecting such incidents or being brought to notice about such
incidents. This information shall be shared to SEBI through the dedicated
e-mail id: sbdp-cyberincidents@sebi.gov.in.
62.55. The incident shall also be reported to Indian Computer Emergency
Response team (CERT-In) in accordance with the guidelines / directions
issued by CERT-In from time to time. Additionally, the Stock Brokers,
whose systems have been identified as “Protected system” by National
Critical Information Infrastructure Protection Centre (NCIIPC) shall also
report the incident to NCIIPC.
The quarterly reports containing information on cyber-attacks, threats,
cyber-incidents and breaches experienced by Stock Brokers and measures
taken to mitigate vulnerabilities, threats and attacks including information
on bugs / vulnerabilities, threats that may be useful for other Stock Brokers
/ Exchanges and SEBI, shall be submitted to Stock Exchanges within 15
days from the quarter ended June, September, December and March of
every year (Format for Submitting the reports is attached in below
Annexure-25).
Training and Education
62.56. Stock Brokers should work on building Cyber Security and basic system
hygiene awareness of staff (with a focus on staff from non-technical
disciplines).
62.57. Stock Brokers should conduct periodic training programs to enhance
knowledge of IT / Cyber Security Policy and standards among the
employees incorporating up-to-date Cyber Security threat alerts. Where
possible, this should be extended to outsourced staff, vendors etc.
62.58. The training programs should be reviewed and updated to ensure that the
contents of the program remain current and relevant.
Systems managed by vendors
62.59. Where the systems (IBT, Back office and other Customer facing
applications, IT infrastructure, etc.) of a Stock Brokers are managed by
vendors and the Stock Brokers may not be able to implement some of the
aforementioned guidelines directly, the Stock Brokers should instruct the
vendors to adhere to the applicable guidelines in the Cyber Security and
Cyber Resilience policy and obtain the necessary self-certifications from
them to ensure compliance with the policy guidelines.
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Systems managed by MIIs
62.60. Where applications are offered to customers over the internet by MIIs
(Market Infrastructure Institutions), for eg.: NSE’s NOW, BSE’s BEST etc.,
the responsibility of ensuring Cyber Resilience on those applications reside
with the MIIs and not with the Stock Broker. The Stock Broker is exempted
from applying the aforementioned guidelines to such systems offered by
MIIs such as NOW, BEST, etc.
Periodic Audit
62.61. The Terms of Reference for the System Audit of Stock Brokers specified at
para 16 above, shall accordingly stand modified to include audit of
implementation of the areas mentioned at para 62.1 to 62.60 above.
62.62. The Type I Stock Brokers shall arrange to have their systems audited on
an annual basis by a CERT-IN empanelled auditor, an independent DISA
(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), to check compliance with the above areas
and shall submit the report to Stock Exchanges along with the comments
of the Board / Partners / Proprietor of Stock Broker within three months of
the end of the financial year.
62.63. The periodicity of audit for the compliance with the provisions of Cyber
Security and Cyber Resilience provisions for stock brokers, irrespective of
number of terminals and location presence, shall be as under:
Table 14
Type of stock broker as specified in SEBI circular Periodicity
CIR/MRD/DMS/34/2013 dated November 06, 2013
Type I Annual
Type II Annual
Type III Half-yearly
Table 15: Illustration A
Illustrative Measures for Data Security on Customer Facing
Applications
1. Analyse the different kinds of sensitive data shown to the Customer
on the frontend application to ensure that only what is deemed
absolutely necessary is transmitted and displayed.
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2. Wherever possible, mask portions of sensitive data. For instance,
rather than displaying the full phone number or a bank account
number, display only a portion of it, enough for the Customer to
identify, but useless to an unscrupulous party who may obtain covertly
obtain it from the Customer’s screen. For instance, if a bank account
number is “123 456 789”, consider displaying something akin to “XXX
XXX 789” instead of the whole number. This also has the added
benefit of not having to transmit the full piece of data over various
networks.
3. Analyse data and databases holistically and draw out meaningful and
“silos” (physical or virtual) into which different kinds of data can be
isolated and cordoned off. For instance, a database with personal
financial information need not be a part of the system or network that
houses the public facing websites of the Stock Broker. They should
ideally be in discrete silos or DMZs.
4. Implement strict data access controls amongst personnel, irrespective
of their responsibilities, technical or otherwise. It is infeasible for
certain personnel such as System Administrators and developers to
not have privileged access to databases. For such cases, take strict
measures to limit the number of personnel with direct access, and
monitor, log, and audit their activities. Take measures to ensure that
the confidentiality of data is not compromised under any of these
scenarios.
5. Use industry standard, strong encryption algorithms (eg: RSA, AES
etc.) wherever encryption is implemented. It is important to identify
data that warrants encryption as encrypting all data is infeasible and
may open up additional attack vectors. In addition, it is critical to
identify the right personnel to be in charge of, and the right
methodologies for storing the encryption keys, as any compromise to
either will render the encryption useless.
6. Ensure that all critical and sensitive data is adequately backed up, and
that the backup locations are adequately secured. For instance, on
servers on isolated networks that have no public access endpoints, or
on-premise servers or disk drives that are off-limits to unauthorized
personnel. Without up-to-date backups, a meaningful recovery from a
disaster or cyber-attack scenario becomes increasingly difficult.
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Table 16: Illustration B
Illustrative Measures for Data Transport Security
1. When an Application transmitting sensitive data communicates over
the Internet with the Stock Brokers’ systems, it should be over a
secure, encrypted channel to prevent Man-In-The-Middle (MITM)
attacks, for instance, an IBT or a Back office communicating from a
Customer’s web browser or Desktop with the Stock Brokers’ systems
over the internet, or intra or inter organizational communications.
Strong transport encryption mechanisms such as TLS (Transport
Layer Security, also referred to as SSL) should be used.
2. For Applications carrying sensitive data that are served as web
pages over the internet, a valid, properly configured TLS (SSL)
certificate on the web server is mandatory, making the transport
channel HTTP(S).
3. Avoid the use of insecure protocols such as FTP (File Transfer
Protocol) that can be easily compromised with MITM attacks.
Instead, adopt secure protocols such as FTP(S), SSH and VPN
tunnels, RDP (with TLS) etc.
Table 17: Illustration C
Illustrative Measures for Application Authentication Security
1. Any Application offered by Stock Brokers to Customers containing
sensitive, private, or critical data such as IBTs, SWSTs, Back office
etc. referred to as “Application” hereafter) over the Internet should be
password protected. A reasonable minimum length (and no arbitrary
maximum length cap or character class requirements) should be
enforced. While it is difficult to quantify password “complexity”, longer
passphrases have more entropy and offer better security in general.
Stock Brokers should attempt to educate Customers of these best
practices.
2. Passwords, security PINs etc. should never be stored in plain text
and should be one-way hashed using strong cryptographic hash
functions (e.g.: bcrypt, PBKDF2) before being committed to storage.
It is important to use one-way cryptographic hashes to ensure that
stored password hashes are never transformed into the original
plaintext values under any circumstances.
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3. For added security, a multi-factor (e.g.: two-factor) authentication
scheme may be used (hardware or software cryptographic tokens,
VPNs, biometric devices, PKI etc.). In case of IBTs and SWSTs, a
minimum of two-factors in the authentication flow are mandatory.
4. In case of Applications installed on mobile devices (such as
smartphones and tablets), a cryptographically secure biometric two-
factor authentication mechanism may be used.
5. After a reasonable number of failed login attempts into Applications,
the Customer’s account can be set to a “locked” state where further
logins are not possible until a password and authentication reset is
performed via an out-of-band channel validation, for instance, a
cryptographically secure unique link that is sent to the Customer’s
registered e-mail, a random OTP (One Time Password) that is sent
as an SMS to the Customer’s registered mobile number, or manually
by the Broker after verification of the Customer’s identity etc.
6. Avoid forcing Customers to change passwords at frequent intervals
which may result in successive, similar, and enumerated passwords.
Instead, focus on strong multi-factor authentication for security and
educate Customers to choose strong passphrases. Customers may
be reminded within reasonable intervals to update their password
and multi-factor credentials, and to ensure that their out-of-band
authentication reset information (such as e-mail and phone number)
are up-to-date.
7. Both successful and failed login attempts against a Customer’s
account may be logged for a reasonable period of time. After
successive login failures, it is recommended that measures such as
CAPTCHAs or rate-limiting be used in Applications to thwart manual
and automated brute force and enumeration attacks against logins.
W.e.f July 01, 2025, stock brokers shall comply with ‘cybersecurity and cyber
resilience framework for SEBI regulated entities’ specified under SEBI circular
SEBI/HO/ ITD-1/ITD_CSC_EXT/P/CIR/2024/113 dated August 20, 2024 and
subsequent clarifications issued from time to time.
63. Reporting for Artificial Intelligence (AI) and Machine Learning (ML)
applications and systems offered and used by market intermediaries87
87 Reference: Circular SEBI/HO/MIRSD/DOS2/CIR/P/2019/10 dated January 04,2019
177
63.1. Any set of applications / software / programs / executable / systems
(computer systems) –cumulatively called application and systems,
a) that are offered to investors (individuals and institutions) by market
intermediaries to facilitate investing and trading,
OR
b) to disseminate investments strategies and advice,
OR
c) to carry out compliance operations / activities,
where AI / ML is portrayed as a part of the public product offering or under
usage for compliance or management purposes, is included in the scope of
this circular. Here, “AI” / “ML” refers to the terms “Artificial Intelligence” and
“Machine Learning” used as a part of the product offerings. In order to make
the scope of this circular inclusive of various AI and ML technologies in use,
the scope also covers Fin-Tech and Reg-Tech initiatives undertaken by
market participants that involves AI and ML
63.2. Technologies that are considered to be categorized as AI and ML
technologies in the scope of this circular, are explained in Annexure-27.
63.3. All registered Stock Brokers offering or using applications or systems as
defined in Annexure-27, should participate in the reporting process by
completing the AI / ML reporting form (see Annexure-26).
63.4. All registered Stock Brokers using AI / ML based application or system as
defined in Annexure-27, are required to fill in the form (Annexure-26) and
make submissions on quarterly basis within fifteen calendar days of the
expiry of the quarter.
63.5. Stock Exchanges have to consolidate and compile a report, on AI / ML
applications and systems reported by registered Stock Brokers in the
reporting format (Annexure-28) on quarterly basis. The said report
(Annexure-28) shall be submitted in soft copy only at AI_SE@sebi.gov.in
to SEBI within thirty calendar days of the expiry of the quarter.
64. Advisory for Financial Sector Organizations regarding Software as a Service
(SaaS) based solutions88
64.1. Indian Computer Emergency Response Team (CERT-in) issued an advisory
for Financial Sector organizations to improve their cyber Security Posture by
availing Software as a Service (SaaS) based solution for managing their
Governance, Risk & Compliance (GRC) functions.
88 Reference: Circular SEBI/HO/MIRSD2/DOR/CIR/P/2020/221 dated November 03, 2020
178
64.2. The advisory was forwarded to SEBI for bringing the same to the notice of
financial sector organization. The advisory is enclosed at Annexure-29.
64.3. Stock brokers are advised to ensure complete protection and seamless
control over the critical systems at their organizations by continuous
monitoring through direct control and supervision protocol mechanisms while
keeping the critical data within the legal boundary of India.
64.4. The compliance of the advisory shall be reported in the half yearly report by
stock brokers to stock exchanges with an undertaking, “Compliance of the
SEBI circular for Advisory for Financial Sector Organizations regarding
Software as a Service (SaaS) based solutions has been made.”
65. Framework to address the ‘technical glitches’ in Stock Brokers’ Electronic
Trading Systems89
65.1. Technology related interruptions and glitches (technical glitches) and their
impact on the investors’ opportunity to trade constitutes major technology
related risk. Thus, the following framework to deal with technical glitches
occurring in the trading systems of stock brokers shall be complied with.
65.2. Definition of Technical Glitch:
Technical glitch shall mean any malfunction in the systems of stock broker
including malfunction in its hardware, software, networks, processes or any
products or services provided by the stock broker in the electronic form.
The malfunction can be on account of inadequate Infrastructure / systems,
cyber-attacks / incidents, procedural errors and omissions, or process
failures or otherwise, in their own systems or the one outsourced from any
third parties, which may lead to either stoppage, slowing down or variance
in the normal functions / operations / services of systems of the stock broker
for a contiguous period of five minutes or more.
65.3. Reporting Requirements
65.3.1. Stock brokers shall inform about the technical glitch to the stock
exchanges immediately but not later than one hour from the time of
occurrence of the glitch.
65.3.2. Stock brokers shall submit a Preliminary Incident Report to the
Exchange within T+1 day of the incident (T being the date of the
incident). The report shall include the date and time of the incident,
the details of the incident, effect of the incident and the immediate
action taken to rectify the problem.
89 Reference: Circular SEBI/HO/MIRSD/TPD-1/P/CIR/2022/160 dated November 25, 2022
179
65.3.3. Stock brokers shall submit a Root Cause Analysis (RCA)Report (as
per Annexure-30) of the technical glitch to stock exchange, within
fourteen days from the date of the incident.
65.3.4. RCA report submitted by the stock brokers shall, inter-alia, include
time of incident, cause of the technical glitch (including root cause
from vendor(s), if applicable), duration, chronology of events, impact
analysis and details of corrective/ preventive measures taken (or to
be taken), restoration of operations etc.
65.3.5. Stock brokers shall submit information stated in para 65.3.1, 65.3.2
and 65.3.3 above, by e-mail at infotechglitch@nse.co.in, a common
email address for reporting across all stock exchanges.
65.3.6. All technical glitches reported by stock brokers as well as
independently monitored by stock exchanges, shall be examined
collectively by the stock exchanges along with the report/ RCA and
appropriate action shall be taken.
65.4. Capacity Planning:
65.4.1. Increasing number of investors may create additional burden on the
trading system of the stock broker and hence, adequate capacity
planning is prerequisite for stock brokers to provide continuity of
services to their clients. Stock brokers shall do capacity planning for
entire trading infrastructure i.e. server capacities, network
availability, and the serving capacity of trading applications.
65.4.2. Stock brokers shall monitor peak load in their trading applications,
servers and network architecture. The Peak load shall be determined
on the basis of highest peak load observed by the stock broker
during a calendar quarter. The installed capacity shall be at least one
and half times (1.5x) of the observed peak load.
65.4.3. Stock brokers shall deploy adequate monitoring mechanisms within
their networks and systems to get timely alerts on current utilization
of capacity going beyond permissible limit of seventy percent of its
installed capacity.
65.4.4. To ensure the continuity of services at the primary data center, stock
brokers as may be specified from time to time by stock exchange
(hereafter referred to as specified stock brokers) shall strive to
achieve full redundancy in their IT systems that are related to trading
applications and trading related services.
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65.4.5. Stock exchanges shall issue detailed guidelines with regard to
frequency of capacity planning to review available capacity, peak
load, and new capacity required to tackle future load on the system.
65.5. Software testing and change:
65.5.1. Software applications are prone to updates/changes and hence, it is
imperative for the stock brokers to ensure that all software changes
that are taking place in their applications are rigorously tested before
they are used in production systems. Software changes could impact
the functioning of the software if adequate testing is not carried out.
In view of this, stock brokers shall adopt the following framework for
carrying out software related changes / testing in their systems:
65.5.1.1. Stock brokers shall create test driven environments for all
types of software developed by them or their vendors.
Regression testing, security testing and unit testing shall
be included in the software development, deployment and
operations practices.
65.5.1.2. Specified stock brokers shall do their software testing in
automated environments.
65.5.1.3. Stock Brokers shall prepare a traceability matrix between
functionalities and unit tests, while developing any
software that is used in trading activities.
65.5.1.4. Stock brokers shall implement a change management
process to avoid any risk arising due to unplanned and
unauthorized changes for all its information security
assets (hardware, software, network, etc.).
65.5.1.5. Stock brokers shall periodically update all their assets
including Servers, OS, databases, middleware, network
devices, firewalls, IDS /IPS desktops etc. with latest
applicable versions and patches.
65.5.1.6. Stock exchanges shall issue detailed guidelines with
regard to testing of software, testing in automated
environments, traceability matrix, change management
process and periodic updation of assets etc.
65.6. Monitoring mechanism:
65.6.1. Proactively and independently monitoring technical glitches shall
be one of the approaches in mitigating the impact of such glitches.
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In this context, the stock exchange shall build API based Logging
and Monitoring Mechanism (LAMA) to be operated between stock
exchanges and specified stock brokers’ trading systems. Under this
mechanism, specified stock brokers shall monitor key systems &
functional parameters to ensure that their trading systems function
in a smooth manner. Stock exchanges shall, through the API
gateway, independently monitor these key parameters to gauge the
health of the trading systems of the specified stock brokers.
65.6.2. Stock Exchanges shall identify the key parameters in consultation
with stock brokers. These key parameters shall be monitored by
specified stock brokers and by stock exchanges, on a real time or
on a near real time basis.
65.6.3. Stock exchanges shall maintain a dedicated cell for monitoring the
key parameters and the technical glitches occurring in stock
brokers’ trading systems. The cell also shall intimate the specified
stock broker concerned immediately about the breach of the key
parameters monitored under LAMA.
65.6.4. Stock brokers and stock exchanges shall preserve the logs of the
key parameters for a period of thirty days in normal course.
However, if a technical glitch takes place, the data related to the
glitch, shall be maintained for a period of two years.
65.7. Business Continuity Planning (BCP) and Disaster Recovery Site (DRS):
65.7.1. Stock brokers with a minimum client base across the exchanges,
as may be specified by stock exchanges from time to time, shall
mandatorily establish business continuity/DR set up.
65.7.2. Stock brokers shall put in place a comprehensive BCP-DR policy
document outlining standard operating procedures to be followed
in the event of any disaster. A suitable framework shall be put in
place to constantly monitor health and performance of critical
systems in the normal course of business. The BCP-DR policy
document shall be periodically reviewed to minimize incidents
affecting the business continuity.
65.7.3. The DRS shall preferably be set up in different seismic zones. In
case, due to any reasons like operational constraints, such a
geographic separation is not possible, then the Primary Data
Centre (PDC) and DRS shall be separated from each other by a
distance of at least two hundred and fifty (250) kilometers to ensure
that both of them do not get affected by the same natural disaster.
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The DR site shall be made accessible from primary data center to
ensure syncing of data across two sites.
65.7.4. Specified stock brokers shall conduct DR drills / live trading from
DR site. DR drills / live trading shall include running all operations
from DRS for at least 1 full trading day. Stock exchanges in
consultation with specified stock brokers shall decide the frequency
of DR drill / live trading from DR site.
65.7.5. Stock brokers, shall constitute responsible teams for taking
decisions about shifting of operations from primary site to DR site,
putting adequate resources at DR site, and setting up mechanism
to make DR site operational from primary data center etc.
65.7.6. Hardware, system software, application environment, network and
security devices and associated application environments of DRS
and PDC shall have one-to-one correspondence between them.
Adequate resources shall be made available at all times to handle
operations at PDC or DRS.
65.7.7. Stock exchanges in consultation with stock brokers shall decide
upon Recovery Time Objective(RTO) i.e. the maximum time taken
to restore operations from DRS after declaration of Disaster and,
Recovery Point Objective (RPO) i.e. the maximum tolerable period
for which data might be lost due to a major incident.
65.7.8. Replication architecture, bandwidth and load consideration
between the DRS and PDC shall be within stipulated RTO and the
whole system shall ensure high availability, right sizing, and no
single point of failure. Any updates made at the PDC shall be
reflected at DRS immediately.
65.7.9. Specified stock brokers shall obtain ISO certification as may be
specified by stock exchanges from time to time in the area of IT and
IT enabled infrastructure/processes of the stock brokers.
65.7.10. The System Auditor, while covering the BCP – DR as a part of
mandated annual System Audit, shall check the preparedness of
the stock broker to shift its operations from PDC to DRS and also
comment on documented results and observations on DR drills
conducted by the stock brokers.
65.7.11. Stock exchanges shall define the term ‘critical systems’, ‘disaster’
and issue detailed guidelines with regard to review of BCP
document, DR drill/live trading, operating DR site from PDC,
timeline for obtaining ISO certification etc.
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65.8. Stock exchanges shall put in place a structure of financial disincentives
applicable to stock brokers for technical glitches occurring in their trading
systems and non-compliance of the provisions made in this regard.
65.9. Stock exchanges shall disseminate on their websites the instances of
Technical glitches occurred in the trading system of stock brokers along
with Root Cause Analysis (RCA) on such glitches.
65.10. Stock exchanges shall build necessary systems for implementation of the
provisions of this circular and issue appropriate guidelines to the stock
brokers for compliance with the provisions of this circular.
66. Advisory for SEBI Regulated Entities (REs) regarding Cybersecurity best
practices90
66.1. Considering the interconnectedness and interdependency of the financial
entities to carry out their functions, the cyber risk of any given entity is no
longer limited to the entity’s owned or controlled systems, networks and
assets
66.2. Further, given the sophistication and persistence of the threat with a high
level of coordination among threat actors, it is important to recognize that
many traditional approaches to risk management and governance that
worked in the past may not be comprehensive or agile enough to address
the rapid changes in the threat environment and the pace of technological
change that is redefining public and private enterprise.
66.3. Thus, an efficient and effective response to and recovery from a cyber-
incident by REs are essential to limit any related financial stability risks. For
ensuring the same, Financial Computer Security Incident Response Team
(CSIRT-Fin) has provided important recommendations in its report sent to
SEBI. The applicable recommendations, in the form of an advisory, are
enclosed at Annexure-31 of this circular.
66.4. This advisory should be read in conjunction with the applicable SEBI
circulars (including but not limited to Cybersecurity and Cyber Resilience
framework, Annual System Audit framework, etc.) and subsequent updates
issued by SEBI from time to time.
66.5. The compliance of the advisory shall be provided by the REs along with
their cybersecurity audit report (conducted as per the applicable SEBI
Cybersecurity and Cyber Resilience framework). The compliance shall be
submitted as per the existing reporting mechanism and frequency of the
respective cybersecurity audit.
90 Reference: Circular SEBI/HO/ITD/ITD_VAPT/P/CIR/2023/032 dated February 22, 2023
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67. Framework for Adoption of Cloud Services by SEBI Regulated Entities
(REs)91
67.1. Background: In recent times, the dependence on cloud computing for
delivering the IT services is increasing. While cloud computing offers
multiple advantages viz. ready to scale, ease of deployment, no overhead
of maintaining physical infrastructure etc., the RE should also be aware of
the new cyber security risks and challenges which cloud computing
introduces. In view of the above, this cloud framework has been drafted to
provide baseline standards of security and for the legal and regulatory
compliances by the RE. The framework shall be seen as an addition to
already existing SEBI circulars /guidelines /advisories.
67.2. Objective: The major purpose of this framework is to highlight the key risks,
and mandatory control measures which REs need to put in place before
adopting cloud computing. The document also sets out the regulatory and
legal compliances by REs if they adopt such solutions.
67.3. Applicability:
The framework shall be applicable to the following REs:
i. Stock Exchanges
ii. Clearing Corporations
iii. Depositories
iv. Stock Brokers through Exchanges
v. Depository Participants through Depositories
vi. Asset Management Companies (AMCs)/ Mutual Funds (MFs)
vii. Qualified Registrars to an Issue and Share Transfer Agents
viii.KYC Registration Agencies (KRAs)
67.4. Transition Period
i. The framework shall come into force with immediate effect for all new or
proposed cloud onboarding assignments/ projects of the REs.
ii. REs which are currently availing cloud services (as on date of issuance
of this framework) shall ensure that, wherever applicable, all such
arrangements are revised and they (RE) shall be in compliance with this
framework not later than 12 (twelve) months from the date of issuance
of the framework.
iii. Additionally, the REs which are currently availing cloud services, shall
provide milestone-based updates as follows:
91 Reference: Circular SEBI/HO/ITD/ITD_VAPT/P/CIR/2023/033 dated March 06, 2023.
185
Table 18
SN. Timeline Milestone
1 Within one (1) month of REs shall provide 92details of the cloud
issuance of framework services, if any, currently deployed by
them.
2 Within three (3) months of The REs shall submit a roadmap
issuance of framework (including details of major activities,
timelines, etc.) for the implementation of
the framework.
3 From three (3) to twelve Quarterly progress report as per the
(12) months of issuance roadmap submitted by the RE.
of framework
4 After twelve (12) months Compliance with respect to the
of issuance of framework framework to be reported regularly
iv. The above-mentioned reporting shall be done to the authority as per the
existing mechanism of reporting for systems audit/ cybersecurity audit.
67.5. Scope:
i. As per NIST, cloud computing has four types of deployment models viz
public cloud, community cloud, private cloud and hybrid cloud-
a. This cloud framework is applicable for adoption of public cloud and
community cloud. Consequently, REs are permitted to deploy public
cloud and community cloud models, subject to the conditions specified
herein.
b. A private cloud shall be considered as an on-premise deployment
model and consequently, private cloud deployments shall be
governed by SEBI circulars (for example cybersecurity circular,
outsourcing circular, BCP-DR, etc.), guidelines, advisories, etc.
issued from time to time. Therefore, private cloud deployments (by
REs) are permitted, however, such deployments may not be governed
by this cloud framework.
c. A hybrid cloud is a combination of two or more out of public cloud,
community cloud and private cloud. Therefore, this cloud framework
as well as the relevant SEBI circulars/ guidelines/ advisories shall be
applicable for hybrid cloud deployments. In view of the above, hybrid
cloud deployment is permitted, subject to the conditions specified
herein.
92 The details of cloud deployment shall be submitted in the format provided in Appendix-A
186
ii. Deployment of any other cloud model is prohibited unless explicitly
permitted under this framework. However, as the field of cloud computing
is a dynamic and emerging area, SEBI may allow deployment of other
models after due consultations. The same may be specified by SEBI
from time to time.
67.6. Approach:
The cloud framework is a principle-based framework which covers
Governance, Risk and Compliance (GRC), selection of Cloud Service
Providers (CSPs), data ownership and data localization, due- diligence by
REs, security controls, legal and regulatory obligations, DR & BCP, and
vendor lock-in risk. The principles are broadly stated guidelines to set the
standards by which RE must comply with while adopting cloud services.
The principles are stated below:
i. Principle 1: Governance, Risk and Compliance Sub-Framework
ii. Principle 2: Selection of Cloud Service Providers
iii. Principle 3: Data Ownership and Data Localization
iv. Principle 4: Responsibility of the Regulated Entity
v. Principle 5: Due Diligence by the Regulated Entity
vi. Principle 6: Security Controls
vii. Principle 7: Contractual and Regulatory Obligations
viii. Principle 8: BCP, Disaster Recovery & Cyber Resilience
ix. Principle 9: Vendor Lock-in and Concentration Risk Management
The detailed framework is enclosed at Annexure-32 of this circular.
187
V. CHANGE IN STATUS, CONSTITUTION, CONTROL, AFFILIATION
68. Periodical Report – Grant of prior approval to members of Stock Exchanges93
68.1. With the amendment in the Stock Brokers Regulations 1992 vide Notification
No. LAD-NRO/GN/2011-12/03/12650 dated April 19, 2011, the requirement
of members of the Stock Exchanges 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.
68.2. The Stock Exchanges will continue to grant prior approval to their members
for change in status or constitution, which would include the following:
68.2.1. in case of a body corporate —
a. 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;
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 SCRR 1957; and
c. any change in control over the body corporate;
68.2.2. 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;
68.2.3. in case of a partnership firm any change in partners not amounting
to dissolution of the firm;
68.2.4. any other purpose as may be considered appropriate by the Stock
Exchanges.
68.3. The Stock Exchanges shall submit a periodical report with details of the
changes in status or constitution of the members, as per the format and in
accordance with guidelines given at Annexure-33.
69. Procedure for seeking prior approval for change in control94
93 Reference: Circular CIR/MIRSD/2/2011 dated June 03, 2011
94 Reference: Circular SEBI/HO/MIRSD/ MIRSD-PoD-2/P/CIR/2022/163 dated November 28, 2022
188
69.1. Regulation 9(c) of the Stock Brokers Regulations 1992 and Regulation 9(c)
read with Regulation 10B of the Stock Brokers Regulations 1992 provide
respectively that stock broker and clearing member shall obtain prior
approval of SEBI in case of change in control.
69.2. To streamline the process of providing approval to the proposed change in
control of stock broker/clearing member (hereinafter referred as
intermediary or applicant), it has been decided as under:
69.2.1. The Intermediary shall make an online application to SEBI for prior
approval through the SEBI Intermediary Portal (‘SI Portal’)
(https://siportal.sebi.gov.in).
69.2.2. The online application in SI portal shall be accompanied by the
following information/declaration/undertaking about itself, the
acquirer(s)/the person(s) who shall have the control and the
directors/partners of the acquirer(s)/ the person(s) who shall have
the control:
69.2.2.1. Current and proposed shareholding pattern of the
applicant
69.2.2.2. Whether any application was made in the past to SEBI
seeking registration in any capacity but was not granted?
If yes, details thereof.
69.2.2.3. Whether any action has been initiated / taken under SCRA
1956/SEBI Act 1992 or rules and regulations made
thereunder? If yes, the status thereof along with the
corrective action taken to avoid such violations in the
future. The acquirer/ the person who shall have the control
shall also confirm that it shall honour all past liabilities /
obligations of the applicant, if any.
69.2.2.4. Whether any investor complaint is pending? If yes, steps
taken and confirmation that the acquirer/ the person who
shall have the control shall resolve the same.
69.2.2.5. Details of litigation(s), if any.
69.2.2.6. Confirmation that all the fees due to SEBI have been paid.
69.2.2.7. Declaration cum undertaking of the applicant and the
acquirer/ the person who shall have the control (in a format
enclosed at Annexure-34), duly stamped and signed by
their authorized signatories that:
69.2.2.7.1. There will not be any change in the Board of
Directors of incumbent, till the time prior
approval is granted;
189
69.2.2.7.2. pursuant to grant of prior approval by SEBI,
the incumbent shall inform all the existing
investors/ clients about the proposed change
prior to effecting the same, in order to enable
them to take informed decision regarding
their continuance or otherwise with the new
management; and
69.2.2.7.3. the ‘fit and proper person’ criteria as specified
in Schedule II of the Intermediaries
Regulations 2008 are complied with.
69.2.2.8. In case the incumbent is a registered stock broker,
clearing member, depository participant, in addition to the
above, it shall obtain approval /NOC from all the stock
exchanges/clearing corporations/depositories, where the
incumbent is a member/depository participant and submit
self-attested copy of the same to SEBI.
69.2.3. The prior approval granted by SEBI shall be valid for a period of six
months from the date of such approval within which the applicant
shall file application for fresh registration pursuant to change in
control.
69.3. To streamline the process of providing approval to the proposed change in
control of an intermediary in matters which involve scheme(s) of
arrangement which needs sanction of the National Company Law Tribunal
(“NCLT”) in terms of the provisions of the Companies Act, 2013, the
following has been decided:
69.3.1. The application seeking approval for the proposed change in
control of the intermediary shall be filed with SEBI prior to filing the
application with NCLT.
69.3.2. Upon being satisfied with compliance of the applicable regulatory
requirements, an in-principle approval will be granted by SEBI;
69.3.3. The validity of such in-principle approval shall be three months from
the date issuance, within which the relevant application shall be
made to NCLT.
69.3.4. Within fifteen days from the date of order of NCLT, the intermediary
shall submit an online application in terms of para 69.3 of this
circular along with the following documents to SEBI for final
approval:
a) Copy of the NCLT Order approving the scheme;
b) Copy of the approved scheme;
190
c) Statement explaining modifications, if any, in the approved
scheme vis-à-vis the draft scheme and the reasons for the
same; and
d) Details of compliance with the conditions/observations, if any,
mentioned in the in-principle approval provided by SEBI.
69.4. With respect to transfer of shareholding among immediate relatives and
transmission of shareholding, certain provisions are mentioned below: 95
69.4.1. Transfer /transmission of shareholding in case of unlisted body
corporate intermediary: In following scenarios, change in
shareholding of the intermediary will not be construed as change in
control:
a) Transfer of shareholding among immediate relatives shall not
result into change in control. Immediate relative shall be
construed as defined under Regulation 2(l) of the Takeover
Regulations 2011 which inter-alia includes any spouse of that
person, or any parent, brother, sister or child of the person or of
the spouse;
b) Transfer of shareholding by way of transmission to immediate
relative or not, shall not result into change in control.
69.4.2. Transfer /transmission of shareholding in case of a proprietary
firm type intermediary: In case of an intermediary being a
proprietary concern, the transfer or bequeathing of the
business/capital by way of transmission to another person is a
change in the legal formation or ownership and hence by the
definition of change in control, such transmission or transfer shall be
considered as change in control. The legal heir / transferee in such
cases is required to obtain prior approval and thereafter fresh
registration shall be obtained in the name legal heir/transferee.
69.4.3. Transfer /transmission of ownership interest in case of
partnership firm type intermediary: Change in partners and their
ownership interest of the partnership firm type intermediary shall be
dealt in following manner:
a) Transfer of ownership interest in case of partnership firm: In
case a SEBI registered entity is registered as a partnership firm with
more than two partners, then inter-se transfer amongst the partners
shall not be construed to be change in control. Where the partnership
firm consists of two partners only, the same would stand as dissolved
upon the death of one of the partners. However, if a new partner is
95 Reference: Circular no. SEBI/HO/MIRSD/DOR/CIR/P/2021/42 dated March 25,2021
191
inducted in the firm, then the same would be considered as a change
in control, requiring fresh registration and prior approval of SEBI.
b) Transmission of ownership interest in case of partnership
firm: Where the partnership deed contains a clause that in case of
death of a partner, the legal heir(s) of deceased partner be admitted,
then the legal heir(s) may become the partner (s) of the partnership
firm. In such scenario the partnership firm is reconstituted.
Bequeathing of partnership right to legal heir(s) by way of
transmission shall not be considered as change in control.
69.4.4. Incoming entities/ shareholders becoming part of controlling interest
in the intermediary pursuant to transfer of shares from immediate
relative / transmission of shares (immediate relative or not), need to
satisfy the fit and proper person criteria stipulated in Schedule II of
the Intermediaries Regulations 2008.
70. Guidelines for seeking NOC by Stock Brokers / Clearing Members for setting
up Wholly Owned Subsidiaries, Step Down Subsidiaries, Joint Ventures in
GIFT IFSC96
70.1. SEBI receives applications from Stock Brokers / Clearing Members for
granting NOCs for setting up Wholly Owned Subsidiaries, Step Down
Subsidiaries, Joint Ventures, etc. in GIFT IFSC. With an endeavour to
rationalise and streamline the process of application, the following
guidelines are being issued.
70.2. The format of application along with list of supporting documents for
seeking NOC for setting up Wholly Owned Subsidiaries, Step Down
Subsidiaries or entering into Joint Ventures in GIFT IFSC is placed as
Annexure-35.
70.3. Stock Brokers and Clearing Members shall apply through a Stock
Exchange where the applicant is a member, along with the required
information, documents and NOC received from all Stock
Exchanges/Clearing Corporations/Depositories in which the applicant is a
member/participant.
70.4. Stock Exchanges / Clearing Corporations (where the applicant is only
clearing member) are directed to forward the complete application to SEBI,
after verification along with its recommendation.
96 Reference: Circular SEBI/HO/MIRSD/DoR/P/CIR/2022/61 dated May 13, 2022
192
71. Measure for Ease of Doing Business – Facilitation to SEBI registered Stock
Brokers to undertake securities market related activities in Gujarat
International Finance Tech-city – International Financial Services Centre
(GIFT-IFSC) under a Separate Business Unit (SBU)97
71.1. In order to facilitate SEBI registered stock brokers to undertake securities
market related activities in Gujarat International Finance Tech-city –
International Financial Services Centre (GIFT-IFSC), it has been decided to
do away with the requirement of obtaining specific approval from SEBI.
71.2. Stock brokers proposing to undertake securities market related activities in
GIFT-IFSC are permitted to do so under a Separate Business Unit (SBU) of
the stock broking entity itself. These activities can also be carried out if the
branch qualifies as an SBU.
71.3. Existing practice of carrying out securities market related activities in GIFT-
IFSC through a subsidiary is also allowed. Thus, the form in which these
activities are to be carried out is at the discretion of the entity.
71.4. The matters related to policy, eligibility criteria, risk management, investor
grievances, inspection, enforcement, claims etc. for SBU in GIFT-IFSC
would be specified under the regulatory framework issued by the concerned
regulatory authority and all activities of the SBU in GIFT-IFSC would be
under the jurisdiction of that regulatory authority.
71.5. In pursuance of the above regulatory jurisdiction, to demarcate the regulatory
obligations and to ring fence the activities of the stock brokers in Indian
securities market and that of SBU in GIFT-IFSC, some of the key safeguards
are being prescribed as under:
71.5.1. Stock brokers shall ensure that securities market related activities of
the SBU in GIFT-IFSC are segregated and ring-fenced from the
Indian securities market related activities of the stock broker and
arms-length relationship between these activities is maintained.
71.5.2. Such SBU in GIFT-IFSC shall be exclusively engaged in providing
securities market related activities as permitted by the IFSCA.
Further that, the activities to be carried out by the SBU shall be as
permitted by the IFSCA.
71.5.3. Stock brokers shall prepare and maintain a separate account for the
SBU on arms-length basis.
71.5.4. The net worth of the SBU shall be kept segregated from the net worth
of the stock broker in the Indian securities market. Net worth criteria
97 SEBI/HO/MIRSD/MIRSD-PoD/P/CIR/2025/61 dated May 02, 2025
193
for stock broker shall be satisfied after excluding account of the SBU.
The net worth for the purpose of the SBU shall be as per regulatory
framework issued by the concerned regulatory authority.
71.6. As the activities of the SBU shall be under the jurisdiction of another
regulatory authority, Grievance Redressal Mechanism and Investor
Protection Fund (IPF) of the stock exchanges and SCORES shall not be
available for investors availing the services of the SBU.
71.7. Stock brokers who have already floated subsidiary or entered into joint
venture to undertake securities market related activities in GIFT-IFSC after
obtaining approval from SEBI, shall have an option to dismantle at its
discretion, such subsidiary/joint venture and carry out such services under
an SBU of the stock broking entity itself.
72. Facilitation to SEBI registered Stock Brokers to access Negotiated Dealing
System-Order Matching (NDS-OM) for trading in Government Securities-
Separate Business Units (SBU)98
72.1. Reserve Bank of India vide its notification dated February 07, 2025
permitted access of SEBI-registered non-bank brokers to Negotiated
Dealing System-Order Matching (NDS-OM) through Master Direction -
Reserve Bank of India (Access Criteria for NDS-OM) Directions, 2025.
72.2. In order to facilitate SEBI-registered stock brokers to participate in
Government Securities (G-Secs) market in the NDS-OM, it has been
decided that they may do so under a Separate Business Unit (SBU) of the
stock broking entity itself, in the manner specified herewith.
72.3. The matters related to policy, eligibility criteria, risk management, investor
grievances, inspection, enforcement, claims etc. for stock brokers to
transact on NDS-OM would be specified under the regulatory framework
issued by the respective regulatory authority and all activities of the
business unit of stock broker facilitating trading on NDS-OM would be under
the jurisdiction of that regulatory authority.
72.4. In pursuance of the above regulatory jurisdiction, to demarcate the
regulatory obligations and to ring fence the activities of the stock brokers
and its NDS-OM activities, some of the key safeguards are being prescribed
as under:
72.4.1. Stock brokers shall ensure that activities of the NDS-OM under a
SBU are segregated and ring-fenced from the securities market
related activities of the stock broker and arms-length relationship
between these activities are maintained;
98 SEBI/HO/MIRSD/MIRSD-PoD/P/CIR/2025/14 dated February 11, 2025
194
72.4.2. Such SBU shall be exclusively engaged in activities of transacting
on NDS-OM only;
72.4.3. Stock brokers shall prepare and maintain a separate account for
the SBU on arms-length basis;
72.4.4. The net worth of the SBU shall be kept segregated from the net
worth of the stock broker in the securities market. Net worth criteria
for stock broker shall be satisfied after excluding account of the
SBU.
72.5. As the activities of the SBU shall be under the jurisdiction of another
regulatory authority, Grievance Redressal Mechanism and Investor
Protection Fund (IPF) of the stock exchanges and SCORES shall not be
available for investors availing the services of the SBU.
195
VI. FOREIGN ACCOUNTS TAX COMPLIANCE ACT RELATED PROVISIONS
73. Inter-Governmental Agreement with United States of America under Foreign
Accounts Tax Compliance Act - Registration99
73.1. 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.
73.2. As advised by the Government, the following points may be noted by all
SEBI registered intermediaries:
73.2.1. 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.
73.2.2. 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.
73.2.3. 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.
73.2.4. 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 para 73.2.1
and 73.2.2 above.
99 Reference: Circular CIR/MIRSD/2/2014 dated June 30, 2014
196
74. Implementation of the Multilateral Competent Authority Agreement and
Foreign Account Tax Compliance Act100
74.1. 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.
74.2. 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).
74.3. 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/notification%
20no.%2062%20dated%2007-08-2015.pdf
74.4. 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_not
es_on_im plementation_31_08_2015.pdf, for information and necessary
action.
74.5. All registered intermediaries shall take necessary steps to ensure
compliance with the requirements specified in the aforesaid Rules after
carrying out necessary due diligence.
100 Reference: Circular CIR/MIRSD/2/2015 dated August 26, 2015 and Circular CIR/MIRSD/3/2015 dated
September 10, 2015.
197
VII. INVESTOR GRIEVANCE REDRESSAL
75. Exclusive e-mail ID for redressal of Investor Complaints101
75.1. All the registered stock brokers shall designate an e-mail ID of the grievance
redressal division/compliance officer exclusively for the purpose of
registering complaints by investors. Stock Brokers 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.
76. Redressal of Investor complaints against Stock Brokers in SEBI Complaints
Redress System (SCORES)102
76.1. SEBI commenced processing of investor complaints in a centralized web
based complaints redress system ‘SCORES’. The salient features of this
system are:
76.1.1. Centralised database of all complaints,
76.1.2. Online movement of complaints to the concerned listed companies,
76.1.3. Online upload of Action Taken Reports (ATRs) by the concerned
companies, and
76.1.4. Online viewing by investors of actions taken on the complaint and its
current status.
76.2. The investor grievances received by SEBI against stock brokers are taken
up electronically with the concerned Stock Exchange(s) through SCORES.
The Stock Exchange(s) in turn, take up the matter with the concerned stock
brokers.
76.3. Stock Exchanges shall ensure that the investor complaints shall be resolved
within fifteen working days from the date of receipt of the complaint.
Additional information, if any, required from the complainant, shall be sought
within seven working days from the date of receipt of the complaint. The
period of fifteen working days shall be counted from the date of receipt of
additional information sought.103
101 Reference: Circular MRD/DoP/Dep/SE/CIR-22/06 dated December 18, 2006
102 Reference: Circular CIR/MIRSD/18/2011 dated August 25, 2011 and Circular
SEBI/HO/MIRSD/MIRSD6/CIR/P/2017/20 dated March 10, 2017.
103 Reference: Circular SEBI/HO/MIRSD/DOC/CIR/P/2020/226 dated November 06, 2020
198
76.4. For redressal of investor grievances through the SEBI Complaints Redress
System (SCORES) platform, the master circular issued by SEBI in this
regard may be accessed at the following link:
https://www.sebi.gov.in/legal/master-circulars/nov-2022/master-circular-
on-the-redressal-of-investor-grievances-through-the-sebi-complaints-
redress-system-scores-platform_64742.html
77. Information regarding Grievance Redressal Mechanism104
77.1. For information of all investors who deal/ invest/ transact in the market, the
offices of all stock brokers (and its authorized person(s)) shall prominently
display basic information, as provided in Annexure-36, about the grievance
redressal mechanism available to investors.
78. Publishing Investor Charter and disclosure of Investor Complaints by Stock
Brokers on their websites105
78.1. The Investor Charter for Stock Brokers inter-alia provide details about the
services provided to Investors, Rights of Investors, various activities of
Stock Brokers with timelines, DOs and DON’Ts for Investors and Grievance
Redressal Mechanism. The same is placed at Annexure-37.
78.2. Stock Brokers shall bring the Investor Charter to the notice of their clients
(existing as well as new clients) through disclosing the Investor Charter on
their respective websites, making them available at prominent places in the
office, provide a copy of Investor Charter as a part of account opening kit
to the clients, through e-mails/ letters etc.
78.3. Additionally, in order to bring about transparency in the Investor Grievance
Redressal Mechanism, all the Stock Brokers shall disclose on their
respective websites, the data on complaints received against them or
against issues dealt by them and redressal thereof, latest by seventh of
succeeding month, as per the format enclosed at Annexure-38.
104 Reference: Circular CIR/MIRSD/3/2014 dated August 28, 2014.
105 Reference: Circular SEBI/HO/MIRSD/DOP/P/CIR/2021/676 dated December 02,2021 and
SEBI/HO/MIRSD/MIRSD-PoD1/P/CIR/2025/22 dated February 21, 2025
199
VIII. DEFAULT RELATED PROVISIONS
79. Standard operating procedure in the cases of Trading Member / Clearing
Member leading to default106
79.1. With the introduction of uniform membership structure of TM and CM across
all segments, the TM shall make good the default of its clients to the CM and
the CM shall make good the default of its clients / TM to the CC. The default
of TM may not necessarily lead to default of CM, if the CM continues to fulfill
the settlement obligation with the CC. To protect the interest of non-
defaulting clients of a TM and /or non-defaulting clients / TM(s) of the CM, in
the likely event of default by TM / CM, there is a need for Standard Operating
Procedure (“SoP”) enumerating the steps to be taken by the SEs / CCs /
Depositories in such cases where SE / CC is of the view that TM / CM is
likely to default in repayment of funds or securities to its clients.
79.2. In order to harmonize the action amongst all SEs / CCs / Depositories in a
time bound manner this SoP has been prepared in consultation with SEs,
CCs and Depositories so as to achieve uniformity in implementation of
actions. The SoP lays down the actions to be initiated by the SEs / CCs /
Depositories within a time frame after detection of the early warning signals
as laid out in the Circular dated December 17, 2018 and other triggers as
laid down in this circular until declaration of defaulter of TM / CM by the SE /
CC. Once the TM is declared defaulter, the proceedings shall be in
compliance with the bye-laws, rules and regulations of SE / CC respectively.
79.3. On analysis of early warning signals or any of the following triggers, if the SE
/ CC is of the view that the TM / CM is likely to default in the repayment of
funds / securities to its clients and / or fail to meet the settlement obligations
to CM / CC, where:
79.3.1. There is shortage of funds / securities payable to the clients by Rs. 10
crore (SE may have their own criteria) and / or
79.3.2. TM / CM has failed to meet the settlement obligations to CM / CC and
/ or
79.3.3. There is sudden increase in the number of investor’s complaints
against the TM / CM for non-payment of funds and / or transfer of
securities,
the following actions shall be taken by Initiating Stock Exchange (ISE) / SEs
/ CCs and Depositories as per the timeline given below:
106 Reference: Circular SEBI/HO/MIRSD/DPIEA/CIR/P/2020/115 dated July 01,2020 and Circular
SEBI/HO/MIRSD/DPIEA/CIR/2022/72 dated May 27, 2022.
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Table 19
S No. Action Timeline
Seek documents / explanation or Meeting with Within 3 trading
1.
designated directors of TM. days of trigger
A limited purpose joint inspection of TM shall Within 3 trading
be initiated. ISE along with other SEs shall days of the meeting
send a team of officials for taking possession / explanation with
of the copy of the books of accounts and other the designated
2. 2 relevant records including but not restricted to directors
securities register, trial balance, client
master, bank books, debtors and creditors
ledger (preferably in electronic mode) for the
last 3 years (if available).
a) The explanations offered by the Within 7 trading
designated director(s) of the TM shall be days of 4.2
analysed by the ISE and based on the
information available, to protect the
interest of non-defaulting clients, as an
interim measure, the trading terminal of the
3. 3
TM may be directed to be disabled by the
Managing Director of the ISE for reasons
to be recorded in writing.
b) A preliminary assessment of assets and
liabilities of the TM shall be completed by
the ISE.
ISE shall issue a notice / circular informing the Within 1 day of
4. 4
disablement of the TM in all segments. disablement
ISE shall communicate the decision of Within 1 trading day
disablement of the trading terminal(s) of the of
TM along with detailed reasons for disablement
5. 5
disablement to the TM and CM(s) with an
advice to CM(s) to square-off open positions
of TM and its clients.
ISE shall inform the Depositories about the Within 1 trading day
disablement immediately and advice of
Depositories to freeze the demat accounts of disablement
the TM (including TM Pool Accounts). (ISE
6.
shall give specific instructions along with PAN
to the Depositories). Any debit in the demat
account of TM shall be made under
supervision of ISE.
ISE shall inform other SEs about the Within 1 trading day
disablement immediately and the other SEs of receipt of
7. 7 shall disable the said TM on receipt of intimation of
information and the other SEs shall Issue a disablement from
notice / circular in this regard. ISE
201
TM may also stand suspended to act as a Within 1 trading day
client with any other TM / CM in any other of date receipt
segment / SEs. of information
8. 8
of
disablement from
ISE
In case of open positions of clients / TM, CM Within 15 trading
shall liquidate / square off the open positions. days from the date
9. 9 of receipt of
information by the
CM.
a) All SEs shall immediately direct other TM / Within 1 trading day
CM so as not to alienate the of the date of
receipt of
unencumbered surplus funds / securities
information of
held by them for such TM registered as a
disablement
client.
from ISE
10. 1
Upon
0b ) CM shall invoke the BGs of TM and all
instructions from
unencumbered funds of TM to be SE
transferred to SE on demand. CM shall
also ensure that the BG do not expire in the
intervening period else they shall invoke
even before the receipt of instructions from
SE.
All SEs shall inform the CM / CC regarding As and when
11. 1pay-out proceeds due to the TM which shall payout is made
1 be credited to the settlement account of the
TM.
If the open position of clients of TM could not Within 15 trading
be liquidated / squared off, the re-pledged days from the date
securities of the client of the TM lying with the of receipt of
CM in the Client Securities Margin Pledge information by the
Account and other identifiable collateral of the CM
12. 1
client of TM such as cash / Bank Guarantee
2
(BG) / Fixed Deposit Receipts (FDR) / Mutual
Fund Units shall be taken / encashed over by
CM wherever possible in accordance with
guidelines issued in this regard from time to
time.
All the securities lying in client unpaid Within 15 trading
securities account of the TM (CUSA) shall be days from receipt of
liquidated by CM / CC / ISE and the sale information of
13. 1
proceeds shall be credited to respective disablement from
3
client’s financial ledger. In this situation ISE
depository shall not levy any penalty on such
transactions.
202
a) ISE, in consultation with SEs / CCs, shall Within 15 trading
appoint a forensic auditor to conduct days of disablement
forensic audit of books of accounts of the
concerned TM. All SEs shall obtain details
of the free securities / collateral available
Within 3 weeks of
with their respective CM and CC and
appointment of
14. 1 provide to the forensic auditor. forensic
4b ) An assessment of assets and liabilities of auditor
the TM shall be undertaken by the forensic
auditor. The liabilities to the clients for
funds and securities shall be established
with demarcation of securities belonging to
the fully paid clients or partly paid / unpaid
clients.
ISE shall also provide a report to SEBI on the Within 30 trading
reasons for trigger, the meetings held with days from the date of
directors of the TM / CM and the outcomes of trigger
15. 1
limited purpose inspection, the details of
5
actions taken and proposed to be taken under
the SoP and any other information that the
ISE may deem relevant.
Action by Depositories
Depositories to freeze the demat accounts of Within 1 trading day
16. 1the TM (including TM Pool Accounts). from the receipt of
6 information of
disablement
Depositories shall not allow new account Within 1 trading
opening by the DP (Defaulting TM / CM) and days from the date
17. 1
shall suspend all Power of Attorney in favour of receipt of
7
of the defaulting TM given by its clients. information of
disablement
If the TM is also a Depository Participant (DP), Within 3 trading
the Depositories shall depute its officials / days from the date
18. 1auditor to monitor the transactions in demat of receipt of
8s ecurities of the clients of TM and / or transfer information of
the demat accounts of the clients to another disablement
DP.
Depositories shall initiate concurrent audit for Within 7 trading
100% verification of debit transfers executed days from the date
19. 1
from the client accounts and account closures of receipt of
9
processed by the DP. information of
disablement
Depositories shall provide the details of Within 15 trading
pledges that were invoked by Banks/ NBFCs days from the date
20. 2
with whom TM’s own securities were pledged of receipt of
0
in the previous 30 days to the SE / CC. information of
disablement
Action by ISE /SEs / CCs and Banks
203
21. 2Issuance of instruction to the banks that the Within 1 trading day
1b alance in all the bank accounts of TM / CM of receipt of
shall be frozen for debits by Banks. information of
disablement
22. 2SEs to direct CCs / CM to invoke the Within 1 trading day
2u nencumbered collateral deposits including from disablement
BGs / FDRs
23. 2CCs / CM shall secure the unencumbered Within 1 trading day
3c ollateral deposits, electronic balances in the on receipt of
depository accounts of the TM / CM, including information of
BGs as per the directions received from SEs. disablement
Other actions by ISE/ SEs/ CCs
24. 2With regard to the restoration of securities of Within 30 trading
4c lients lying with the CM, post crystallization days
of balances in the financial ledger of clients by from
forensic auditor or as per the Auditor’s crystallization of
certificate as may be provided by Member: balances
• ISE/ SE / CC shall endeavour to initiate the
process to settle debit balance of such
client accounts by selling their securities if
such clients fail to clear their debit balance
after giving notice period for 5 days.
• After reconciling the Register of Securities
(ROS), the securities of the credit balance
clients (fully paid clients) shall be restored
to their respective demat accounts.
In this regard, the related parties of the trading
member shall not be considered for
settlement, for which the TM shall provide an
undertaking to the SEs / CC.
25. ISE / SEs / CCs shall endeavour to settle the Within 30 trading
claims of maximum number of clients by way days
of interim measures, under their supervision from
prior to issuing show cause notice (SCN) for crystallization of
declaring the TM a defaulter. The TM shall be balances
instructed to pay small investors out of
available funds and own resources (movable
and immovable) under the supervision of the
ISE/ SEs.
Further, the unencumbered deposits
available with the SEs/ CCs, after adjusting
for any dues of the SE / CC and maintaining
the minimum BMC, shall also be utilised for
settling the credit balance of investors starting
from the smallest amount. Such amount shall
204
be paid in full to all such investors having
credit balance up to the amount of Rs.
25,00,000/- (Rupees twenty five lakh), subject
to availability of funds. Further, investors
having credit balance of more than Rs.
25,00,000/- (Rupees twenty five lakh) shall be
paid on pro-rata basis from the remaining
funds.
Also, any surplus available with any SEs /
CCs shall be utilised for settling the credit
balances of clients with respect to other SEs.
BGs of the TM shall be invoked and also the
FDRs shall be encashed for utilisation. SEs /
CC may settle such clients in tranches.For
this purpose, the balances of client will be
netted across exchanges to arrive at the final
credit balance due to such client.
The TM shall furnish the proof of payment to
the clients, to the SEs.
In this regard, the related parties of the TM
shall not be considered for settlement, for
which the TM shall provide an undertaking to
the SEs/ CC. TM shall provide indemnity to the
SEs to make available the funds to meet any
shortfall in meeting investor’s claim (other than
those who have withdrawn their claim). Clients
withdrawing their claim will have to submit
unconditional withdrawal letter to the SEs.
26. 2Issuance of SCN for declaration of TM as a After finalization of
6d efaulter and the list of members to whom the assets and liabilities
notice is issued shall be placed on the as per forensic
website of the SE and on such other place, as audit or audit by
the relevant authority may deem fit. SEs
27. 2SEs shall intimate the clients about the Within 3 trading
7i s suance of the notice / SCN to declare the days of the
TM as defaulter including through email / issuance of SCN
SMS.
79.4. The above action shall equally apply to a likely event of default by a CM who
is also a TM. However, in case of likely default of a Professional CM, the
action to be initiated by the CM shall fall upon the CC.
205
79.5. As soon as TM is disabled that information shall be shared by ISE with all
SEs / CCs. On receipt of such information respective SE shall also conduct
their due diligence and may initiate action of disablement by issuing
reasoned order by MD of SE concern. However, when SCN has been issued
for declaring a TM / CM as a defaulter by any SE, its subsidiary / associate
companies which are also member(s) on other segment / SE / CC shall also
be put in suspension mode. All their open positions shall be squared off and
their assets shall be frozen.
79.6. Once the Member is disabled or SCN is issued for declaration of defaulter to
TM / CM (whichever is earlier), no further Investor Grievance Redressal
Committee (IGRC) / Arbitration meetings shall be conducted.
79.7. Default proceedings shall take place as per bye laws / rules / regulations of
the SE / CC. If the member is also a DP, Depositories shall take action as
per its bye laws for termination / transfer of its participant-ship based on
record. SEs shall not expel the TM immediately until the default proceedings
are completed.
79.8. The TM shall provide a list of all its bank accounts to the SEs /CCs and the
SEs / CCs shall obtain an undertaking from the TM within 90 days from the
date of issuance of this Circular, undertaking that the SEs / CCs shall be
empowered to instruct the bank(s) of the TM to freeze the bank account(s)
for debits. The draft of undertaking is enclosed at Annexure-39.
79.9. The above SoP enumerates the minimum action which shall be initiated by
the respective SEs / CCs / Depositories However, the respective SEs / CCs
/ Depositories are free to initiate any other actions as may be necessary in
compliance with their bye laws / rules / regulations and / or to protect the
interest of investors. The ISE / SEs/ CCs and Depositories are expected to
follow the timelines with respect to each actions as enumerated, reasons
shall be recorded in case of for any deviation in timelines prescribed.
80. Recovery of assets of defaulter member and recovery of funds from debit
balance clients of defaulter member for meeting the obligations of clients /
Stock Exchange / Clearing Corporation107
80.1. In the case of default by TM/CM, it has been noted that in certain cases
there is shortfall of funds/securities with defaulter member to meet the
obligation of clients / SE / CC. The bye-laws of SE/CC provide for the
procedure for declaring a member as defaulter when, amongst other
reasons, the member is not able to fulfil its obligations and also provide for
initiation of proceedings in a court of law whenever a member is declared
107 Reference: Circular SEBI/HO/MIRSD/DPIEA/CIR/P/2020/186 dated September 28,2020
206
as a defaulter and there is a shortfall of funds/securities with the defaulter
member.
80.2. The SE/CC are advised to initiate suitable actions for liquidating the assets
(movable and immovable) of defaulter member including that of debit
balance clients (to the extent of debit balance), within six months of
declaration of defaulter, for recovery of the assets not in possession of the
SE/CC, before appropriate court of law.
207
IX. MISCELLANEOUS
81. Advertisement by Brokers and grant of trading terminals108
81.1. The Stock Exchanges shall ensure that 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 9 of the Stock Brokers
Regulations 1992 and Bye Laws of the concerned Stock Exchange.
81.2. Stock Exchanges shall grant trading terminals only at the members’
registered office and their branch offices.
82. Registration Number of Brokers to be quoted on all correspondences with
SEBI109
82.1. Stock Exchanges shall quote SEBI Registration Number of the concerned
Broker quoted on all correspondences with SEBI relating to them. Stock
Exchanges shall instruct the Brokers to quote their SEBI Registration
Number in all their correspondences with SEBI.
83. Maintenance of books of accounts and other documents sought by
Enforcement Agencies from Stock Exchanges and Brokers110
83.1. In terms of Rules 14 and 15 of SCRR 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 the Stock 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.
83.2. Enforcement agencies like Central Bureau of Investigation, Police, Crime
Branch etc. have been collecting 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.
83.3. Notwithstanding anything contained in SCRR 1957 and the Stock Broker
Regulations 1992, it is advised to preserve the originals of the documents,
108 Reference: Circular SMD/POLICY/CIR-49/2001 dated October 22, 2001.
109 Reference: Circular SMD/DBA-II/Cir-16/9618/03 dated May 05, 2003.
110 Reference: Circular SEBI/MRD/SE/CIR-15/2005 dated August 04, 2005.
208
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.
84. Display of details by Stock Brokers (including Trading Members)111
84.1. 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.
85. Unauthenticated news circulated by SEBI Registered Market Intermediaries
through various modes of communication112
85.1. 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.
85.2. It was also 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 of the market
and distort the price discovery mechanisms.
85.3. In view of the above facts, SEBI Registered Market Intermediaries are
directed that:
111 Reference: Circular CIR/MIRSD/9/2010 dated November 04, 2010.
112 Reference: Circular CIR/ISD/1/2011 dated March 23, 2011 and Circular CIR/ISD/2/2011 dated March 24,
2011
209
85.3.1. Proper internal code of conduct and controls should be put in place.
85.3.2. 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.
85.3.3. Access to Blogs/Chat forums/Messenger sites etc. should either be
restricted under supervision or access should not be allowed.
85.3.4. 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.
85.3.5. 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.
86. Guidelines on Outsourcing of Activities by Stock Brokers113
86.1. 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.
86.2. It has been observed that often the stock brokers resort to outsourcing with
a view to reduce costs, and at times, for strategic reasons.
86.3. 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.
86.4. Principles for Outsourcing
86.4.1. 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 at paras 86.7 to 86.14 below.
113 Circular CIR/MIRSD/24/2011 dated December 15, 2011.
210
86.5. Activities that shall not be Outsourced
86.5.1. The stock brokers desirous of outsourcing their activities shall not,
however, outsource their core business activities and compliance
functions. An example of core business activity may be – execution of
orders and monitoring of trading activities of clients in case of stock
brokers. Regarding Know Your Client (KYC) requirements, the stock
brokers shall comply with the provisions of Securities and Exchange
Board of India {KYC (Know Your Client) Registration Agency}
Regulations, 2011 and Guidelines issued thereunder from time to
time.
86.6. Other Obligations
86.6.1. Reporting to Financial Intelligence Unit (FIU) - The stock brokers 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.
PRINCIPLES FOR OUTSOURCING FOR INTERMEDIARIES
86.7. 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.
86.7.1. 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.
86.7.2. The Board shall mandate a regular review of outsourcing policy for
such 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.
211
86.8. The intermediary shall establish a comprehensive outsourcing risk
management programme to address the outsourced activities and the
relationship with the third party.
86.8.1. 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-
86.8.1.1. 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;
86.8.1.2. 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;
86.8.1.3. Regulatory status of the third party, including its fitness
and probity status;
86.8.1.4. 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.
86.8.2. 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.
86.8.3. 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.
86.8.4. Regular reviews by internal or external auditors of the outsourcing
policies, risk management system and requirements of the regulator
212
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.
86.9. 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.
86.9.1. 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.
86.9.2. 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.
86.9.3. 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.
86.9.4. Outsourcing arrangements shall not impair the ability of SEBI/SRO
or auditors to exercise its regulatory responsibilities such as
supervision/inspection of the intermediary.
86.10. The intermediary shall conduct appropriate due diligence in selecting the
third party and in monitoring of its performance.
86.10.1. 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.
86.10.2. The due diligence undertaken by an intermediary shall include
assessment of:
86.10.2.1. third party’s resources and capabilities, including
financial soundness, to perform the outsourcing work
within the timelines fixed;
213
86.10.2.2. compatibility of the practices and systems of the third
party with the intermediary’s requirements and
objectives;
86.10.2.3. market feedback of the prospective third party’s
business reputation and track record of their services
rendered in the past;
86.10.2.4. level of concentration of the outsourced arrangements
with a single third party; and
86.10.2.5. the environment of the foreign country where the third
party is located.
86.11. 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.
86.11.1. 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.
86.11.2. Care shall be taken to ensure that the outsourcing contract:
86.11.2.1. clearly defines what activities are going to be outsourced,
including appropriate service and performance levels;
86.11.2.2. provides for mutual rights, obligations and responsibilities
of the intermediary and the third party, including indemnity
by the parties;
86.11.2.3. provides for the liability of the third party to the
intermediary for unsatisfactory performance/other breach
of the contract
86.11.2.4. 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
214
right to intervene with appropriate measures to meet legal
and regulatory obligations;
86.11.2.5. 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;
86.11.2.6. has unambiguous confidentiality clauses to ensure
protection of proprietary and customer data during the
tenure of the contract and also after the expiry of the
contract;
86.11.2.7. 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.;
86.11.2.8. provides for preservation of the documents and data by
third party;
86.11.2.9. provides for the mechanisms to resolve disputes arising
from implementation of the outsourcing contract;
86.11.2.10. provides for termination of the contract, termination rights,
transfer of information and exit strategies;
86.11.2.11. 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;
86.11.2.12. neither prevents nor impedes the intermediary from
meeting its respective regulatory obligations, nor the
regulator from exercising its regulatory powers; and
86.11.2.13. 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.
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86.12. The intermediary and its third parties shall establish and maintain
contingency plans, including a plan for disaster recovery and periodic testing
of backup facilities.
86.12.1. Specific contingency plans shall be separately developed for each
outsourcing arrangement, as is done in individual business lines.
86.12.2. 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.
86.12.3. 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.
86.12.4. 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.
86.13. 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.
86.13.1. 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.
86.13.2. 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.
86.13.3. In cases where the third party is providing similar services to
multiple entities, the intermediary shall ensure that adequate care
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is taken by the third party to build safeguards for data security and
confidentiality.
86.14. Potential risks posed where the outsourced activities of multiple
intermediaries are concentrated with a limited number of third parties.
86.14.1. 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.
87. General Guidelines for dealing with Conflicts of Interest of Stock Brokers and
their Associated Persons in Securities Market114
87.1. Stock brokers are presently governed by the provisions for avoidance of
conflict of interest as mandated in the 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 stock brokers, for
elimination of their conflict of interest, as detailed hereunder.
87.2. Stock Brokers 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.
87.3. For the purpose of these guidelines "associated persons" shall have the
same meaning as defined in the Securities and Exchange Board of India
(Certification of Associated Persons in the Securities Markets) Regulations,
2007.
87.4. Stock brokers and their associated persons shall,
87.4.1. 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;
87.4.2. at all times maintain high standards of integrity in the conduct of their
business;
114 Reference: Circular CIR/MIRSD/5/2013 dated August 27, 2013
217
87.4.3. ensure fair treatment of their clients and not discriminate amongst
them;
87.4.4. 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;
87.4.5. make appropriate disclosure to the clients of possible source or
potential areas of conflict of interest which would impair their ability
to render fair, objective and unbiased services;
87.4.6. 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.;
87.4.7. 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;
87.4.8. not deal in securities while in possession of material non published
information;
87.4.9. not to communicate the material non published information while
dealing in securities on behalf of others;
87.4.10. not in any way contribute to manipulate the demand for or supply of
securities in the market or to influence prices of securities;
87.4.11. not have an incentive structure that encourages sale of products not
suiting the risk profile of their clients;
87.4.12. not share information received from clients or pertaining to them,
obtained as a result of their dealings, for their personal interest;
87.5. The Boards of Stock Brokers 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.
87.6. 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.
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88. Association of persons regulated by the Board and their agents with certain
persons115
88.1. Securities and Exchange Board of India (Intermediaries) (Amendment)
Regulations, 2024, Securities Contracts (Regulation) (Stock Exchanges
and Clearing Corporations) (Fourth Amendment) Regulations, 2024 and
Securities and Exchange Board of India (Depositories and Participants)
(Second Amendment) Regulations, 2024 have been notified by SEBI on
August 26, 2024.
88.2. These regulations inter alia provide that persons regulated by the Board
(including recognised stock exchanges, clearing corporations and
depositories), and agents of such persons shall not have any direct or
indirect association with another person who
i. provides advice or any recommendation, directly or indirectly, in
respect of or related to a security or securities, unless the person
is registered with or otherwise permitted by the Board to provide
such advice or recommendation; or
ii. makes any claim, of returns or performance expressly or
impliedly, in respect of or related to a security or securities, unless
the person has been permitted by the Board to make such a
claim.
The aforesaid provisions are not applicable in respect of an association
through a “specified digital platform”.
The person regulated by the Board (including recognised stock
exchanges, clearing corporations and depositories) is required to ensure
that any person associated with it or its agent does not engage in the
activities mentioned in clauses (i) or (ii) above without the necessary
permission.
88.3. In terms of these regulations, a “specified digital platform” shall mean digital
platform as specified by the Board, which has a mechanism in place to take
preventive as well as curative action, to the satisfaction of the Board, to
ensure that such a platform is not used for indulging in any activity as
referred to in clauses (i) or (ii) of paragraph 88.2 above.
88.4. It has been clarified that the term “another person” shall not include a
person who is engaged in investor education, provided that such a person
does not, directly or indirectly, indulge in any activity as referred to in
clauses (i) or (ii) of paragraph 88.2 above.
115 SEBI/HO/MIRSD/ MIRSD-PoD-1/P/CIR/2024/143 dated October 22, 2024
219
88.5. The guidelines on the preventive and curative measures for the digital
platforms for their recognition as specified digital platform are being
specified separately.
89. Digital Mode of Payment116
89.1. SEBI had 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.
89.2. Pursuant to above, SEBI has been receiving direct credit of amounts from
various intermediaries / other entities.
89.3. In order to identify and account such direct credit in the SEBI account,
intermediaries / other entities shall provide the information as mentioned in
Annexure-40 to SEBI once the payment is made.
89.4. The above information should be emailed to the respective department(s)
as well as to Treasury & Accounts division at tad@sebi.gov.in.
90. Regulatory Framework for Commodity Derivatives Brokers117
90.1. Erstwhile Forward Markets Commission (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.
90.1.1. Annexure-41 contains details of FMC circulars which shall stand
repealed and relevant SEBI circulars which shall be applicable.
90.1.2. Annexure-42 contains details of FMC circulars contents/norms of
which shall continue as they are specific to commodity derivative
markets.
116 Reference: Circular SEBI/HO/GSD/T&A/CIR/P/2017/42 dated May 16, 2017.
117 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.
220
90.1.3. Annexure-43 contains details of FMC circulars which shall stand
repealed.
90.2. All commodity derivatives exchanges shall continue to levy penalties they
are 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.
91. Approach to securities market data access and terms of usage of data
provided by data sources in Indian securities market118
91.1. In order to further enhance the quantum as well as the ease of accessibility
and usability of data disseminated in public by various data sources in
Indian securities market and keeping in view the deliberations and
recommendations of Market Data Advisory Committee (MDAC), Stock
Brokers are advised to make note of the following:
“As far as the data provided by various data sources in Indian securities
markets pursuant to regulatory mandates for reporting and disclosure in
public domain are concerned, such data should be made available to
users, ‘free of charge’ both for ‘viewing’ the data as also for download in
the format as specified by regulatory mandate for reporting, as well as
their usage for the value addition purposes.”
91.2. Further, apart from the data made available free of cost, data which is
chargeable should be appropriately identified as such in public domain.
92. Introduction of Investor Risk Reduction Access (IRRA) platform in case of
disruption of trading services provided by the Trading Member (TM)119
92.1. In recent times, with increasing dependence on technology in securities
market, there is a rise in instances of glitches in trading members’ systems,
some of which lead to disruption of trading services and investor
complaints. In such instances, investors with open positions are at risk of
non-availability of avenues to close their positions, particularly if markets
are volatile.
92.2. To address the issue, SEBI had extensive consultations with stock
exchanges, clearing corporations (CCs) and TMs. As the respective
business continuity plans, if any, of the TMs, may not be able to prevent
disruption in some cases like TM being unable to move to Disaster
Recovery Site within stipulated time, cyber-attacks etc., it has been decided
118 Reference: Circular SEBI/HO/DEPA-III/DEPA-III_SSU/P/CIR/2022/25 dated February 25,2022
119 Reference: Circular SEBI/HO/MIRSD/MIRSD-PoD-1/P/CIR/2022/177 dated December 30, 2022
221
that a contingency service shall be provided by the stock exchanges in the
event of such disruption.
92.3. In this regard, the following has been decided:
Development of the service:
92.3.1. A joint platform to provide Investor Risk Reduction Access (IRRA)
service shall be developed by the exchanges to provide the investors
an opportunity to square off/close the open positions and/or cancel
pending orders in case of disruption of trading services provided by
the Trading Member.
92.3.2. The IRRA service shall support multiple segments across multiple
exchanges.
Enablement of IRRA service:
92.3.3. TMs, upon facing technical glitches which lead to disruption of
trading services, can request for enablement of the IRRA service as
per the procedures specified by the stock exchanges from time to
time and IRRA shall be enabled on receipt of such requests.
92.3.4. In addition, stock exchanges shall also monitor the parameters like
connectivity, order flow, social media posts etc. and suo moto initiate
the enablement of the service, if needed, irrespective of any such
request by the TM.
92.3.5. This service shall be enabled by the exchanges, suo moto, only in
case of disruption of trading services of TM across all the exchanges,
where the TM is member. In case of disruption of trading services of
TM with one/some of the exchanges, where the TM is member, TM
may request the enablement, in which case TM shall use the service
for all the exchanges.
Access to Investors:
92.3.6. Once the service is enabled, all the investors of the TM shall be
informed by the exchange of the availability of the service through
email/SMS and a public notice on exchanges’ website. TMs shall
also communicate the same by displaying on their website.
92.3.7. Investors can login to the service using either the Unique Client Code
(UCC) or the PAN number and they shall be authorized by a One
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Time Password (OTP) to be sent to their registered mobile numbers
and email ids.
Actions on IRRA service:
92.3.8. Once successfully authorized, the investors can-
92.3.8.1. square off/close the open positions across segments and
exchange/s and/or
92.3.8.2. cancel the orders across segments which are pending at
the exchange/s.
92.3.9. The IRRA service shall not permit any action that increases the risk
of the investor.
92.3.10. Further, IRRA service shall also provide the TM with access to an
Admin Terminal, through which the TM can monitor the actions of
investors and also carry out the actions as mentioned at para 92.3.8
above, on instructions of investors. The TM shall maintain evidence
of such instructions. The form of such evidence shall be as specified
by SEBI/stock exchanges, through various circulars, from time to
time.
92.3.11. In case of enablement of IRRA due to cyber-attacks, such Admin
Terminal shall be on a network other than the network, which was
subjected to the attack, to protect the other critical infrastructure.
92.3.12. The TM shall continue to be responsible for all the activities on the
IRRA with respect to all obligations including settlement and margin
requirements.
Reverse Migration to the TM’s systems:
92.3.13. Stock exchanges shall design a detailed framework for reverse
migration from IRRA system to the TM’s trading system, as and
when the TM’s trading system is revived successfully and a request
is made in this regard.
92.3.14. Upon revival of the TM’s trading system, TM shall update their
systems taking data from the exchanges thus ensuring that latest
status of orders and trades is available to the investors.
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92.3.15. Stock exchanges shall decide on the reverse migration based on
various parameters including the size of the broker, time required for
reverse migration and remaining time of the trading session.
92.4. Exchanges shall ensure that credible and periodic testing of the IRRA
platform is carried out from time to time for smooth functioning of the
service.
92.5. Stock exchanges shall issue guidelines in this regard giving details like cut-
off times for enablement of IRRA service, handling of various scenarios of
open positions, framework for reverse migration etc.
92.6. In case of disruptions after the cut off time for enablement of IRRA service,
exchanges, based on their assessment and in consultation with SEBI, may
extend the market hours, if needed.
93. Maintenance of a website by stock brokers120
93.1. All stock brokers are mandated to maintain a designated website.
93.2. Such website shall mandatorily display the following information, in addition
to all such information, which have been mandated by SEBI/stock
exchanges/depositories from time to time.
i. Basic details of the stock broker such as registration number,
registered address of Head Office and branches, if any.
ii. Names and contact details such as email ids etc. of all key
managerial personnel (KMPs) including compliance officer.
iii. Step-by-step procedures for opening an account, filing a complaint
on a designated email id, and finding out the status of the complaint,
etc.
iv. Details of Authorized Persons.
93.3. The URL to the website of a stock broker shall be reported to the stock
exchanges. Any modification in the URL shall be reported to stock
exchanges within 3 days of such changes.
94. Framework for Regulatory Sandbox121
94.1. The Objective of Regulatory Sandbox is to grant certain facilities and
flexibilities to the entities regulated by SEBI so that they can experiment
with FinTech solutions in a live environment and on limited set of real
users for a limited time frame.
120 Reference: Circular SEBI/HO/MIRSD/MIRSD-PoD-1/P/CIR/2023/30 dated February 15, 2023
121 Reference: Circular SEBI/HO/ITD/ITD/CIR/P/2021/575 dated June 14, 2021 and
Circular SEBI/HO/MIRSD/MIRSD_IT/P/CIR/2021/0000000658 dated November 16, 2021
224
94.2. The guidelines pertaining to the functioning of the Regulatory Sandbox
are available at the link below:
https://www.sebi.gov.in/legal/circulars/jun-2021/revised-framework-for-
regulatory-sandbox_50521.html
and
https://www.sebi.gov.in/legal/circulars/nov-2021/framework-for-
regulatory-sandbox_53982.html
95. Transactions in Corporate Bonds through Request for Quote (RFQ) platform
by Stock Brokers (SBs)122
95.1. It has been decided to take steps to increase liquidity on RFQ platform vis-
à-vis trading in Corporate Bonds (CBs) by SBs, as under:
95.1.1. With effect from July 01, 2023, for all the trades in proprietary
capacity, SBs shall undertake at least 10% of their total secondary
market trades by value in CBs in that month by placing/seeking
quotes through one-to-one (OTO) or one-to-many (OTM) mode on
the RFQ platform of stock exchanges.
95.1.2. Further, with effect from April 01, 2024, for all the trades in
proprietary capacity, SBs shall undertake at least 25% of their total
secondary market trades by value in CBs in that month by
placing/seeking quotes through OTO or OTM mode on the RFQ
platform of stock exchanges.
95.1.3. SBs shall consider the trades executed by value through OTO or
OTM mode of RFQ with respect to the total secondary market
trades in CBs, during the current month and immediate preceding
two months on a rolling basis. Only trades pertaining to proprietary
capacity of SBs shall be considered for the purpose of such
calculations.
95.1.4. Further, in terms of SEBI Circular SEBI/HO/DDHS/P/CIR/2022/142
dated October 19, 2022, quotes on RFQ platform can be placed to
an identified counterparty (i.e. ‘one-to-one’ mode) or to all the
participants (i.e. ‘one-to-many’ mode). SBs are encouraged to
place bids (in proprietary capacity or for clients) on RFQ platform
through OTM mode, as the same shall contribute towards achieving
better price discovery.
122 Reference: Circular SEBI/HO/MIRSD/MIRSD-PoD-1/P/CIR/2023/83 dated June 02, 2023
225
96. Bank Guarantees (BGs) created out of clients’ funds123
96.1. It has been decided to implement the following measures in order to
safeguard the interests of the investors: -
96.1.1. No new BGs shall be created out of clients’ funds by SBs/CMs.
96.1.2. Existing BGs created out of clients’ funds shall be wound down by
September 30, 2023.
96.2. The provisions of this framework shall not be applicable for proprietary
funds of SBs/CMs in any segment and SB’s proprietary funds deposited
with CM in the capacity of a client.
96.3. The stock exchanges and clearing corporations shall take stock of the
current position of the BGs issued out of clients’ funds by SBs/CMs and
monitor the wind down to ensure implementation of the circular without any
disruption of services to clients. For the purpose, stock exchanges and
clearing corporations shall put in place periodic reporting mechanisms for
SBs/CMs.
96.4. SBs/CMs shall be required to provide a certificate, by its statutory auditor
confirming the implementation of provisions at para 96 of this circular. Such
a certificate shall be submitted to stock exchanges/clearing corporations by
October 16, 2023.
96.5. Stock exchanges and clearing corporations shall verify the compliance of
the provisions of the circular in their periodic inspections/reporting. They
shall also evolve adequate mechanisms to address cases of SBs/CMs who
do not comply with the provisions of the circular by the stipulated dates.
97. Upstreaming of clients’ funds by Stock Brokers (SBs) / Clearing Members
(CMs) to Clearing Corporations (CCs)124
97.1. Principle: SBs/CMs shall upstream all the clients’ clear credit balances to
CCs on End of Day (EOD) basis. Such upstreaming shall be done only in
the form of either cash, lien on Fixed Deposit Receipts (FDRs) created out
of clients’ funds, or pledge of units of Mutual Fund Overnight Schemes
(MFOS) created out of clients’ funds.
Receipt/payment of funds by SBs and CMs from/to their clients:
123 Reference: SEBI circular SEBI/HO/MIRSD/MIRSD-PoD-1/P/CIR/2023/061 dated April 25, 2023
124 Reference: SEBI Circular SEBI/HO/MIRSD/MIRSD-PoD-1/P/CIR/2023/187 dated December 12, 2023
226
97.2. Stock brokers shall maintain the following designated bank account (s) to
receive/pay funds from/to their clients:
a. Up Streaming Client Nodal Bank Account (USCNBA): SB/CM shall
receive clients’ funds in USCNBA. The nomenclature for such accounts
shall be “Name of the SB/CM – USCNB account”.
b. Down Streaming Client Nodal Bank Account (DSCNBA): Payment to
clients shall be done only from DSCNBA account. The nomenclature for
such accounts shall be “Name of the SB/CM – DSCNB account”.
97.3. In addition, CMs, who clear trades for other SBs, shall only use the
designated bank account(s) maintained with the nomenclature “Name of
the CM –TM prop account” to receive/pay proprietary funds from/to stock
brokers.
97.4. Payment to Clients: The clients may request SBs/CMs to release funds at
any time during the day. The processing of such release requests shall be
as per respective risk management practices of SB/CMs. All payment
requests of the client received on a day shall be processed on or before the
next settlement day. In cases, where the payment request is not processed
on the same day, SB/CMs need to ensure that the funds of the client are
placed with CC in terms of this circular.
Upstreaming via FDRs created out of clients’ funds:
97.5. FDRs created out of clients’ funds by SBs/CMs shall satisfy the following
conditions:
a. The FDR shall be created only with banks which satisfy the CC’s
exposure norms as specified by CCs/SEBI from time to time.
b. FDRs shall be created only from ‘Up Streaming Client Nodal Bank
Account (USCNBA)’.
c. Such FDRs shall necessarily be lien-marked to one of the CCs at all
times, and CCs shall have explicit precedence on the FDR funds over
every other stakeholder, including over the bank providing the FDR.
d. The tenor of such FDRs shall not be more than one year and one day;
and the FDRs should be pre-terminable on demand.
e. The principal amount of the FDR shall remain protected throughout the
tenure, even after accounting for all possible pre-termination costs.
f. SBs/CMs shall not avail any funded or non-funded banking facilities
based on FDRs created out of clients’ funds.
97.6. It is clarified that existing FDRs (created out of clients’ funds and having
tenor of more than one-year) created prior to June 30, 2023 shall be allowed
to be grandfathered till maturity. Such FDRs at the time of renewal shall
meet the conditions specified at para 97.5 above.
227
Upstreaming via pledge of units of Mutual Fund Overnight Schemes
(MFOS):
97.7. Units of Mutual Fund Overnight Schemes (MFOS) is a new avenue being
made available to SBs/ CMs to deploy client funds into. MFOS ensures
minimal risk transformation of client funds (that are withdrawable on
demand) available with SBs/ CMs because of overnight tenure and
exposure to only risk-free government securities.
97.8. SBs/CMs shall ensure that client funds are invested only in such MFOS that
deploy funds into risk-free government bond overnight repo markets and
overnight Tri-party Repo Dealing and Settlement (TREPS). Such MFOS
units should be in dematerialized (demat) form, and must necessarily be
pledged with a CC at all times.
97.9. SBs/CMs shall maintain a dedicated demat account (hereinafter referred to
as “Client Nodal MFOS Account”) for subscription/ redemption of MFOS
units. The depositories shall allow subscription/redemption transactions
only in the said account.
97.10. From “Client Nodal MFOS Account”, SBs/CMs shall provide MFOS units as
collateral to the CC. While providing the units as collateral, SBs/CMs shall
identify the end clients. In order to implement the same, a pledge shall be
created from the Client Nodal MFOS account to SB/CM margin pledge
account of the SB/CM. The SB/CM shall further repledge the same to CC
using the existing pledge re-pledge mechanism.
97.11. To improve operational efficiency and reduce transaction costs, CCs shall
build a mechanism for utilization of surplus unutilized collateral (i.e.
collateral in excess of margin blocked) lying with CC in cash form, towards
fund pay-in requirements across segments.
97.12. Further, to improve operational efficiency and to reduce costs, CCs shall
also facilitate a mechanism to adjust the margin blocked in the form of cash,
towards client fund pay-in obligations. As CCs are in the process of evolving
such a mechanism since issuance of June Circulars, the same shall be
made available by January 01, 2024.
Eligibility of bank instruments as collateral:
97.13. The bank instruments provided by clients as collateral (i.e. client FDRs and
BGs) cannot be upstreamed to CCs, and they shall be ineligible to be
accepted as collateral in any segment of securities market.
97.14. However, in the interest of encouraging and development of hedging in the
commodity derivatives market, it has been decided to allow Bank
guarantees provided only by non-individual clients, based on certain terms
228
and conditions. Such clients shall provide a declaration and underwriting
that they shall have no recourse to SEBI or exchanges in case of wrongful
invocation of such BGs by SB/CM. These BGs shall bear a condition that
on invocation, the moneys shall be credited only to the (USCNBA) account
and thereafter upstreamed to the CC. The other terms and conditions are
mentioned in the Annexure 44. The CCs are at liberty to apply stricter
conditions other than those specified based on their risk assessment.
97.15. The cut-off times for upstreaming of clear credit balance of clients shall be
determined by the CCs in consultation with ISF. Any clear credit balance
that could not be upstreamed to CCs due to receipt of funds from clients
beyond cut-off time shall necessarily remain in UNSCBA until it is
upstreamed to CC on the next day.
97.16. The provisions of this framework shall not be applicable to bank-CMs
(including Custodians that are banks), and for proprietary funds of SBs/CMs
in any segment and SB’s proprietary funds deposited with CM in the
capacity of a client.
98. Measures to instil confidence in securities market – Brokers’ Institutional
mechanism for prevention and detection of fraud or market abuse125
98.1. Chapter IVA of the Securities and Exchange Board of India (Stock Brokers)
(Amendment) Regulations, 2024 (hereinafter referred to as the “Broker
Regulations”) requires stock brokers to put in place an institutional
mechanism for prevention and detection of fraud or market abuse.
Accordingly, it has been decided that stock brokers shall comply with the
following obligations / mechanisms as laid down in Chapter IVA of the
Broker Regulations:
98.1.1. Systems for surveillance of trading activities and internal controls
98.1.2. Obligations of the stock broker and its employees
98.1.3. Escalation and reporting mechanisms
98.1.4. Whistle Blower Policy
98.2. The effective date for implementation w.r.t. provisions mentioned in para
98.1 above, for different stock brokers has been prescribed in the table
below:
Number of active UCCs* of Applicability of Operational / working
stockbroker Modalities & Guidance Note
> 50,000 January 01, 2025
125 Reference Circular SEBI/HO/MIRSD/MIRSD-PoD-1/P/CIR/2024/96 dated July 04, 2024
229
2,001 to 50,000 April 01, 2025
upto 2,000 April 01, 2026
* -as on last day of the preceding month of the date of issuance of the circular
SEBI/HO/MIRSD/MIRSD-PoD-1/P/CIR/2024/96 dated July 04, 2024.
98.3. In case of Qualified Stock Brokers (QSBs), considering that enhanced
obligations and responsibilities such as governance structure and
processes and surveillance of client behaviour are already being followed
by them, the effective date for implementation of the circular for QSBs
(irrespective of number of UCCs) is August 01, 2024.
230
X. REPORTING REQUIREMENTS
Para No. of the
S No. Master circular Reporting requirement
Reporting to Stock Exchanges
The member shall carry out complete internal audit on a
half yearly basis and shall forward the report along with
para-wise comments to the respective Stock Exchange/
Clearing Corporation within two months from the end of the
1. 13.2 half year period.
The stock brokers shall inform the Stock Exchanges of
existing and new bank account(s) in the format specified at
2. 15.4.1 Table 2.
The stock brokers shall inform the Stock Exchanges of
existing and new demat account(s) in the format specified
3. 15.4.2 at Table 3.
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
4. 15.6.5.1 conducted.
Stock Brokers shall submit financial statements to Stock
Exchanges in the same format as prescribed under the
Companies Act, 2013 irrespective of whether they fall
under the purview of the 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 the Companies Act, 2013 for submission
5. 15.7.2 to Registrar of Companies.
The Stock Brokers shall upload the data (specified at para
15.9.1) on a monthly basis for every client onto each Stock
6. 15.9.1 Exchange system where the broker is a member
The brokers shall be required to furnish the particulars
(mentioned at para 20.1 and 20.2.1) 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 seven
7. 20.2.2 working days of the following month.
Stock Brokers shall upload the details of clients, such as,
name, mobile number, address for correspondence and E-
8. 34.2.2 mail address to Stock Exchanges
The stock brokers shall submit to the Stock Exchange a
half-yearly certificate, as on 31st March and 30th
9. 39.4.3 September of each year, from an auditor confirming the net
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worth. Such a certificate shall be submitted not later than
30th April and 31st October of every year.
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' 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
10. 39.7.1 broker to the stock exchange is enclosed at Annexure-15.
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
11. 39.9.3 compliance with the conditions of margin trading facility.
On a daily basis,
 TM shall report disaggregated information on collaterals
up to the level of its clients to the CM.
 CM shall report disaggregated information on
collaterals up to the level of clients of TM and
proprietary collaterals of the TMs to the Stock
12. 43.2 Exchanges (SEs) and CCs in respect of each segment.
The stock brokers / trading members that provide the
facility of algorithmic trading shall subject their algorithmic
trading system to a system audit every six months in order
to ensure that the requirements prescribed by SEBI / stock
exchanges with regard to algorithmic trading are effectively
implemented.
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
13. 59.5 & 59.6 exchange immediately on completion of the system audit.
All registered Stock Brokers using AI / ML based
application or system as defined in Annexure 27, are
required to fill in the form (Annexure 26) and make
submissions on quarterly basis within fifteen calendar days
14. 63.4 of the expiry of the quarter.
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Stock Brokers shall disclose on their respective websites,
the data on complaints received against them or against
issues dealt by them and redressal thereof, latest by
seventh of succeeding month, as per the format enclosed
15. 78.3 at Annexure-38.
The URL to the website of a stock broker shall be reported
to the stock exchanges. Any modification in the URL shall
be reported to stock exchanges within 3 days of such
16. 93.3 changes.
Reporting to clients
Once the TM settles the running account of funds of a
client, an intimation shall be sent to the client by SMS on
mobile number and also by email. The intimation should
also include details about the transfer of funds (in case of
electronic transfer – transaction number and date; in case
of physical payment instruments – instrument number and
date). TM shall send the retention statement along with the
15.10.1.7, statement of running accounts to the clients as per the
17. 23.1.1(f) & 48.8 existing provisions within five working days.
As on 31st March of every year, a statement of balance of
Funds and Securities in hard form and signed by the broker
18. 23.9 shall be sent to all the clients.
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 web-
site in a secured way and enable relevant access to the
19. 52.3.7.a clients.
Contract notes must be issued to clients as per existing
regulations, within twenty-four hours of the trade
20. 53.2.2.e.i execution.
For information of all investors who deal/ invest/ transact in
the market, the offices of all stock brokers (and its
authorized person(s)) shall prominently display basic
information, as provided in Annexure-36, about the
21. 77.1 grievance redressal mechanism available to investors.
Stock Brokers shall bring the Investor Charter to the notice
of their clients (existing as well as new clients) through
disclosing the Investor Charter on their respective
websites, making them available at prominent places in the
office, provide a copy of Investor Charter as a part of
account opening kit to the clients, through e-mails/ letters
22. 78.2 etc.
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Technology related reporting requirements
The system audit report submitted by the auditor should be
forwarded to the Stock Exchange by the Stock Broker
16-Table – 8 along with management comments, within one month of
23. (1.5) submission of report by the auditor.
QSBs shall arrange to have their systems audited on half-
yearly basis by a CERT-IN empanelled auditor to check
compliance with the above mentioned requirements
related to cyber security and other circulars of SEBI on
cybersecurity and technical glitches, to the extent they are
relevant to them and shall submit the report to stock
exchanges along with the comments of the cybersecurity
24. 19.5.5.14 committee within one month of completion of the half year.
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
25. 57.4.7 submitted to the exchange.
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
26. 58.2.13 regard shall be submitted to the exchange.
The Stock Brokers are mandated to conduct
comprehensive cyber audit at least once in a financial year.
All Stock Brokers shall submit with Stock Exchange a
declaration from the MD/ CEO/ Partners/ Proprietors
certifying compliance by the Stock Brokers with all SEBI
Circulars and advisories related to Cyber security from time
27. 62.2 to time, along with the Cyber audit report.
Stock Brokers shall conduct VAPT at least once in a
financial year. All Stock Brokers are required to engage
only CERT-In empaneled organizations for conducting
VAPT. The final report on said VAPT shall be submitted to
the Stock Exchanges after approval from Technology
Committee of respective Stock Brokers, within 1 month of
28. 62.44 completion of VAPT activity.
All Cyber-attacks, threats, cyber-incidents and breaches
experienced by Stock Brokers shall be reported to Stock
Exchanges & SEBI within six hours of noticing / detecting
such incidents or being brought to notice about such
incidents. This information shall be shared to SEBI through
29. 62.54 the dedicated e-mail id: sbdp-cyberincidents@sebi.gov.in.
The incident shall also be reported to Indian Computer
30. 62.55 Emergency Response team (CERT-In) in accordance with
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the guidelines / directions issued by CERT-In from time to
time. Additionally, the Stock Brokers, whose systems have
been identified as “Protected system” by National Critical
Information Infrastructure Protection Centre (NCIIPC) shall
also report the incident to NCIIPC.
The quarterly reports containing information on cyber-
attacks, threats, cyber-incidents and breaches
experienced by Stock Brokers and measures taken to
mitigate vulnerabilities, threats and attacks including
information on bugs / vulnerabilities, threats that may be
useful for other Stock Brokers / Exchanges and SEBI, shall
be submitted to Stock Exchanges within 15 days from the
quarter ended June, September, December and March of
every year (Format for Submitting the reports is attached
in below Annexure 25).
The Type I Stock Brokers shall arrange to have their
systems audited on an annual basis by a CERT-IN
empanelled auditor, an independent DISA (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), to check compliance with the
above areas and shall submit the report to Stock
Exchanges along with the comments of the Board /
Partners / Proprietor of Stock Broker within three months
31. 62.62 of the end of the financial year.
The compliance of the advisory shall be reported in the half
yearly report by stock brokers to stock exchanges with an
undertaking, “Compliance of the SEBI circular for Advisory
for Financial Sector Organizations regarding Software as a
32. 64.4 Service (SaaS) based solutions has been made.”
Stock brokers shall inform about the technical glitch to the
stock exchanges immediately but not later than one hour
33. 65.3.1 from the time of occurrence of the glitch.
Stock brokers shall submit a Preliminary Incident Report to
the Exchange within T+1 day of the incident (T being the
date of the incident). The report shall include the date and
time of the incident, the details of the incident, effect of the
incident and the immediate action taken to rectify the
34. 65.3.2 problem.
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Stock brokers shall submit a Root Cause Analysis (RCA)
Report (as per Annexure 30) of the technical glitch to stock
exchange, within fourteen days from the date of the
35. 65.3.3 incident.
Stock brokers shall submit information stated in para
63.3.1, 63.3.2 and 63.3.3 above, by e-mail at
infotechglitch@nse.co.in, a common email address for
36. 65.3.5 reporting across all stock exchanges.
The compliance of the advisory shall be provided by the
REs along with their cybersecurity audit report (conducted
as per the applicable SEBI Cybersecurity and Cyber
Resilience framework). The compliance shall be submitted
as per the existing reporting mechanism and frequency of
37. 66.5 the respective cybersecurity audit.
Reporting requirements for QSBs
QSBs shall submit an annual report to the stock exchanges
regarding the observations of the committees of BOD or
analogous body, corrective action taken by the QSB and
38. 19.5.1.3 measures taken to prevent recurrence of such incidents.
The risk management framework shall have measures for
carrying out surveillance of client behaviour through
analyzing the pattern of trading done by clients, detection
of any unusual activity being done by such clients,
39. 19.5.2.3 reporting the same to stock exchanges.
The risk management policy shall be reviewed on half
yearly basis by the QSB and a report in this regard shall be
submitted by the risk management committee of the QSB
40. 19.5.2.8 to the stock exchange.
QSBs shall arrange to have their systems audited on half-
yearly basis by a CERT-IN empanelled auditor to check
compliance with the above mentioned requirements
related to cyber security and other circulars of SEBI on
cybersecurity and technical glitches, to the extent they are
relevant to them and shall submit the report to stock
exchanges along with the comments of the cybersecurity
41. 19.5.5.14 committee within one month of completion of the half year.
Other reporting requirements
Reporting to Financial Intelligence Unit (FIU) - The stock
brokers 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
42. 86.6.1 parties.
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Annexures
Annexure-1
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 proprietor Educational Age (on the date of Experience (specify
Qualification filing of the nature and
application) 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
Regd. No.
Corporate Body (Financial Institution /Others)
237
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 nature directors in
designation and years) other
(whether whole corporate
time/designated/ bodies
additional engaged in
capital
markets
(please give
names and
SEBI Regd.
No.)
Details of top five shareholders
Name of Percentage of Educational Experience Whether
shareholders Share Qualification (specify shareholders in
holding nature and other corporate
years) bodies engaged
in capital
markets (please
give names and
SEBI Regd. No.)
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
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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.
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 with interest
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.
239
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 as prescribed in SEBI (Stock Brokers) Regulations, 1992 (Rs
in Lakhs) (Certificate from a qualified CA certifying the above should be enclosed)
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/- payable by the applicant by way of direct credit in the
bank account through online payment using SEBI payment gateway.126
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
brokerof 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 scrutinized as per record made available to the Stock
Exchange.
SIGNATURE:
NAME:
126 Amended by the SEBI (Payment of Fees and Mode of Payment) (Amendment) (Regulations) 2021 w.e.f. 05-
05-2021
240
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 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)
Regulations, 1992.
Signature:
Name:
Designation:
List of Enclosures along with 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)
241
Annexure-2127
The common irregularities observed in the Stock Brokers/trading members books
are brought 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.
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 twenty-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.
127 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.
242
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
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.
V Relating to terminals
25. Not putting the unique client code (UCC) of clients while placing orders
in the trading system.
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26. The broker granting the trading terminals at places other than that
specified by SEBI e.g. registered office, branch office.
27. Terminals operated by personnel without having proper qualification/
persons operating the terminal are not employees/remisiers.
VI Others
28. Non-maintenance or improper maintenance of Books of Accounts
which are required to be maintained as per Rule 15 of SCRA Rules
1957 and Regulation 17 of Stock Brokers Regulations 1992.
29. Non-compliance with provisions relating to spot/negotiated deals.
30. 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.
31. Non submission of audit report/internal audit reports within the
prescribed time limit.
32. Involved in business other than the securities business in violation of
applicable laws.
33. Non-payment/ inadequate payment of SEBI registration fees by the
stock brokers.
34. Not complying with the provisions of advertisements/internet based
trading
35. Non appointment of compliance officer.
36. Non- compliance with trading restrictions imposed by Stock
Exchanges
37. Trading in unlisted securities and in securities prior to their admission
to dealings by Exchanges
38. 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.
39. 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.
40. Delivery vs payment (DvP) trades are done in other than those
circumstances as prescribed.
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Annexure-3
1. Terms of Reference (ToR) for Type I Broker
The system auditor shall at the minimum cover the following areas:
1.1. System controls and capabilities
1.1.1. 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.
1.1.2. 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.
1.1.3. 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.
1.1.4. 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.
1.1.5. 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.
1.2. Risk Management System (RMS)
1.2.1. 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.
1.2.2. 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.
1.2.3. 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
245
delivery obligations.
1.2.4. Order Review –Whether the system has capability to facilitate review of
such orders were not validated by the system.
1.2.5. 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.
1.2.6. 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.
1.3. Password Security
1.3.1. 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.
1.3.2. 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
Key Infrastructure (PKI) based implementation of digital signatures.
1.3.3. 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.
1.4. Session Management
1.4.1. 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.
1.4.2. 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.
1.4.3. Inactive Session – Whether the system allows for automatic trading
session logout after a system defined period of inactivity.
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1.4.4. Log Management – Whether the system generates and maintain logs of
Number of users, activity logs, system logs, Number of active clients.
1.5. Network Integrity
1.5.1. Seamless connectivity – Whether stock broker has ensured that a
backup network link is available in case of primary link failure with the
exchange.
1.5.2. Network Architecture – Whether the web server is separate from the
Application and Database Server.
1.5.3. 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.
1.6. Access Controls
1.6.1. Access to server rooms – Whether adequate controls are in place for
access to server rooms and proper audit trails are maintained for the same.
1.6.2. 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
1.7. Backup and Recovery
1.7.1. Backup and Recovery Policy – Whether the organization has a well
documented policy on periodic backup of data generated from the broking
operations.
1.7.2. Log generation and data consistency - Whether backup logs are
maintained and backup data is tested for consistency.
1.7.3. System Redundancy – Whether there are appropriate backups in case of
failures of any critical system components.
1.8. BCP/DR (Only applicable for Stock Brokers having BCP / DR site)
1.8.1. 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.
1.8.2. 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
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channel is capable of authenticating the user after asking for additional
details or OTP (One-Time-Password).
1.8.3. 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.
1.8.4. Connectivity with other FMIs – The system auditor should check whether
there is an alternative medium to communicate with Stock Exchanges and
other FMIs.
1.9. 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.
1.10. Back office data
1.10.1. 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.
1.10.2. 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.
1.11. 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))
1.11.1. 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.
1.11.2. 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.
1.11.3. 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
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broking firm.
1.11.4. 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.
1.12. 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.
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Annexure-4
2. ToR for Type II Broker
The system auditor shall at the minimum cover the following areas:
2.1. System controls and capabilities (CTCL / IML terminals and servers)
2.1.1. 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.
2.1.2. 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.
2.1.3. 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.
2.1.4. 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.
2.1.5. 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.
2.1.6. Order type distinguishing capability – Whether system has
capability to distinguish the orders originating from (CTCL or IML) /
IBT/ DMA / STWT.
2.2. Software Change Management - The system auditor should check whether
proper procedures have been followed and proper documentation has been
maintained for the following:
2.2.1. Processing / approval methodology of new feature request or patches.
2.2.2. Fault reporting / tracking mechanism and process for resolution.
2.2.3. Testing of new releases / patches / modified software / bug fixes.
2.2.4. Version control- History, Change Management process, approval etc.
2.2.5. Development / Test / Production environment segregation.
2.2.6. New release in production – promotion, release note approvals.
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2.2.7. Production issues / disruptions reported during last year, reasons for
such disruptions and corrective actions taken.
2.2.8. 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.
2.3. Risk Management System (RMS)
2.3.1. 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.
2.3.2. 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.
2.3.3. 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.
2.3.4. Order Review – Whether the system has capability to facilitate review
of such orders that were not validated by the system.
2.3.5. 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.
2.3.6. 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.
2.4. Smart order routing (SOR) - The system auditor should check whether
proper procedures have been followed and proper documentation has been
maintained for the following:
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2.4.1. Best Execution Policy – System adheres to the Best Execution
Policy while routing the orders to the exchange.
2.4.2. Destination Neutral – The system routes orders to the recognized
Stock Exchanges in a neutral manner.
2.4.3. Class Neutral – The system provides for SOR for all classes of
investors.
2.4.4. Confidentiality - The system does not release orders to venues other
than the recognized Stock Exchange.
2.4.5. 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.
2.4.6. 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.
2.4.7. Audit Trail - Audit trail for SOR should capture order details, trades
and data points used as a basis for routing decision.
2.4.8. Server Location – The system auditor should check whether the
order routing server is located in India.
2.4.9. Alternate Mode - The system auditor should check whether an
alternative mode of trading is available in case of failure of SOR
Facility.
2.5. Password Security
2.5.1. 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.
2.5.2. 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.
2.5.3. 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.
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2.6. Session Management
2.6.1. 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.
2.6.2. 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.
2.6.3. Inactive Session – Whether the system allows for automatic trading
session logout after a system defined period of inactivity.
2.6.4. Log Management – Whether the system generates and maintains
logs of Number of users, activity logs, system logs, Number of active
clients.
2.7. Database Security
2.7.1. Access – Whether the system allows CTCL or IML database access
only to authorized users / applications.
2.7.2. 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.
2.8. Network Integrity
2.8.1. Seamless connectivity – Whether the stock broker has ensured that
a backup network link is available in case of primary link failure with
the exchange.
2.8.2. Network Architecture – Whether the web server is separate from the
Application and Database Server.
2.8.3. 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.
2.9. Access Controls
2.9.1. Access to server rooms – Whether adequate controls are in place
for access to server rooms and proper audit trails are maintained for
the same.
2.9.2. Additional Access controls – Whether the system provides for two
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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.
2.10. Backup and Recovery
2.10.1. Backup and Recovery Policy – Whether the organization has a
well-documented policy on periodic backup of data generated from
the broking operations.
2.10.2. Log generation and data consistency - Whether backup logs are
maintained and backup data is tested for consistency.
2.10.3. System Redundancy – Whether there are appropriate backups in
case of failures of any critical system components.
2.11. BCP/DR (Only applicable for Stock Brokers having BCP / DR site)
2.11.1. 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.
2.11.2. 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).
2.11.3. 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.
2.11.4. Connectivity with other FMIs – The system auditor should check
whether there is an alternative medium to communicate with Stock
Exchanges and other FMIs.
2.12. 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.
2.13. Back office data
2.13.1. 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.
2.13.2. Trail Logs – The system auditor should specifically comment on the
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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.
2.14. User Management
2.14.1. 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.
2.14.2. 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.
2.14.3. User Creation / Deletion – The system auditor should check
whether new user’s ids were created / deleted as per CTCL or IML
guidelines of the exchanges and whether the user ids are unique in
nature.
2.14.4. 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.
2.15. 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))
2.15.1. 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.
2.15.2. 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.
2.15.3. 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.
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2.15.4. 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.
2.16. 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.
2.17. 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:
2.17.1. Test Procedure Review – The system auditor should evaluate
whether the procedures for system and software testing were proper
and adequate.
2.17.2. 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.
2.17.3. 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.
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Annexure-5
3. ToR for Type III Broker
The system auditor shall at the minimum cover the following areas:
3.1. System controls and capabilities (CTCL/IML Terminals and servers)
3.1.1. 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
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 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.
3.1.4. 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.
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.
3.1.6. Order type distinguishing capability – Whether the system has
capability to distinguish the orders originating from (CTCL or IML) / IBT
/ DMA / STWT / SOR / Algorithmic Trading.
3.2. Software Change Management - The system auditor should check whether
proper procedures have been followed and proper documentation has been
maintained for the following:
3.2.1. Processing / approval methodology of new feature request or patches.
3.2.2. Fault reporting / tracking mechanism and process for resolution.
3.2.3. Testing of new releases / patches / modified software / bug fixes.
3.2.4. Version control- History, Change Management process, approval etc.
3.2.5. Development / Test / Production environment segregation.
3.2.6. New release in production – promotion, release note approvals.
257
3.2.7. Production issues / disruptions reported during last year, reasons for
such disruptions and corrective actions taken.
3.2.8. 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.
3.3. Risk Management System (RMS)
3.3.1. 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 through (CTCL or
IML) / IBT/ DMA / SOR / STWT / Algorithmic Trading.
3.3.2. 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.
3.3.3. 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.
3.3.4. Order Review – Whether the system has capability to facilitate review
of such orders that were not validated by the system.
3.3.5. 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.
3.3.6. 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.
3.4. Smart order routing (SOR) - The system auditor should check whether
proper procedures have been followed and proper documentation has been
maintained for the following:
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3.4.1. Best Execution Policy – System adheres to the Best Execution
Policy while routing the orders to the exchange.
3.4.2. Destination Neutral – The system routes orders to the recognized
Stock Exchanges in a neutral manner.
3.4.3. Class Neutral – The system provides for SOR for all classes of
investors.
3.4.4. Confidentiality - The system does not release orders to venues other
than the recognized Stock Exchange.
3.4.5. 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.
3.4.6. 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.
3.4.7. Audit Trail - Audit trail for SOR should capture order details, trades
and data points used as a basis for routing decision.
3.4.8. Server Location – The system auditor should check whether the
order routing server is located in India.
3.4.9. Alternate Mode - The system auditor should check whether an
alternative mode of trading is available in case of failure of SOR
Facility.
3.5. Algorithmic Trading - The system auditor should check whether proper
procedures have been followed and proper documentation has been
maintained for the following:
3.5.1. 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.
3.5.2. 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.
3.5.3. 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.
3.5.4. Information / Data Feed – The auditor should comment on the
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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.
3.5.5. 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.
3.5.6. 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.
3.5.7. 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 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.
3.5.8. 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.
3.5.9. 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.
3.6. Password Security
3.6.1. 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.
260
3.6.2. 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.
3.6.3. 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.
3.7. Session Management
3.7.1. 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.
3.7.2. 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.
3.7.3. Inactive Session – Whether the system allows for automatic trading
session logout after a system defined period of inactivity.
3.7.4. Log Management – Whether the system generates and maintains
logs of number of users, activity logs, system logs, number of active
clients.
3.8. Database Security
3.8.1. Access – Whether the system allows CTCL or IML database access
only to authorized users / applications.
3.8.2. 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.
3.9. Network Integrity
3.9.1. Seamless connectivity – Whether the stock broker has ensured that
a backup network link is available in case of primary link failure with
the exchange.
3.9.2. Network Architecture – Whether the web server is separate from the
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Application and Database Server.
3.9.3. 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.
3.10. Access Controls
3.10.1. Access to server rooms – Whether adequate controls are in place
for access to server rooms, proper audit trails should be maintained
for the same.
3.10.2. 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.
3.11. Backup and Recovery
3.11.1. Backup and Recovery Policy – Whether the organization has a well
documented policy on periodic backup of data generated from the
broking operations.
3.11.2. Log generation and data consistency – Whether backup logs are
maintained and backup data should be tested for consistency.
3.11.3. System Redundancy – Whether there are appropriate backups in
case of failures of any critical system components
3.12. BCP/DR (Only applicable for Stock Brokers having BCP / DR site)
3.12.1. 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.
3.12.2. 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).
3.12.3. 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.
3.12.4. Connectivity with other FMIs – The system auditor should check
whether there is an alternative medium to communicate with Stock
Exchanges and other FMIs.
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3.13. 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.
3.14. Back office data
3.14.1. 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.
3.14.2. 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.
3.15. User Management
3.15.1. 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.
3.15.2. 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.
3.15.3. 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.
3.15.4. 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.
3.16. 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))
3.16.1. 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.
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3.16.2. 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.
3.16.3. 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.
3.16.4. 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.
3.17. 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.
3.18. 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:
3.18.1. 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.
3.18.2. 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.
3.18.3. Test Cases – The system auditor should review the test cases
and comment upon the adequacy of the same with respect to the
requirements of the Stock Exchange and various SEBI Circulars.
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Annexure-6
Executive Summary Reporting Format
For Preliminary Audit
Audit Obs Desc Depar Stat Risk Audit Audi Root Impac Sugg Deadlin Ve Clo
Date erva riptio tment us / Ratin TOR ted caus t ested e for the rifi sing
tion n of Nat gs of Claus by e Analy Corre Correcti ed dat
Findi ure Findi e Anal sis ctive ve By e
ng of ngs ysis action Action
Find
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.
For Follow on / Follow up System Audit
Preli S. Prelimi Prelim Prelim Curren Curren Revise Deadlin Verifi Closin
mina No. nary inary inary t t d e for the ed g date
265
ry Observ Status Corre Findin Status Correc Revise By
Audit ation ctive g tive d
Date Number Action Action Correcti
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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Annexure-7
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
B. aDboocuutm theen tc ocanpsttiutureesn tt haen da adnd iitniosntraulc itniofonr/cmhaetciokn
aboliustt. the
constituent relevant to trading account
2 Doacunmd ent statinagn t hines Rtriugchttios n&/c Ohebclikg alitsiot.n s of stock
broker/trading memberand client for trading on
Rights and Obligations
exchanges (including additional rights &
obligations in case of internet/wireless technology
3 Risk Disclosure bDaosceudm terandt idnegt)a. iling risks associated with dealing in
Document the
4 (GRuDidDa)n ce note sDeoccuurmitieens tm daertkaeilitn. g do’s and don’ts for trading on
exchange,
5 Policies and Procedures fDoor cthuem eednut cdaetsiocnri boifn tgh es iignnviefisctaonrst .p olicies and
procedures of
6 Tariff sheet tDhoec sutmocekn tb rdoektearil i(ntog bthee a rdadteed/a mbyo tuhnet sotfo cbkro bkreorkaegre).
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 Demat Debit and Pledge Document seeking authorization by client to the
Instruction’ (DDPI) stock broker, to access the demat account of the
client for specified purposes only.
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: -----------------------------------------------
-----------------------------------------------------------
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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.
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Annexure-8
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. Please strike off the segment not chosen by you.
Exchanges NSE, BSE & MSEI MCX, NCDEX, BSE
& NSE
All Cash / F&O Currency Debt Commodity
Segments Mutual Fund Derivatives
If you do not wish to trade in any of segments / Mutual Fund, please mention here
____________________.
D. OTHER DETAILS (For Individuals)
1. Gross Annual Income Details (please specify): Income Range per annum: Below Rs 1 Lac / 1-5 Lac /5-10 Lac /
10-25 Lac / >25 Lacs or
Net-worth as on (date)…………………. (------------------------------) (Net worth should not be older than 1 year)
2. Occupation (please tick any one and give brief details): Private Sector/ Public Sector/ Government
Service/Business/ Professional/ Agriculturist/ Retired/ Housewife/ Student/ Others
3. Please tick, if applicable: Politically Exposed Person (PEP)/ Related to a Politically Exposed Person (PEP)
4. Any other information:
E. OTHER DETAILS (For Non-Individuals)
1. Gross Annual Income Details (please specify): Income Range per annum: Below Rs 1 Lac / 1-5 Lac /5-10 Lac / 10-
25 Lac / 25 Lacs-1 crore / > 1 crore
2. Net-worth as on (date) ………….….…. (dd/mm/yyyy): (Net worth should not be older than 1 year)
3. Name, PAN, residential address and photographs of Promoters/Partners/Karta/Trustees and whole time
directors:
4. DIN/UID of Promoters/Partners/Karta and whole time directors:
5. Please tick, if applicable, for any of your authorized signatories/Promoters/Partners/Karta/Trustees/whole
time directors: Politically Exposed Person (PEP)/ Related to a Politically Exposed Person (PEP)
6. Any other information:
F. PAST ACTIONS
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 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: ……………………………………………………………………………………………
G. DEALINGS THROUGH OTHER STOCK BROKERS
 Whether dealing with any other stock broker (if case dealing with multiple stock brokers, provide details of all)
Name of stock broker:……………………………………………:…………………………..…..
Client Code: …………………………….Exchange:…………………………………………….……………………………
Details of disputes/dues pending from/to such stock broker: ……………………….………………….…………………
H. 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: ……………………………………………………………………………………………………..
I. INTRODUCER DETAILS (optional)
Name of the Introducer: ……………………………………………………………………………………………………………
(Surname) (Name) (Middle Name)
Status of the Introducer: Remisier/Authorized Person/Existing Client/Others, please specify……………………
Address and phone no. of the Introducer: ……………………………. Signature of the Introducer: …………………………
J. 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.
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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
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:
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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.
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Annexure-9
RIGHTS AND OBLIGATIONS OF STOCK 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, 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.
CLIENT INFORMATION
6. 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.
7. 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.
8. 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.
9. The stock 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
10. 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.
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11. 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
12. 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.
13. 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.
14. 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.
15. 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).
16. 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
17. 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
18. 1Without 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.
19. 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
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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.
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
20. The stock broker shall provide the client with the relevant contact details of the concerned
Exchanges and SEBI.
21. 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.
22. The client and the stock broker shall refer any claims and/or disputes with respect to deposits,
margin money, etc., to conciliation/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.
23. The stock broker shall ensure faster settlement of any dispute through conciliation/arbitration
proceedings arising out of the transactions entered into between him vis-à-vis the client and he shall
be liable to implement the conciliation report/settlement agreement /arbitration awards made in such
proceedings.
24. 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
25. 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.
26. The stock 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.
ADDITIONAL RIGHTS AND OBLIGATIONS
27. 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.
28. The stock broker and client shall reconcile and settle their accounts from time to time as per the
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Rules, Regulations, Bye Laws, Circulars, Notices and Guidelines issued by SEBI and the relevant
Exchanges where the trade is executed.
29. 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.
30. 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.
31. 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.
32. 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.
33. 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.
34. The stock broker / stock broker and depository participant shall not directly /indirectly compel the
clients to execute Power of Attorney (PoA) or Demat Debit and Pledge Instruction (DDPI) or deny
services to the client if the client refuses to execute PoA or DDPI.
ELECTRONIC CONTRACT NOTES (ECN)
35. 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.
36. 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.
37. 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.
1. 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
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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.
2. 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 either a physical contract note to the client or an ECN through electronic
instant messaging services within the stipulated time under the extant regulations of SEBI/stock
exchanges and maintain the proof of delivery of such physical contract notes.
3. 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
4. In addition to the specific rights set out in this document, the stock 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.
5. 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.
6. The stock broker and the client shall abide by conciliation report/settlement agreement/arbitration
award passed by the conciliator/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.
7. 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.
8. 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.
38. 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.)
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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.
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Annexure-10
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:
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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.
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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":
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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.
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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.
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Annexure-11
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
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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 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.
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Annexure-12
Nomination Form
TM / DP Name and FORM FOR NOMINATION
Address
(To be filled in by individual applying singly or jointly)
Date
D D M M Y
Y Y
Y
UCC/ DP ID
I N
Client ID
I/We wish to make a nomination. [As per details given below]
Nomination Details
I/We wish to make a nomination and do hereby nominate the following person(s) who shall receive all the assets held in my / our account in the event of
my / our death.
Details of 1st Nominee Details of 2nd Nominee Details of 3rd Nominee
Nomination can be made upto three
nominees in the account.
1 Name of the nominee(s) (Mr./Ms.)
2 Share of % % %
each Equally
Nominee [If not equally,
please specify
percentage] Any odd lot after division shall be transferred to the first nominee mentioned in the form.
3
Relationship With the Applicant (
If Any)
4
Address of Nominee(s)
City / Place:
State & Country:
PIN Code
5
Mobile / Telephone No. of
nominee(s) #
6 Email ID of nominee(s) #
7 Nominee Identification details #
[Please tick any one of following
and provide details of same]
󠄀 Photograph & Signature 󠄀 PAN
󠄀 Aadhaar 󠄀 Saving Bank account
no. 󠄀 Proof of Identity 󠄀
Demat Account ID
Sr. Nos. 8-14 should be filled only if nominee(s) is a minor:
8
Date of Birth {in case of minor
nominee(s)}
9
Name of Guardian (Mr./Ms.) {in
case of minor nominee(s) }
10
Address of Guardian(s)
286
City / Place:
State & Country:
PIN Code
11
Mobile / Telephone no. of
Guardian #
12 Email ID of Guardian #
13
Relationship of Guardian with
nominee
14 Guardian Identification details#
[Please tick any one of following
and provide details of same]
󠄀 Photograph & Signature
󠄀 PAN 󠄀 Aadhaar Saving Bank
account no. 󠄀 Proof of Identity
󠄀 Demat Account ID
Name(s) of holl der(s) Signature(s) of holder*
Sole / First Holder (Mr./Ms.)
Second Holder (Mr./Ms.)
Third Holder (Mr./Ms.)
* Signature of witness, along with name and address are required, if the account holder affixes thumb impression, instead of
signature
# Optional Fields (Information required at Serial nos. 5, 6, 7, 11, 12 & 14 is not mandatory)
Note:
This nomination shall supersede any prior nomination made by the account holder(s), if any.
The Trading Member / Depository Participant shall provide acknowledgement of the nomination form to the account holder(s)
Name and Signature of Holder(s)*
1.___________________________________2.__________________________________________3___________________________________
* Signature of witness, along with name and address are required, if the account holder affixes thumb impression, instead of
signature
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Annexure-13
Declaration Form for opting out of nomination
To Date D D M M Y Y Y Y
Trading Member/Participant’s Name
Trading Member/Participant’s Address
UCC/DP ID I N
Client ID (only for Demat account)
Sole/First Holder Name
Second Holder Name
Third Holder Name
I / We hereby confirm that I / We do not wish to appoint any nominee(s) in my / our trading / demat
account and understand the issues involved in non-appointment of nominee(s) and further are
aware that in case of death of all the account holder(s), my / our legal heirs would need to submit all
the requisite documents / information for claiming of assets held in my / our trading / demat
account, which may also include documents issued by Court or other such competent authority,
based on the value of assets held in the trading / demat account.
Name and Signature of Holder(s)*
1.___________________________________2.__________________________________________3___________________________________
* Signature of witness, along with name and address are required, if the account holder affixes thumb impression, instead of
signature
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Annexure-14
Demat Debit and Pledge Instruction
S.No. Purpose Signature of Client *
1. Transfer of securities held in the beneficial
owner accounts of the client towards Stock
Exchange related deliveries / settlement
obligations arising out of trades executed by
clients on the Stock Exchange through the
same stock broker
2. Pledging / re-pledging of securities in favour
of trading member (TM) / clearing member
(CM) for the purpose of meeting margin
requirements of the clients in connection with
the trades executed by the clients on the
Stock Exchange.
3. Mutual Fund transactions being executed on
Stock Exchange order entry platforms
4. Tendering shares in open offers through
Stock Exchange platforms
* the same may be signed physically against each purpose of DDPI. The same may
also be eSigned. In case of eSign, client shall be given an option for choosing the
specific purpose(s) of DDPI.
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Annexure-15
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.
Nam Category of PA Name of Stock Quantity Amount
e of Holding N Stock or Exchang Finance Finance
Clien (Promoter/Promot Equity e d d
t er Group or Non ETF (Number (INR in
Promoter (Collatera of lakhs)
l or shares
Funded or Units
Stock) of Equity
ETFs)
S. Particulars (INR in Lakhs)
No.
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.
290
Annexure-16 : Allocation of collateral
Illustration 1: Consider a self-clearing member (SCM) who has received the
following cash collateral from its clients:
Client Cash Received (Rs)
Client-1 2 crore
Client-2 3 crore
Client-3 1 crore
Client-4 1 crore
Total 7 crore
The member places Rs 6 crore with the CC – Rs 4 crore out of client funds and Rs
2 crore out of proprietary funds. Rs 3 crore worth of client collateral is maintained
in the specified client bank account of the member. Few illustrations of allocations
and whether permitted or not are provided below:
Sl Allocation Comments
.
Prop 2 Cr
Client-1 1 Cr Permitted, since total Rs 4 cr is allocated among
1 Client-2 1 Cr clients and allocations to individual clients do not
Client-3 1 Cr exceed the respective collateral provided by them.
Client-4 1 Cr
Prop 2 Cr Permitted, since total Rs 4 cr is allocated among
2 Client-1 2 Cr clients and allocations to individual clients do not
Client-2 2 Cr exceed the respective collateral provided by them.
Prop 2 Cr
Permitted, since total Rs 4 cr is allocated among
Client-2 3 Cr
3 clients and allocations to individual clients do not
Client-3 0.5 Cr
exceed the respective collateral provided by them.
Client-4 0.5 Cr
Prop 3 Cr Not permitted, client collateral allocated as
Client-1 2 Cr proprietary. Total collateral received from clients
4
Client-3 1 Cr does not equal amount with the member plus
amount allocated.
Prop 2 Cr
Not permitted, allocation to Client-3 is in excess
5 Client-2 2 Cr
from the collateral received from the client.
Client-3 2 Cr
Client-1 2 Cr Permitted, proprietary collateral can be allocated
Client-2 3 Cr as client collateral provided the allocated amount
6
Client-3 0.5 Cr does not exceed the actual collateral received from
Client-4 0.5 Cr the client.
Client-1 4 Cr Not permitted, although proprietary collateral can
7
Client-3 1 Cr be allocated as client collateral, such collateral
291
Client-4 1 Cr cannot exceed the actual collateral received from
the client
Illustration 2:
Suppose a SCM receives the following collateral from clients:
Client Collateral Type Value (Rs)
Client-1 Cash 1 crore
Client-2 Approved securities 2 crore
Client-2 Non-approved securities 2 crore
The member re-pledges the approved securities to the CC. The non-approved
securities cannot be provided to the CC. The member provides Rs 1 crore cash
collateral of Client1 and Rs 5 crore proprietary cash collateral to the CC. The
member may allocate the collateral as follows:
Client Value (Rs)
Client-1 1 crore
Proprietary 5 crore
Thus, only the collateral provided to the CC (excluding securities provided through
the margin pledge mechanism) shall be allocated. To clarify, Client-2 would still
get the benefit of eligible securities collateral re-pledged to CC, however the value
for the same shall be assigned by the CC to the account of Client-2, and therefore
no collateral allocation shall be done by the member. The non-approved securities
collateral would be retained by the member.
If the Client-2 wishes to trade in such a manner that the margin would exceed Rs
2 crore, the member may allocate the proprietary collateral to the client, as follows:
Client Value (Rs)
Client-1 1 crore
Client-2 2 crore
Proprietary 3 crore
292
Annexure-17: Monitoring of the minimum 50% cash-equivalent collateral
requirement
Consider the following example of collateral provided by various entities under a
CM.
Cash- Non-cash Excess Excess
Entity equivalent (B) cash-eq. noncash
(A) If(A>B,A-B,0) If(B>A,B-A,0)
CM Prop 100 40 60 0
TM-1 Prop 0 0 0 0
TM-1 Cli-1 200 250 0 50
TM-1 Cli-2 70 10 60 0
TM-1 Cli-3 70 100 0 30
TM-2 Prop 300 200 100 0
TM-2 Cli-4 70 90 0 20
TM-2 Cli-5 50 100 0 50
Considering TM-1, the excess cash-equivalent collateral of TM-1 Cli-2 cannot be
used to offset the excess non-cash collateral of TM-1 Cli-1 and TM-1 Cli-3.
Therefore, there will be excess non-cash collateral to the extent of 80 (50 for Cli-1
and 30 for Cli-3) under TM1.
Considering TM-2, the excess proprietary cash-equivalent collateral of TM-2 can
be used to offset the excess non-cash collateral of TM-2 Cli-4 and TM-2 Cli-5.
Therefore, there will be no excess noncash collateral under TM-2.
Summary of excess cash-equivalent and excess non-cash collateral under CM
prop, TM1 and TM-2 would be as under:
Entity Excess Cash-eq Excess noncash
CM Prop 60 -
TM-1 - 80
TM-2 30 -
The excess cash-equivalent collateral of TM-2 cannot be used to offset the excess
noncash collateral of TM-1. However, the excess cash-equivalent collateral of CM
Prop can be used to offset excess non-cash collateral of TM-1. Therefore, the
overall excess noncash collateral will be 20, for TM-1.
Entity Excess
noncash
TM-1 20
The benefit of this excess non-cash collateral (20) will not be available under TM-
1. The entities who will get benefit would be identified through a suitable
mechanism by the CCs. In this example, suppose the CC applies FIFO rule and it
is assumed that Cli-1 has pledged the non-cash collateral before Cli-3. Therefore,
the Cli-1 will receive benefit for its entire collateral (so the effective value of
collateral of Cli-1 will be 200+250=450). On the other hand, Cli-3 will not receive
293
benefit of non-cash collateral to the extent of 20 (so the effective value of collateral
of Cli-3 will be 70+80 = 150).
294
Annexure-18: Blocking of Margins
Suppose the total collateral (allocated collateral plus securities collateral placed
through margin pledge/ re-pledge to CC) available against various entities are as
given below.
Entity Collateral (Rs)
CMTM Prop 1000
TM-1 Prop 500
TM-1 Cli-1 300
TM-1 Cli-2 300
•Trade-1: TM-1 Cli-2 trades with margin requirement of Rs 100. Blocking of margin
shall be as follows:
Collateral Blocking
Entity
(Rs) (Rs)
CMTM Prop 1000 0
TM-1 Prop 500 0
TM-1 Cli-1 300 0
TM-1 Cli-2 300 100
•Trade-2: TM-1 Cli-1 trades with margin requirement of Rs 600. Blocking of margin
shall be as follows:
Entity Collateral Blocking
(Rs) (Rs)
CMTM Prop 1000 0
TM-1 Prop 500 300
TM-1 Cli-1 300 300
TM-1 Cli-2 300 100
•Trade-3: TM-1 Cli-2 trades with revised margin requirement for Cli-2 of Rs 600.
Blocking of margin shall be as follows:
Collateral Blocking
Entity
(Rs) (Rs)
CMTM Prop 1000 100
TM-1 Prop 500 500
TM-1 Cli-1 300 300
TM-1 Cli-2 300 300
•Trade-4: TM-1 Cli-2 trades with revised margin requirement for Cli-2 of Rs 900.
Blocking of margin shall be as follows:
295
Collateral Blocking
Entity
(Rs) (Rs)
CMTM Prop 1000 400
TM-1 Prop 500 500
TM-1 Cli-1 300 300
TM-1 Cli-2 300 300
In the above examples, the collateral of Rs 500 blocked from the TM1-Prop, and
the collateral of Rs 400 blocked from CMTM Prop, shall be deemed to be allocated
to TM-1 Cli-1 and TM-1 Cli-2. The deemed allocation would be as follows:
Margin Blocked from Deemed Deemed allocation
(Rs) client allocation from
Client
collateral (Rs) from TM-1 CMTM Prop to TM-1
Prop (Rs) Prop (Rs)
TM-1 Cli-1 600 300 300
400
TM-1 Cli-2 900 300 600
To clarify, the deemed allocation from CMTM Prop to TM-1 Prop is Rs 400,
therefore the total TM-1 Prop collateral (including deemed allocated) would be Rs
900 (Rs 500 + Rs 400). Out of this, the excess client margin would be considered
to be deemed allocated to the respective client.
296
Annexure-19: Monitoring of risk reduction mode
Suppose the total collateral (allocated collateral plus securities collateral placed
through margin pledge/ re-pledge to CC) available against various entities, along
with their margin obligations, are as given below.
Collateral Margin CliMrgn>90%
CM TM Client (Rs) (Rs) (Rs)
CM-1 - Prop 1200 800 -
CM-1 TM-1 Prop 500 400 -
CM-1 TM-1 Client-1 800 780 60
CM-1 TM-1 Client-2 500 450 0
CM-1 TM-1 Client-3 400 380 20
CM-1 TM-2 Prop 500 200 -
CM-1 TM-2 Client-4 1000 920 20
CM-1 TM-2 Client-5 1000 880 0
TM level monitoring
In the above table, “CliMrgn>90%”, or client margin in excess of 90%, has been
calculated as margin for the client less 90% of the client collateral. Risk reduction
mode monitoring for TM shall be based on assessment of [TM Prop Margin +
CliMrgn>90%] against the [TM Prop collateral]. Accordingly, margin utilization
percentage of TM1 and TM2 would be as under:
• Margin utilization percentage of TM1 = [400 + (60 + 0 + 20)] /500 = 96%
• Margin utilization percentage of TM2 = [200 + (20 + 0)] /500 = 44%
In other words, for TM1, margin of Rs 30 is in excess of 90% of its prop collateral,
while there is no excess margin for TM2 against its prop collateral. The same has
been tabulated below:
Total 90% of TM
CliMrgn>90% Prop prop
(Rs) Margin collateral TMMrgn>90%
TM (Rs) (Rs) (Rs)
TM-1 80 400 450 30
TM-2 20 200 450 0
CM level monitoring
In the above table, “TMMrgn>90%”, or TM Margin in excess of 90%, has been
calculated as [CliMrgn>90% + TM Prop margin] in excess of 90% of TM prop
collateral. Risk reduction mode monitoring for CM shall be based on assessment
of [CM Prop Margin + TMMrgn>90%] against the [CM Prop Collateral].
297
Accordingly, margin utilization percentage of CM1 would be as under:
• Margin utilization percentage of CM1 = [800 + (30 + 0)]/1200 = 69.1%
298
Annexure-20: Change of Allocation
Suppose a SCM has following collateral:
Entity Cash (Rs)
SCM Prop 200
Cli-1 200
Cli-2 200
Out of the total available cash of Rs 600, suppose the SCM has provided an FDR
of Rs 400 to the CC (with Rs 200 cash remaining with the member). Suppose, the
FDR provided to the CC is allocated by the SCM as follows. Here, the SCM has
chosen not to allocate any collateral to Cli-2 in the total collateral placed with the
CC:
Entity Collateral allocated (Rs)
SCM Prop 200
Cli-1 200
Suppose the margin requirement is as follows:
Entity Collateral (Rs) Margin blocked (Rs)
CM Prop 200 160
Cli-1 200 150
Change in allocation: Example 1
The member shall be permitted to change the allocation as follows (i.e. the
member chooses to consider the cash retained with it to be as Rs 50 belonging
to Cli-1 and Rs 150 belonging to Cli-2):
Entity Collateral (Rs)
CM Prop 200
Cli-1 150
Cli-2 50
Change in allocation: Example 2
The member shall not be permitted to change the allocation as follows (i.e. the
member chooses to consider the cash retained with it to be as Rs 100 belonging
to each client):
Entity Collateral (Rs)
CM Prop 200
Cli-1 100
Cli-2 100
This allocation shall not be permitted since Cli-1 has a margin requirement of Rs
150.
299
Annexure-21: Procedures to be followed in Stage-2 and Stage-3
Consider an example of a SCM defaulting in the derivatives segment. An
illustration of the cash settlement obligations of prop/clients and attribution of
shortage is provided below (the available collateral shown against different entities
comprises of both allocated collateral (including deemed allocated) and value of
demat securities collateral provided through margin pledge/re-pledge to the level
of CC):
Entity (Pay-in)/ Pay- Collateral Position Remaining
out (Rs) (Rs) closeout loss Collateral
(Rs) (Rs)
Prop (3 crore) 10 crore 4 crore 6 crore
Client-1 (3 crore) 10 crore 3 crore 7 crore
Client-2 (3 crore) 15 crore 4 crore 11 crore
Client-3 2 crore 15 crore 2 crore 13 crore
Client-4 2 crore 3 crore 1 crore 2 crore
Net Pay-in 5 crore
Shortfall 5 crore
Scenario 1: All pay-out clients establish not being in default
1.Suppose Client-3 and Client-4 establish within the pre-specified time period that
they are not in default, do not have debit balance/dues towards the member and
have not received the pay-out due.
2.The remaining collateral of Client-3 and Client-4 (Rs 13 crore and Rs 2 crore
respectively), along with the pay-out for the clients (Rs 2 crore each), shall be
provided to the clients.
3.The settlement shortfall would now be Rs 9 crore (Rs 5 crore shortfall in net
payin, plus Rs 4 crore of pay-out made to Client-3 and Client-4).
4.The settlement shortfall of Rs 9 crore shall be first adjusted with the SCM
proprietary pay-in obligation of Rs 3 crore. Excess remaining proprietary collateral
of SCM (Rs 3 crore) shall also be used towards the settlement shortfall.
5.Remaining settlement shortfall of Rs 3 crore shall be attributed pro-rata to clients
having pay-in, i.e., settlement shortfall of Rs 1.5 crore each shall be attributed to
Client-1 and Client-2 and appropriated from their collateral.
Scenario 2: One pay-out client establishes not being in default
1.Suppose Client-3 establishes within the pre-specified time period of not being in
default, not having debit balance/dues towards the member and not having
received the pay-out due.
300
2.The remaining collateral of Client-3 (Rs 13 crore), along with the pay-out (Rs 2
crore), shall be provided to the Client-3.
3.The settlement shortfall would now be Rs 7 crore (Rs 5 crore shortfall in net
payin, plus Rs 2 crore of pay-out made to Client-3).
4.The settlement shortfall of Rs 7 crore shall be first adjusted with the SCM
proprietary pay-in obligation of Rs 3 crore. Excess remaining proprietary collateral
of SCM (Rs 3 crore) shall also be used towards the settlement shortfall.
5.Remaining settlement shortfall of Rs 1 crore shall be attributed pro-rata to clients
having pay-in, i.e., settlement shortfall of Rs 0.5 crore each shall be attributed to
Client-1 and Client-2 and appropriated from their collateral.
Scenario 3: One pay-out client and one pay-in client establish not being in default
1.Suppose Client-1 and Client-3 establish within the pre-specified time period of
not being in default, not having debit balance/dues towards the member and not
having received the pay-out due, where applicable.
2.The remaining collateral of Client-1 and Client-3 (Rs 7 crore and Rs 13 crore
respectively) shall be provided to them. The pay-out due to Client-3 (Rs 2 crore)
shall also be provided to Client-3.
3.The settlement shortfall would now be Rs 7 crore (Rs 5 crore shortfall in net
payin, plus Rs 2 crore of pay-out made to Client-3).
4.The settlement shortfall of Rs 7 crore shall be first adjusted with the SCM
proprietary pay-in obligation of Rs 3 crore. Excess remaining proprietary collateral
of SCM (Rs 3 crore) shall also be used towards the settlement shortfall.
5.Remaining settlement shortfall of Rs 1 crore shall be attributed to Client-2 (since
it is established that Client-1 is not in default, no shortage shall be attributed to
Client-1).
301
Annexure-22: Procedures to be followed in Stage-4
Illustration 1:
Suppose an SCM had no proprietary positions, and the net pay-in obligations were
based on five clients. There was a pay-in shortfall of Rs 300, against the net pay-
in of Rs 600. Suppose none of the clients could establish within the pre-specified
time period of not being in default, not having debit balance/dues towards the
member and not having received the pay-out due. Assume there is no position
close-out loss. The pay-in shortfall of Rs 300 would be attributed during the Stage
3 on a pro-rata basis from the clients having pay-in obligations. This would be
utilized from their available collateral (the available collateral shown against
different entities comprises of both allocated collateral (including deemed
allocated) and value of securities collateral provided through margin pledge/re-
pledge to the level of CC).
Entity (PI) / PO Collateral Utilized Remaining
(Rs) (Rs) Collateral (Rs) Collateral (Rs)
Client-1 150 200 0 200
Client-2 150 100 0 100
Client-3 -300 300 100 200
Client-4 -300 300 100 200
Client-5 -300 300 100 200
Suppose the actual client defaults and position of payables/receivables are
identified as follows:
Entity Findings Claim
Did not receive 150 Pay-out of 150
Client-1
payout Return of collateral of 200
Did not receive 150 Pay-out of 150
Client-2
payout Return of collateral of 100
Client-3 Did not make any pay-in -
Client-4 Did not make any pay-in -
Client-5 Had made a pay-in of 300 Return of collateral of 300
Accordingly, the remaining collateral of defaulting clients shall be utilized to fulfil
the claims of non-defaulting clients. The additional realization and claim settlement
is tabulated below:
Entity Additional utilization Claim Settled
of collateral
Client-1 - Pay-out of 150
Return of collateral of 200
Client-2 - Pay-out of 150
Return of collateral of 100
302
Client-3 Additional collateral of -
200 utilized
Client-4 Additional collateral of -
200 utilized
Client-5 - Return of collateral of 100 (from
realized) Return of collateral of 200
(from remaining)
In the event of the remaining collateral of Client-3 and Client-4 not being sufficient
(say, due to excess losses in liquidation of positions), the default waterfall of the
CC shall be applied for such losses.
Illustration 2:
The following illustration demonstrates the limit on maximum admissible claim
against the collateral at the CC by the TM/clients/CP of the defaulting CM. The CC
shall recognize the claim of the clients up to the collateral allocated by the CM,
plus the value of securities re-pledged till the level of the CC, plus the collateral
deemed to be allocated based on the margin requirement of the client. Some
examples are tabulated below:
Entity Collateral Margin Collateral Value of Collateral Maximum
provided allocated Securities deemed Admissible
to by Re- allocated claim
member member pledged (due to against
at CC to CC margins) collateral
at CC
Client- 1000 800 700 300 0 1000
1
Client- 1000 0 400 600 0 1000
2
Client- 1000 0 400 400 0 800
3
Client- 1000 800 0 0 800 800
4
Client- 1000 0 0 0 0 0
5
Client- 0 200 100 0 100 0
6
In the last example (Client-6), the CM shall not be permitted to allocate collateral
or permit client to trade beyond the available collateral. In case of such violations,
the claim shall not be admissible, and the collateral (allocated and/or deemed so)
shall be treated as proprietary collateral of the CM.
303
Annexure-23: Risk disclosures
RISK DISCLOSURES ON DERIVATIVES
 9 out of 10 individual traders in equity Futures and Options Segment, incurred net losses.
 On an average, loss makers registered net trading loss close to ₹ 50,000.
 Over and above the net trading losses incurred, loss makers expended an additional 28%
of net trading losses as transaction costs.
 Those making net trading profits, incurred between 15% to 50% of such profits as
transaction cost.
Source:
1. SEBI study dated January 25, 2023 on “Analysis of Profit and Loss of Individual Traders dealing in
equity Futures and Options (F&O) Segment”, wherein Aggregate Level findings are based on annual
Profit/Loss incurred by individual traders in equity F&O during FY 2021-22.
304
Annexure-24: Data Format
A. Equity F&O Segment
Notes:
1. Client-set: All Individual Clients (which includes HUF and NRIs; excludes Proprietary
traders, institutions, partnership firms etc.)
2. Segment: Equity F&O
3. Period: Financial Year
4. Client level realized trading Profit/Loss during the period is considered.
5. With regard to cases where 1 leg of transaction falls under the period, while the other falls
outside, explanation is given as under-
 Example 1: Period: April 2018 to March 2019. Consider Contract-A with expiry in
April 2018.
Contract- A purchased & sold in March 2018 - will not be considered
Contract- A purchased in March 2018, sold in April 2018/ settled on expiry - will be
considered
 Example 2: Period: April 2018 to March 2019. Consider Contract-B with expiry in
April 2019.
Contract- B purchased & sold in March 2019 - will be considered
Contract- B purchased in March 2019, sold in April 2019/ settled on expiry - will not
be considered
6. Contracts resulting in physical delivery of stocks may be excluded.
7. For PIN Codes - correspondence address may be considered.
305
C lie n t
Id e n tifica
tio n N o . P
P
P
e rio d
e rio d 1
e rio d 2
P ro d u ct
C a te g o ry
In d e x Fu tu re s
In d e x O p tio n s
Sto ck Fu tu re s
Sto ck O p tio n s
A
<
2
3
4
5
>
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0 -3 0
0 -4 0
0 -5 0
0 -6 0
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o t A va
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F
O
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th e rs
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> 1 0 0 L
N o t A va ila b le
P IN C o d e
N o . o f
tra n sa ctio n
d u rin g
p e rio d
(B u y + S e ll)
R e a lize d tra d in
P ro fit/Lo ss
s e xclu d in g
tra n sa ctio n
ch a rg e s d u rin g
p e rio d (R s.)
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S E B I
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B. Cash Segment
Notes:
1. Client-set: All Individual Clients (which includes HUF and NRIs; excludes Proprietary
traders, institutions, partnership firms etc.)
2. Segment: Cash Segment
3. Period: Financial year
4. Client level realized trading Profit/Loss during the period is considered.
5. For computation of Client level realised profit/loss in cash segment during the period, only
transactions where both legs (buy and sell side) in a scrip are executed during the period,
are considered.
306
C lie n t
Id e n tific
a tio n
N o . PPP eee rio d
rio d 1
rio d 2
A<2345>N g e
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N o . o f
tra n sa c tio n s
d u rin g P e rio d
(B u y + S e ll)
D a ily A v e ra g
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MvP a x . h o ld in g
a lu e d u rin g
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S T T G S T
Annexure-25
Incident Reporting Form
1. Letter / Report Subject -
Name of the Member / Depository
Participant -
Name of the Stock Exchange /
Depository -
Member ID / DP ID -
2. Reporting Periodicity
Year-
 Quarter 1 (Apr-Jun)  Quarter 3 (Oct-Dec)
 Quarter 2 (Jul-Sep)  Quarter 4 (Jan-Mar)
3. Designated Officer (Reporting Officer details) -
Name: Organization Title:
:
Phone / Fax No: Mobile: Email:
Address:
Cyber-attack / breach observed in Quarter:
( If yes, please fill Annexure -24A)
( If no, please submit the NIL report)
Date &
Brief information on the Cyber-attack / breached observed
Time
Annexure -24A
1. Physical location of affected computer / network and name of ISP -
2. Date and time incident occurred -
307
Date: Time:
3. Information of affected system -
IP Address: Computer/ Operating Last Hardware
Host System (incl. Patched/ Vendor/
Name: Ver. / release Updated: Model:
No.):
4. Type of incident -
 Phishing  Spam  Website
 Network  Bot/Botnet Intrusion
scanning  Email Spoofing  Social
/Probing Break-  Denial of Service(DoS) Engineering
in/Root  Distributed Denial of  Technical
Compromise Service(DDoS) Vulnerability
 Virus/Malicious  User Account  IP Spoofing
Code Compromise  Ransomware
 Website  Other
Defacement
 System Misuse
5. Description of incident -
6. Unusual behavior/symptoms (Tick the symptoms) -
 System crashes  Anomalies
 New user accounts/ Accounting  Suspicious probes
discrepancies  Suspicious browsing New
 Failed or successful social files
engineering attempts  Changes in file lengths or
 Unexplained, poor system dates
performance  Attempts to write to
 Unaccounted for changes in the DNS system
tables, router rules, or firewall rules  Data modification or
 Unexplained elevation or use of deletion
privileges Operation of a program or  Denial of service
sniffer device to capture network  Door knob rattling
traffic;  Unusual time of usage
 An indicated last time of usage of a  Unusual usage patterns
user account that does not  Unusual log file entries
correspond to the actual last time of  Presence of new setuid or
usage for that user setgid files Changes in
 A system alarm or similar indication system directories and
308
from an intrusion detection tool files
 Altered home pages, which are  Presence of cracking
usually the intentional target for utilities
visibility, or other pages on the Web  Activity during non-
server working hours or holidays
 Other (Please specify)
7. Details of unusual behavior/symptoms -
8. Has this problem been experienced earlier? If yes, details -
9. Agencies notified -
Law Private Agency Affected Product Other
Enforcement Vendor
10. IP Address of apparent or suspected source -
Source IP address: Other information available:
11. How many host(s) are affected -
1 to 10 10 to 100 More than 100
12. Details of actions taken for mitigation and any preventive measure applied -
309
Annexure-26
Form to report on AI and ML technologies – To be submitted quarterly
Intimation to Stock Exchange / Depository for the use of the AI and ML
application and systems.
SNo. Head Value
1 Entity SEBI registration number
2 Registered entity category
3 Entity name
4 Entity PAN no.
5 Application / System name
6 Date from when the Application / System
was used
7 Type of area where AI or ML is used <order execution / Advisory
services /
KYC / AML / Surveillance /
compliance/others (please
specify in 256 characters)>
7.a Does the system involve order initiation, <Yes / NO>
routing and execution?
7.b Does the system fall under discretionary <Yes / NO>
investment or Portfolio management
activities?
7.c Does the system disseminate investment <Yes / NO>
or trading advice or strategies?
7.d Is the application/system used in area of <Yes / NO>
Cyber
Security to detect attacks
7.e What claims have been made regarding <free text field>
AI and ML Application / System – if any?
8 What is the name of the Tool / <free text field>
Technology that is categorized as AI and
ML system / Application and
submissions are declared vide this
response
9 How was the AI or ML project <Internally / through solution
implemented provider / Jointly with a
solution provider or third
party>
10 Are the key controls and control points in <free text field>
your AI or ML application or systems in
accordance to circular of SEBI that
310
mandate cyber security control
requirements
11 Is the AI / ML system included in the <Yes / NO / NA>
system audit, if applicable?
12 Describe the application / system and <free text field>
how it uses AI / ML as portrayed in the
product offering
13 What safeguards are in place to prevent <free text field>
abnormal behavior of the AI or ML
application / System
311
Annexure 27 – Systems deemed to be based on AI and ML technology
Applications and Systems belonging but not limited to following categories or a combination of
these:
1. Natural Language Processing (NLP), sentiment analysis or text mining systems that gather
intelligence from unstructured data. – In this case, Voice to text, text to intelligence systems
in any natural language will be considered in scope. Eg: robo chat bots, big data intelligence
gathering systems.
2. Neural Networks or a modified form of it. – In this case, any systems that uses a number of
nodes (physical or software simulated nodes) mimicking natural neural networks of any scale,
so as to carry out learning from previous firing of the nodes will be considered in scope. Eg:
Recurrent Neural networks and Deep learning Neural Networks
3. Machine learning through supervised, unsupervised learning or a combination of both. – In
this case, any application or systems that carry out knowledge representation to form a
knowledge base of domain, by learning and creating its outputs with real world input data and
deciding future outputs based upon the knowledge base. Eg: System based on Decision tree,
random forest, K mean, Markov decision process, Gradient boosting Algorithms.
4. A system that uses statistical heuristics method instead of procedural algorithms or the system
/ application applies clustering or categorization algorithms to categorize data without a
predefined set of categories
5. A system that uses a feedback mechanism to improve its parameters and bases it subsequent
execution steps on these parameters.
6. A system that does knowledge representation and maintains a knowledge base.
312
Annexure 28 – Consolidated Quarterly Reporting Form
Consolidated Quarterly report to SEBI of all registered intermediaries with Stock
Exchange using AI and ML application and systems for the Quarter Ended
DD/MM/YYYY
To be filled if System Audit is applicable
If system audit report If system audit report is
is submitted by entity submitted with adverse
later than remarks and Stock
“date used from” Exchange is entitled to
inspect the entity
Entit Type of
y area Does Is there Was the entity If
Application
regist Entity Date where AI system any inspected in past inspec
Entity /
rati PAN used or ML is audit adverse 1 year ted
name Syste
on no. from used report commen was
m name
num
t in the any
comply to
ber
System irregul
Master
audit arity
Circular
report noted
dated May
17, 2023
<order <Yes / <Yes / <Yes / NO> <Yes /
execution / NO/> NO/> NO>
Advisory
services /
KYC /
AML /
Surveilla
nce /
complian
ce/others
(please
specify in
256
character
s)>
313
Annexure-29
314
315
Annexure-30
Root Cause Analysis Form/ RCA
1. Letter / Report Subject :-
Name of the stock Broker:
Exchange Name and Code:
SEBI Registration number:
2. Designated Officer and/or Reporting Officer details
Name: E-mail:
Mobile:
Date:
3. Date & Time of Incident & Duration of the
Incident
Time:
Duration:
4. Incident Description & chronology of
events (please use additional sheets if
Brief information on the incident
required)
observed
5. Business Impact
316
6. Immediate action taken (please give full
details) (Please use additional sheets if
required)
Date:
7. Date & Time of Recovery
Time:
8. Root Cause Summary (Pl attach the
detailed Report separately)
9. Details of corrective measures taken
10. Details of long-term preventive
measures taken (please give full details)
(please use additional sheets if required)
317
Annexure-31
In view of the increasing cybersecurity threat to the securities market, SEBI
Regulated Entities (REs) are advised to implement the following practices as
recommended by CSIRT-Fin:
1. Roles and Responsibilities of Chief Information Security Officer (CISO)/
Designated Officer:
REs are advised to define roles and responsibilities of Chief Information Security
Officer (CISO) and other senior personnel. Reporting and compliance
requirements shall be clearly specified in the security policy.
2. Measures against Phishing attacks/ websites:
i. The REs need to proactively monitor the cyberspace to identify phishing
websites w.r.t. to REs domain and report the same to CSIRT-Fin/CERT-In for
taking appropriate action.
ii. Majority of the infections are primarily introduced via phishing emails,
malicious adverts on websites, and third-party apps and programs. Hence,
thoughtfully designed security awareness campaigns that stress the
avoidance of clicking on links and attachments in email, can establish an
essential pillar of defense. Additionally, the advisories issued by CERT-In/
CSIRT-Fin may be referred for assistance in conducting exercises for public
awareness.
3. Patch Management and Vulnerability Assessment and Penetration Testing
(VAPT):
i. All operating systems and applications should be updated with the latest
patches on a regular basis. As an interim measure for zero-day vulnerabilities
and where patches are not available, virtual patching can be considered for
protecting systems and networks. This measure hinders cybercriminals from
gaining access to any system through vulnerabilities in end-of-support and
end-of-life applications and software. Patches should be sourced only from the
authorized sites of the OEM.
ii. Security audit / Vulnerability Assessment and Penetration Testing (VAPT) of
the application should be conducted at regular basis and in accordance with
the Cyber Security and Cyber Resilience circulars of SEBI issued from time to
time. The observation/ gaps of VAPT/Security Audit should be resolved as per
the timelines prescribed by SEBI.
4. Measures for Data Protection and Data breach:
i. REs are advised to prepare detailed incident response plan.
ii. Enforce effective data protection, backup, and recovery measures.
iii. Encryption of the data at rest should be implemented to prevent the attacker
from accessing the unencrypted data.
iv. Identify and classify sensitive and Personally Identifiable Information (PII) data
and apply measures for encrypting such data in transit and at rest.
v. Deploy data leakage prevention (DLP) solutions / processes.
5. Log retention:
Strong log retention policy should be implemented as per extant SEBI regulations
and required by CERT-In and IT Act 2000. REs are advised to audit that all
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logsare being collected. Monitoring of all logs of events and incidents to identify
unusual patterns and behaviours should be done.
6. Password Policy/ Authentication Mechanisms:
i. Strong password policy should be implemented. The policy should include a
clause of periodic review of accounts of ex-employees Passwords should not
be reused across multiple accounts or list of passwords should not be stored
on the system.
ii. Enable multi factor authentication (MFA) for all users that connect using
online/internet facility and also particularly for virtual private networks, webmail
and accounts that access critical systems.
iii. Maker and Checker framework should be implemented in strict manner and
MFA should be enabled for all user accounts, especially for user accounts
accessing critical applications.
7. Privilege Management:
i. Maker-Checker framework should be implemented for modifying the user's
right in internal applications.
ii. For mitigating the insider threat problem, 'least privilege' approach to provide
security for both on-and off-premises resources (i.e., zero-trust models) should
be implemented. Zero Trust is rooted in the principle of "trust nothing, verify
everything." This security model requires strict identity verification for each and
every resource and device attempting to get access to any information on a
private network, regardless of where they are situated, within or outside of a
network perimeter.
8. Cybersecurity Controls:
i. Deploy web and email filters on the network. Configure these devices to scan
for known bad domains, sources, and addresses, block these before receiving
and downloading messages. Scan all emails, attachments, and downloads
both on the host and at the mail gateway with a reputable antivirus solution.
ii. Block the malicious domains/IPs after diligently verifying them without
impacting the operations. CSIRT-Fin/CERT-In advisories which are published
periodically should be referred for latest malicious domains/IPs, C&C DNS and
links.
iii. Restrict execution of "powershell" and "wscript" in enterprise environment, if
not required. Ensure installation and use of the latest version of PowerShell,
with enhanced logging enabled, script block logging and transcription enabled.
Send the associated logs to a centralized log repository for monitoring and
analysis.
iv. Utilize host based firewall to prevent Remote Procedure Call (RPC) and Server
Message Block (SMB) communication among endpoints whenever possible.
This limits lateral movement as well as other attack activities.
v. Practice of whitelisting of ports based on business usage at Firewall level
should be implemented rather than blacklisting of certain ports. Traffic on all
other ports which have not been whitelisted should be blocked by default.
9. Security of Cloud Services:
i. Check public accessibility of all cloud instances in use. Make sure that no
server/bucket is inadvertently leaking data due to inappropriate configurations.
ii. Ensure proper security of cloud access tokens. The tokens should not be
exposed publicly in website source code, any configuration files etc.
iii. Implement appropriate security measures for testing, staging and backup
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environments hosted on cloud. Ensure that production environment is kept
properly segregated from these. Disable/remove older or testing environments
if their usage is no longer required.
iv. Consider employing hybrid data security tools that focus on operating in a
shared responsibility model for cloud-based environments.
10. Implementation of CERT-In/ CSIRT-Fin Advisories:
The advisories issued by CERT-In should be implemented in letter and spirit by
the regulated entities. Additionally, the advisories should be implemented
promptly as and when received.
11. Concentration Risk on Outsourced Agencies:
i. It has been observed that single third party vendors are providing services to
multiple REs, which creates concentration risk. Here, such third parties though
being small non-financial organizations, if any cyber-attack, happens at such
organizations, the same could have systemic implication due to high
concentration risk.
ii. Thus, there is a need for identification of such organizations and prescribing
specific cyber security controls, including audit of their systems and protocols
from independent auditors, to mitigate such concentration risk.
iii. Further, REs also need to take into account this concentration risk while
outsourcing multiple critical services to the same vendor.
12. Audit and ISO Certification:
i. SEBI’s instructions on external audit of REs by independent auditors
empaneled by CERT-In should be complied with in letter and spirit.
ii. The REs are also advised to go for ISO certification as the same provides a
reasonable assurance on the preparedness of the RE with respect to
cybersecurity.
iii. Due diligence with respect to audit process and tools used for such audit needs
to be undertaken to ensure competence and effectiveness of audits
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Annexure-32
Framework for Adoption of Cloud Services by SEBI Regulated Entities (REs)
50. Executive Summary
Cloud computing is a model for enabling ubiquitous, convenient, on-demand
network access to a shared pool of configurable computing resources (e.g.,
networks, servers, storage, applications, and services) that can be rapidly
provisioned and released with minimal management effort or service provider
interaction – NIST Definition.
Cloud computing has common characteristics like on-demand self-service, broad
network access, resource pooling, rapid elasticity and measured service. Due to
these characteristics, cloud computing has advantages like reduced IT costs,
scalability, business continuity, accessibility anywhere and with any device, higher
performance and availability, quick application deployment, etc. When
contemplating cloud adoption, factors including risk identification, control
mechanisms, security and operational standards, vendor lock-in and compliance
with the legal, technical and regulatory requirements must be taken into account.
The framework is based on the study, survey, and consultations done with market
participants, regulators, cloud associations, cloud service providers (CSPs),
government agencies, and SEBI Advisory Committees. The summary of the
framework is as follows:
i. The RE may opt for any model of deployment on the basis of its business needs
and technology risk assessment. However, compliance should be ensured with
this cloud framework as well as other rules/ laws/ regulations/ circulars made by
SEBI/ Government of India/ respective state government.
ii. It is to be noted that although the IT services/ functionality may be outsourced
(to a CSP), RE is solely accountable for all aspects related to the cloud services
adopted by it including but not limited to availability of cloud applications,
confidentiality, integrity and security of its data and logs, and ensuring RE’s
compliance with the laws, rules, regulations, circulars, etc. issued by SEBI/
Government of India/ respective state government. Accordingly, the RE shall be
responsible and accountable for any violation of the same.
321
iii. The cloud services shall be taken only from the Ministry of Electronics and
Information Technology (MeitY) empaneled CSPs. The CSP’s data center
should hold a valid STQC (or any other equivalent agency appointed by
Government of India) audit status. For selection of CSPs offering PaaS and
SaaS services in India, RE shall choose only such CSPs which:
1. Utilize the underlying infrastructure of MeitY empaneled CSPs for providing
services to the RE.
2. Host the application/ platform/ services provided to RE as well as store/
process data of the RE, only within the data centers as empaneled by MeitY
and holding a valid STQC (or any other equivalent agency appointed by
Government of India) audit status.
iv. In a multi-tenant cloud architecture, adequate controls shall be provisioned to
ensure that data (in motion, at rest and in use) shall be isolated and inaccessible
to any other tenant. RE shall assess and ensure that the multi tenancy
segregation controls are placed by CSP, and shall place additional security
controls if required.
v. Data shall be encrypted at all lifecycle stages (at rest, in motion and in use),
source or location to ensure the confidentiality, privacy and integrity.
vi. RE shall retain complete ownership of all its data, encryption keys, logs etc.
residing in cloud.
vii. Compliance with legal and regulatory requirements, including the requirements
provided in this framework, has to be ensured by the RE at all times.
viii. The cloud deployments of RE shall be monitored through Security Operations
Centre (SOC) [in-house, third-party SOC or a managed SOC].
ix. The agreement between the RE and CSP shall cover security controls, legal
and regulatory compliances, clear demarcation of roles, and liabilities,
appropriate services and performance standards etc.
x. The reporting of compliance (with this framework) shall be done by the REs in
their systems audit, cybersecurity audit and VAPT reports, and it shall be done
in the standardized format notified by SEBI from time to time
The cloud framework provides mandatory requirements to be fulfilled by the RE for
adopting cloud computing to augment the business prospects through scalability,
322
reduced operational cost, digital transformation and reduced IT infrastructure
complexity.
The cloud framework is a principle-based framework which has nine high-level
principles. The framework highlights the risks associated with cloud adoption and
recommends the necessary mandatory controls. The document also recommends
baseline security measures required to be implemented (by RE and CSP), and RE
may decide to add additional measures as per its business needs, technology risk
assessment, risk appetite, compliance requirements in all the applicable circulars/
guidelines/ advisories issued by SEBI from time to time, etc.
Table of Contents
Abbreviations:
Definitions
1. Governance, Risk and Compliance (GRC):
2. Selection of CSPs:
3. Data Ownership and Localization:
4. Responsibility of the RE (with respect to CSPs):
5. Due Diligence by the RE (with respect to CSPs):
6. Security Controls:
6.1. Security of the Cloud:
6.2. Security in the Cloud:
6.2.1. Vulnerability Management and Patch Management: ..............................
6.2.2. Vulnerability Assessment and Penetration Testing (VAPT): ..................
6.2.3. Incident Management and SOC Integration: ..........................................
6.2.4. Continuous Monitoring: ..........................................................................
6.2.5. Secure User Management: ....................................................................
6.2.6. Security of Interfaces: ............................................................................
6.2.6.1. Management interface: ....................................................................
323
6.2.6.2. Internet facing interfaces: ................................................................
6.2.6.3. Interfaces connected between RE’s/relevant organizations
(Through P2P or LAN/MPLS etc.) and CSP: ...................................................
6.2.7. Secure Software Development: .............................................................
6.2.8. Managed Service Provider (MSP) & System Integrator (SI): .................
6.2.9. Encryption and Cryptographic Key Management: ..................................
6.2.10. End Point Security: .............................................................................
6.2.11. Network Security: ...............................................................................
6.2.12. Backup and recovery solution: ............................................................
6.2.13. Skillset: ...............................................................................................
6.2.14. Breach Notification:.............................................................................
7. Contractual and Regulatory Obligations:
8. Business Continuity Planning (BCP), Disaster Recovery & Cyber Resilience
9. Concentration Risk Management
10. Recommendations:
Appendix-A
Appendix-B
51. Abbreviations:
Sr. Abbreviation Explanation/Expansion
No.
1 2FA 2 Factor Authentication
2 API Application Programming Interface
3 BCP Business Continuity Planning
4 CISO Chief Information Security Officer
5 CSP Cloud Service Provider
6 DDOS Distributed Denial-of-Service
7 Dev Development Environment
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8 DR Disaster Recovery
9 IPS Intrusion Prevention System
10 LAN Local Area Network
11 MeitY Ministry of Electronics and Information Technology
12 MII Market Infrastructure Institution
13 MPLS Multiprotocol Label Switching
14 MSP Managed Service Provider
15 NIST National Institute of Standards and Technology
16 P2P Point-to-Point connection
17 PII Personal Identifiable Information
18 RE Regulated Entity
19 SI System Integrator
20 SLA Service Level Agreement
21 SOAR Security Orchestration, Automation and Response
22 SOC Security Operations Center
23 SSL Secure Sockets Layer
24 STQC Standardization Testing and Quality Certification
25 UAT User Acceptance Testing
26 VAPT Vulnerability Assessment & Penetration Testing
27 VM Virtual Machine
28 VPN Virtual Private Network
29 WAF Web Application Firewall
52. Definitions
1. Cloud Model Description-
The description of common cloud deployment models (as per NIST)128 is
given below:
Sr. Model Description
No
1 Private Cloud The cloud infrastructure is provisioned for exclusive
use by a single organization comprising multiple
128 Ref: https://nvlpubs.nist.gov/nistpubs/legacy/sp/nistspecialpublication800-145.pdf
325
consumers (e.g., business units). It may be owned,
managed, and operated by the organization, a third
party, or some combination of them, and it may exist
on or off premises.
2 Community The cloud infrastructure is provisioned for exclusive
Cloud use by a specific community of consumers from
organizations that have shared concerns (e.g.,
mission, security requirements, policy, and compliance
considerations). It may be owned, managed, and
operated by one or more of the organizations in the
community, a third party, or some combination of them,
and it may exist on or off premises
3 Public Cloud The cloud infrastructure is provisioned for open use by
the general public. It may be owned, managed, and
operated by a business, academic, or government
organization, or some combination of them. It exists on
the premises of the cloud provider
4 Hybrid Cloud The cloud infrastructure is a composition of two or
more distinct cloud infrastructures (private, community,
or public) that remain unique entities, but are bound
together by standardized or proprietary technology that
enables data and application portability.
2. Cloud Service Models-
A. The definitions of various cloud service models (as per NIST)129 are given
below:
i. Infrastructure as a Service (IaaS): The capability provided to the
consumer is to provision processing, storage, networks, and other
fundamental computing resources where the consumer is able to
deploy and run software, which can include operating systems and
applications. The consumer does not directly manage or control the
underlying cloud
129 Ref: https://nvlpubs.nist.gov/nistpubs/legacy/sp/nistspecialpublication800-145.pdf
326
infrastructure but has control over operating systems, storage, and
deployed applications; and possibly limited control of select networking
components (e.g., host firewalls). A few examples of IaaS are Amazon
Web Services (AWS) Elastic Compute Cloud, Microsoft Azure, etc.
ii. Platform as a Service (PaaS): The capability provided to the
consumer is to deploy onto the cloud infrastructure consumer-created
or acquired applications created using programming languages,
libraries, services, and tools supported by the provider. The consumer
does not directly manage or control the underlying cloud infrastructure
including network, servers, operating systems, or storage, but has
control over the deployed applications and possibly configuration
settings for the application-hosting environment. A few examples of
PaaS are Google App Engine, Amazon Web Services (AWS) Elastic
Beanstalk, etc.
iii. Software as a Service (SaaS): The capability provided to the
consumer is to use the provider’s applications running on a cloud
infrastructure. The applications are accessible from various client
devices through either a thin client interface, such as a web browser
(e.g., web-based email), or a program interface. The consumer does
not manage or control the underlying cloud infrastructure including
network, servers, operating systems, storage, or even individual
application capabilities, with the possible exception of limited user
specific application configuration settings. A few examples of SaaS are
Gmail, Microsoft Office 365, etc.
B. Other deployment models such as Application as a Service, Security as a
Service, etc. may be considered as a sub-part or variant of the above-
mentioned models as they contain components of IaaS, PaaS and SaaS.
For example, Security as a Service is a form of SaaS which provides
specialized information security services. Similarly, Application as a
Service is a type of SaaS in which applications (for example Google
327
sheets, Google docs, etc.) are delivered on-demand to customers through
the internet.
3. Regulated Entity (RE) –
The term “Regulated Entity” refers to SEBI registered/ recognized
intermediaries (for example brokers, mutual funds, KYC Registration
Agencies, and QRTAs) and Market Infrastructure Institutions (Stock
Exchanges, Clearing Corporations, and Depositories) regulated by SEBI.
4. Key Management-
In the context of encryption/ decryption, a key is typically a random string of
bits generated to hide (encrypt) or reveal (decrypt) data. A key is most
commonly used along with an algorithm (method) for encryption/ decryption
of data.
Therefore, Key management refers to management of cryptographic keys in
a system, including their (keys’) generation, exchange, storage, etc.
5. Hardware Security Module (HSM)-
A Hardware Security Module is a device that is used for management of Keys,
as well as for implementing various functions like encryption, decryption,
authentication, etc.
Principle 1: Governance, Risk and Compliance Sub-Framework
1. Governance, Risk and Compliance (GRC):
The REs shall put in place an effective GRC sub-framework for cloud computing
to enable them to formulate a cloud strategy suitable for their circumstances/
needs. The RE shall also adhere with the governance framework mentioned in
various circulars issued by SEBI. The various aspects that shall be considered
by RE (including but not limited to) while formulating the GRC sub-framework
are as follows:
i. Cloud Governance: The RE shall have a Board/ partners/ proprietors (as the
case may be) {hereinafter referred to as “the Board”} approved governance
328
model/ strategy for cloud computing in place. The model/ strategy shall
include:
1. Details of cloud adoption such as cloud service models, deployment
models etc.
2. Type of services to be on boarded on cloud considering various factors
such as data classification, criticality of operations, etc. The classification/
categorization shall be done in-line with the circulars/ guidelines issued by
SEBI.
3. Measures to ensure the protection of stakeholder’s interests
4. Measures to comply with the applicable legal and regulatory requirements.
ii. Cloud Risk Management:
1. There is a paradigm shift in the manner of how cloud technology is built
and managed in comparison with traditional on–premise infrastructure.
Therefore, a comprehensive risk management should be undertaken by
the RE to continually identify, monitor, and mitigate the risks posed by
cloud computing.
2. The cloud risk management approach should be approved by the Board of
the RE. The cloud risk management approach shall provide details
regarding the various risks of cloud adoption such as technical, legal,
business, regulatory etc., and the commensurate risk mitigation controls
which should be proportionate to the criticality and sensitivity of the
data/operations to be on-boarded on the cloud.
3. As part of risk management process, a thorough risk assessment shall also
be done keeping in mind that the RE cannot outsource the risks and
decision making associated with deployment of cloud services, to the CSP.
The risk assessment shall include (but not limited to) standards like
identifying threat sources and events, identifying vulnerabilities and pre-
disposing conditions, control analysis, magnitude of impact, etc.
4. A clearly identified and named resource (typically CISO) shall be appointed
and shall be responsible for security of the deployments in cloud.
329
iii. Compliance and Legal Aspects: The RE shall have policies, processes, etc.
in place to ensure compliance with the applicable legal and regulatory
requirements (including but not limited to guidelines, circulars, advisories,
etc.) for deployments in cloud, issued by SEBI/ Government of India/
respective state government.
iv. In order to ensure the smooth functioning and adherence with the GRC sub-
framework, it is mandated to divide the roles and assign the responsibilities
as given below:
1. Role of the Board/Key Management Personnel (KMP)- The Board/KMP
shall be responsible for:
a. Approval of cloud governance model and cloud risk management
approach, and setting up processes for smooth on boarding on cloud
while adhering with all legal, regulatory, technical and business
objectives.
b. Review of cloud governance model and cloud risk management
approach as per requirement of the RE. However, the review shall be
mandatorily conducted at least once every year.
c. Setting up the administrative responsibility of senior management.
2. Role of Senior Management - The senior management shall be
responsible for:
a. Preparation of and adherence with various policies related to cloud
adoption.
b. Periodic assessment of cloud deployments and mitigation of risks
arising out of the same.
c. Continually monitoring and responding to the risks and intimating the
same to board in a timely manner.
d. Assessment, at least on an annual basis, to review the financial and
operational condition of the CSP in order to assess its ability to
continue to meet the various requirements such as legal, business,
compliance, etc. and highlighting any deterioration or breach in
330
performance standards, confidentiality and security, and in business
continuity preparedness to the board in a timely manner.
e. Periodic evaluation of the adherence of the cloud engagement with
regulatory, legal and business objectives.
f. Management of Human Resources:
i. Identification of potential skill gaps which emerge as a result of
transition to cloud computing.
ii. Capacity building within organization to build adequate skillsets to
manage cloud deployments effectively.
3. Role of IT team- The IT team shall be responsible for managing day to day
operations and assisting senior management in achieving the objectives
of cloud deployments.
4. Additional roles/ responsibilities may be added (to the Board/KMP, Senior
Management, etc.) as per requirements of the RE.
v. Grievance Redressal Mechanism: The RE shall have a robust grievance
redressal mechanism, which in no way shall be compromised on account of
cloud adoption i.e., responsibility and accountability for redressal of
investors’/ members’ grievances related to cloud on boarded services shall
rest with the RE. Adoption of cloud services shall not affect the rights of the
investor/ member against the RE, including the ability of the investor/ member
to obtain redressal of grievances as applicable under relevant laws.
vi. Monitoring and Control of Cloud Deployments:
1. RE shall have in place a management structure to monitor and control the
activities and services deployed on cloud. This shall include, but not limited
to, monitoring the performance, uptime (of the systems/ resources) and
service availability, adherence to SLA requirements, incident response
mechanism, etc.
331
2. RE shall conduct regular audits/VAPT of its cloud deployments. The
frequency and scope of such audits/VAPT shall be in line with SEBI cyber
guidelines /circulars /framework issued from time to time.
3. Additionally, the RE shall also assess the performance of the CSP,
adequacy of the risk management practices adopted by the CSP,
compliance with laws/regulations etc.
vii. Country Risk: The engagement with a CSP having country of
incorporation/registration outside of India, exposes the RE to country risk. To
manage such risk, wherever applicable, the RE shall closely monitor the
CSP’s country’s government policies and its political, social, economic and
legal conditions on a continuous basis, and establish sound procedures for
mitigating the country risk. This includes, inter alia, having appropriate
contingency and exit strategies. In principle, arrangements shall only be
entered into with parties operating in jurisdictions generally upholding
confidentiality clauses and agreements. The governing law of the
arrangement shall also be clearly specified.
viii. Contingency: The RE shall have appropriate contingency and exit
strategies. The RE shall ensure that availability of records to the RE and the
supervising authority are not affected under any circumstances, even in case
of liquidation of the CSP.
ix. Miscellaneous: Any other risk factors deemed relevant/ material by the RE.
Principle 2: Selection of Cloud Service Providers
2. Selection of CSPs:
The RE shall ensure that the following conditions are met while choosing any
Cloud Service Provider (CSP):
i. The storage/ processing of data (DC, DR, near DR etc.) including logs and
any other data pertaining to RE in any form in cloud, should be done within
the MeitY empaneled CSPs’ data centers holding valid STQC (or any other
equivalent agency appointed by Government of India) audit status.
332
ii. For selection of CSPs offering PaaS and SaaS services in India, the RE shall
choose only those CSPs which:
1. Utilize the underlying infrastructure/ platform of only MeitY empaneled
CSPs for providing services to RE.
2. Host the application/ platform/ services (DC, DR, near DR, etc.) provided
to the RE as well as store/ process data of the RE, only within the data
centers as empaneled by MeitY and holding a valid STQC (or any other
equivalent agency appointed by Government of India) audit status.
3. Have a back-to-back, clear and enforceable agreement with their partners/
vendors/ sub-contractors (including those that provide the underlying
infrastructure/ platform) for ensuring their compliance with respect to the
requirements provided in this framework including those in Principles 6
(Security Controls), 7 (Contractual and Regulatory Obligations) and 8
(BCP, Disaster Recovery & Cyber resilience).
iii. Any other additional criteria that the RE considers appropriate/ as per RE's
requirement.
iv. The RE shall ensure that storage/ processing/ transfer of its data should be
done according to requirements provided in this framework as well as any
other regulations/ circulars/ guidelines issued by SEBI and any other
Government authorities.
Principle 3: Data Ownership and Data Localization
3. Data Ownership and Localization:
i. Data Ownership: The RE shall retain the complete ownership of all its data
and logs, encryption keys, etc. residing in cloud. The CSP shall be working
only in a fiduciary capacity. Therefore, the RE, SEBI and any other
Government authority authorized under law, shall always have the right to
access any or all of the data at any or all point of time.
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ii. Visibility: Whenever required (by RE/ SEBI), the CSP shall provide visibility
to RE as well as SEBI into CSP’s infrastructure and processes, and its
compliance to applicable policies and regulations issued by SEBI/
Government of India/ respective state government.
iii. Data Localization:
In order to ensure that RE and SEBI’s right to access RE’s data as well as
SEBI’s rights of search and seizure are not affected by adoption of cloud
services, the storage/ processing of data (DC, DR, near DR etc.) including
logs and any other data/ information pertaining to RE in any form in cloud
shall be done as per the following conditions:
1. The data should reside/be processed within the legal boundaries of India.
2. However, for the investors whose country of incorporation is outside
India, the REs shall keep the original data/ transactions/ logs, available
and easily accessible in legible and usable form, within the legal
boundaries of India.
The RE shall ensure that the above-mentioned requirements are fulfilled at
all times during adoption/ usage of cloud services.
iv. It is to be noted that the REs are ultimately responsible and accountable for
security of their data (including logs)/ applications/ services hosted in cloud
as well as ensuring compliance with laws, rules, regulations, etc. issued by
SEBI/ Government of India/ respective state government. Accordingly, RE
shall put in place effective mechanism to continuously monitor the CSP and
comply with various regulatory, legal and technical requirements notified by
SEBI or any other Government authority from time to time.
Principle 4: Responsibility of the Regulated Entity
4. Responsibility of the RE (with respect to CSPs):
i. While it is acknowledged that there can be a segregation between the RE
and the CSP with respect to (including but not limited to) the infrastructure
management, and other technical aspects (for example with respect to data,
cybersecurity, management of users, etc.), however, the RE is solely
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accountable for all aspects related to the cloud services adopted by it
including, but not limited to, availability of cloud applications, confidentiality,
integrity and security of its data and logs, and ensuring RE’s compliance with
respect to the applicable laws, rules, regulations, circulars, etc. issued by
SEBI/ Government of India/ respective state government. Accordingly, the
RE shall be held accountable for any violation of the same.
ii. There shall be an explicit and unambiguous delineation/ demarcation of
responsibilities with respect to all activities (including but not limited to
technical, managerial, governance related, etc.) of the cloud services
between the RE and CSP. There shall be no "joint/ shared ownership" for any
function/ task/ activity between the RE and CSP. If any function/ task/ activity
has to be performed jointly by the RE and CSP, there shall be a clear
delineation and fixing of responsibility for each sub-task/ line-item within the
task. The aforementioned delineation of responsibilities shall be added
explicitly in the agreement (as an annexure) signed between the RE and the
CSP.
iii. In the event of a Managed Service Provider (MSP) or System Integrator (SI)
being involved in procurement of cloud services, an explicit and unambiguous
delineation/ demarcation of responsibilities shall also be done with respect to
MSP/ SI, and the same shall be included in the agreement (in-line with the
requirements given above).
iv. Similarly, there shall be an explicit and unambiguous delineation/
demarcation of responsibilities between the RE and CSP (and MSP/SI
wherever applicable) for ensuring compliance with respect to applicable
circulars (for example cybersecurity and cyber resilience circular, outsourcing
circular, BCP-DR etc.) issued by SEBI from time to time. There shall be no
“joint/ shared ownership” for ensuring compliance with respect to any clause.
If compliance for any clause has to be jointly ensured by RE and CSP (and
MSP/SI wherever applicable), there should be a clear delineation and fixing
of responsibility between the RE and the CSP (and MSP/SI wherever
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applicable) for each sub-task/ line-item within the clause. This delineation
shall also be added explicitly in the agreement (as an annexure) signed
between the RE and the CSP (and MSP/SI wherever applicable).
v. In view of the fact that a CSP is not a RE, the RE shall continue to have
ultimate responsibility and liability for any violation of the laws, rules,
regulations, circulars, etc. issued by SEBI or any other authority under any
law, regardless of any delineation/ demarcation of responsibilities envisaged
in the aforesaid paragraphs.
Principle 5: Due Diligence by the Regulated Entity
5. Due Diligence by the RE (with respect to CSPs):
i. The REs should evaluate the need, implications (financial, regulatory, etc.),
risks, benefits, etc. of adopting cloud computing. The RE shall also conduct
its due diligence with respect to CSPs beforehand and on a periodic basis to
ensure that legal, regulatory, business objectives, etc. of the RE are not
hampered. The due diligence shall be risk-based depending on the criticality
of the data/ services /operations planned to be on boarded on cloud.
ii. A proper due diligence process should be established to assess the
capabilities and suitability of a cloud service provider before the engagement.
iii. An analysis (including but not limited to comparative analysis, SWOT
analysis, etc.) shall also be conducted on the type of cloud model to be
adopted. The analysis should include relevant factors like (including but not
limited to) the risks associated with various models, need, suitability,
capability of the organization, etc. The above mentioned evaluations /
analyses should be conducted keeping in mind that although the IT services/
functionality can be outsourced (to a CSP), REs are ultimately accountable
for all aspects related to the cloud services adopted by it including but not
limited to availability of cloud applications, confidentiality, integrity and
security of RE’s data and logs, and ensuring RE’s compliance with respect to
the applicable laws, rules, regulations, circulars, etc. issued by SEBI/
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Government of India/ respective state government. Accordingly, the RE shall
be held accountable for any violation of the same.
iv. The criteria that an RE shall look out for are (including but not limited to):
1. Financial soundness of CSP and its ability to service commitments even
under adverse conditions.
2. CSP’s capability to identify and segregate RE’s data, whenever required.
3. Security risk assessment of the CSP.
4. Ensuring that appropriate controls, assurance requirements and possible
contractual arrangements are in place to establish data ownership.
5. CSP’s ability to effectively service all the RE’s customers while
maintaining confidentiality, especially where a CSP has exposure to
multiple entities.
6. Ability to enforce agreements and the rights available thereunder
including those relating to aspects such as data storage, data protection
and confidentiality, SLA, etc.
7. RE shall ensure that CSP performs proper screening and background
checks of its personnel and vendors before onboarding, and provides
adequate trainings and awareness programs to ensure that the customer
(RE) services are not hampered due to misconfiguration/inadvertent
actions/operational issues/etc.
8. Capability of the CSP to deal with RE’s compliance needs, operational
aspects, and ensure information security, data privacy, etc.
9. CSP’s ability to ensure compliance with this framework as well as all
applicable rules/ regulations/ circulars issued by SEBI from time to time.
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10. Any other additional criteria that the RE considers appropriate/ as per
RE's requirement.
Principle 6: Security Controls
6. Security Controls130:
The RE shall ensure its compliance with the applicable circulars (for example
cybersecurity circular, systems audit circular, DR-BCP circular, etc.)/ guidelines/
advisories, etc. issued by SEBI. Further, in reference to the security controls for
adoption of cloud computing131, the following (including but not limited to) shall
be implemented:
6.1. Security of the Cloud:
RE shall perform the assessment of CSPs to ensure that adequate security
controls are in place. Some of the common controls (including but not limited
to) that the RE needs to check are given below:
i. Vulnerability Management and Patch Management:
1. RE shall ensure that CSP has a vulnerability management process in
place to mitigate vulnerabilities in all components of the services that
the CSP is responsible for (i.e. managed by the CSP). The RE shall
assess and ensure that the patch management of CSP adequately
covers the components for which the CSP is responsible (i.e.
components managed by the CSP). The patch management
framework shall include the timely patching of all components coming
under the purview of CSP.
2. The RE shall also ensure that CSP conducts Vulnerability Assessment
and Penetration Testing (VAPT) for the components managed by the
130 For CSPs offering PaaS/ SaaS services, in the event any particular security control does not apply to their
specific deployment model, such CSPs have to ensure that their vendor/ partner/ sub-contractor providing the
underlying infrastructure/ platform fulfils the requirement of the security controls. The RE shall deploy the
services of only those PaaS/ SaaS providers which have a back-to-back, clear and enforceable agreement with
their vendor/ partner/ sub-contractor for the same.
131 An indicative mind-map of security controls for cloud deployments is given in Appendix-B
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CSP and fixes the issues/ vulnerabilities within the prescribed
timelines (as agreed upon by CSP and RE).
3. The RE shall also ensure that the vulnerability management, patch
management and VAPT processes are conducted by CSP in-line with
the requirements (for example scope, classification of vulnerabilities,
duration for closure, etc.) provided in applicable circulars/ guidelines
issued by SEBI.
ii. Monitoring: RE shall ensure that CSP has adequate security monitoring
solutions in place. The monitoring solutions of CSP shall be responsible
for the following:
1. Monitoring shall cover all components of the cloud. Additionally, the
CSP shall continuously monitor the alerts generated and take
appropriate actions as per the defined timelines.
2. The RE shall ensure that any event(s) which may have an impact
(financial, reputational, operational, etc.) on the RE shall be intimated
to RE by CSP in a timely manner. The reporting should be done in-line
with the guidelines/ regulations/ circulars issued by SEBI/ Government
of India and (wherever applicable) as per the contractual agreement
signed between the CSP and RE.
iii. Incident Management: The RE shall ensure that the CSP has incident
management processes in place, to detect, respond and recover from
any incident at the earliest. The processes should aim to minimize the
impact to the RE.
iv. Wherever Key management is being done by CSP for platform level
encryption (for example, full disk encryption or VM level encryption), RE
shall assess and ensure that the entire Key lifecycle management is
being done by CSP in a secure manner.
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v. Secure User Management132: Wherever the user management is done
by CSP, the RE shall ensure that role based access and rule based
access are strictly followed by CSP for its resources and it shall be based
on the principle of least privilege. The following shall also be ensured:
1. Administrators and privileged users shall be given only minimal
administrative capabilities for a pre-defined time period, and in
response to specific issues/ needs.
2. With respect to administrative privileges/ users, the following shall also
be followed:
a. All administrative privileges/ users shall be tracked via a ticket/
request by the CSP, and the same shall be provided to the RE
on request. Further, the RE shall also track any additional
privilege granted to any user by the CSP.
b. Access to systems or interfaces that could provide access to the
RE’s data is granted only if the RE has given explicit time-limited
permission for that access.
3. Multi Factor Authentication shall be used for administrator/ privileged
accounts.
4. The necessary auditing and monitoring of the above shall be done by
CSP and any anomalies shall be reported to the RE.
vi. Multi-Tenancy: In a multi-tenant cloud architecture, the RE shall ensure
that CSP has taken adequate controls to ensure that the RE’s data (in
transit, at rest and in use) shall be isolated and inaccessible to any other
tenants. RE shall appropriately assess and ensure the multi tenancy
segregation controls placed by CSP and place additional security
controls if required. Any access by other tenants/unauthorized access by
132 Any type of access/ user provided to SEBI/ any law enforcement agency of Government of India or state
government shall be exempt from this clause
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CSP’s resources to RE’s data shall be considered as an incident/breach
and the CSP shall ensure that the incident/breach is notified to the RE
(as per the norms/ guidelines/ circulars issued by SEBI/ Government of
India and (wherever applicable) as per the contractual agreement signed
between the CSP and RE, and adequate steps are taken to control the
same. During such incident/breach, the RE shall ensure that CSP should
provide all related forensic data, reports and event logs as required to the
RE /SEBI /CERT-In/ any government agency for further investigation. All
conditions and obligations of the RE and CSP under this framework shall
also be applicable in multi-tenancy structure.
vii. The RE shall ensure that the agreement with the CSP contains clause(s)
for safe deletion/ erasure of RE’s information. The clause should cover
various scenarios like business requirement of RE, exit strategy, etc.
viii. For further assurance, the RE may assess the availability of global
compliance standards like SOC-2133 reporting for CSP.
ix. RE shall ensure that CSP has adequate controls (for example anti-virus,
encryption of data, micro-segmentation, etc.) in place to safeguard cloud
infrastructure as well as to ensure the privacy, confidentiality, availability,
processing integrity and security of the RE’s data right from data
creation/transfer/etc. in the cloud till final expunging of data.
6.2. Security in the Cloud:
RE shall perform risk-based assessment and place adequate controls
depending on the criticality of the data/ services/ operations (placed in cloud
environment) under the purview of RE. Some of the common controls
(including but not limited to) that RE shall put in place are:
6.2.1. Vulnerability Management and Patch Management:
133 SOC-2 is a voluntary compliance standard for information security developed by American Institute of
Certified Public Accountants (AICPA).
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The RE shall have a well-defined Vulnerability Management policy in
place and should strictly adhere with the same. The policy should
also address the vulnerability management aspects of the
infrastructure /services /etc. managed by RE in the cloud. The
components managed by RE shall be up to date in terms of
patches/OS/version etc. The patch management policy shall also
mandate timely patch application.
6.2.2. Vulnerability Assessment and Penetration Testing (VAPT):
The VAPT activity undertaken by RE should cover the infrastructure
and applications/services hosted by the RE on cloud. The VAPT
tactics, tools and procedures should be fine-tuned to test and assess
the cloud native risks and vulnerabilities. VAPT should also be
conducted before commissioning of any new system. Additionally,
the VAPT activity shall be conducted as per the requirements
(including scope, classification, duration for closure of vulnerabilities,
etc.) provided in applicable circulars/ regulations issued by SEBI.
6.2.3. Incident Management and SOC Integration:
i. The RE shall have incident management policy, procedures and
processes in place. The RE shall adhere with the same for
deployments being done in cloud.
ii. SOC solution (in-house, third-party SOC or a managed SOC) of
RE shall be integrated with the services/ application/ infrastructure
deployed by RE in cloud. The continuous monitoring shall be done
in an integrated manner and the services/ application/
infrastructure deployed in cloud should be treated as an extension
of the RE’s on premise network. The SOC shall have complete
visibility of information systems of the RE deployed on cloud and
should be capable to take SOAR actions across the information
systems owned by the RE. Additionally, only logs, meta-data
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should be shipped to shared SOC. REs shall ensure that
PII/sensitive data should not be shipped to the SOC.
6.2.4. Continuous Monitoring:
Continuous monitoring shall be done by the RE to review the
technical, legal and regulatory compliance of CSP and take
corrective measures/ ensure CSP takes corrective measures
wherever necessary.
6.2.5. Secure User Management:
The RE shall ensure that the following Identity, Authentication and
Authorization practices are followed (by CSP as well as by RE):
i. Principle of least privilege shall be adopted for granting access to
any resources for normal and admin/privileged accounts.
ii. The identity and access management solution should give the
complete view of the access permissions applicable to all
resources. The access permissions shall be reviewed regularly in
order to remove any unwanted access.
iii. The access logs should be retained and reviewed frequently for
any anomalous events.
iv. Time bound access permissions shall be adopted wherever
feasible.
v. Multi factor authentication shall be adopted for admin accounts.
6.2.6. Security of Interfaces:
Controls related to typical interfaces in a cloud deployment are
given below:
6.2.6.1. Management interface:
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i. This is the interface provided to the RE by CSP to
manage the infrastructure on cloud. This interface is also
used to manage the account of the RE assigned by CSP.
ii. To mitigate the risks, the interface shall have Two Factor
Authentication (2FA)/ Multi Factor Authentication (MFA).
For additional security, measures such as dedicated
lease lines may be explored. The access logs and
access list to the interface should be strictly monitored
(by RE and CSP). The traffic to and from the interface
shall be regulated through firewall, Intrusion prevention
system, etc.
6.2.6.2. Internet facing interfaces:
Any interface which is exposed to public at large on the
internet in the form of a service/API/etc. is considered as
internet facing interface. Adequate security controls such as
IPS, Firewall, WAF, Anti DDOS, API gateways etc. should
be in place and additional controls such as 2FA
authentication, SSL VPN solutions shall also be considered.
6.2.6.3. Interfaces connected between RE’s/relevant organizations
(Through P2P or LAN/MPLS etc.) and CSP:
Security controls such as IPS, Firewall, WAF, Anti DDOS,
etc. shall be in place and additional controls such as IPSEC
VPN shall be adopted, wherever necessary, to secure such
interfaces.
6.2.7. Secure Software Development:
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The RE shall undertake Secure Software Development practices for
development of cloud-ready applications which shall include (but not
limited to):
i. RE shall adopt appropriate Secure Software Development
processes, and security shall be an integral part right from the
design phase itself.
ii. A new approach for secure software development shall be
implemented by RE for dealing with cloud native development
concepts such as micro services, APIs, containers, server less
architecture, etc. as the traditional security mechanisms of
protecting typical web applications might not be relevant for cloud
native development concepts.
iii. Best practices such as zero trust principles, fine grained access
control mechanism, API Gateways, etc. shall be adopted for
development and usage of APIs. End to end security of the APIs
shall also be taken care by the RE as per standard practices and
guidelines.
iv. Secure identification, authentication and authorization
mechanisms shall be adopted by the RE.
6.2.8. Managed Service Provider (MSP) & System Integrator (SI):
i. Wherever MSP and SI are involved in cloud services
procurement, a clear demarcation of roles, and liabilities shall be
clearly defined in the Agreement/Contract.
ii. As there are new risks introduced in engaging MSP/SI or both,
the same shall be assessed, and mitigated by the RE.
6.2.9. Encryption and Cryptographic Key Management:
i. To ensure the confidentiality, privacy and integrity of the data,
encryption as defined below shall be adopted by the RE:
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1. Data-at-rest encryption to be done with strong encryption
algorithms. Data object encryption, file level encryption or
tokenization in addition to the encryption provided at the
platform level shall be used.
2. Data-in-motion including the data within the cloud shall be
encrypted. Session encryption or data object encryption in
addition to the encryption provided at the platform level (Ex.
TLS encryption) shall be used wherever any sensitive data is
in transit.
3. Data-in-use i.e., wherever data that is being used or
processed in the cloud, confidential computing solutions shall
be implemented.
ii. To ensure RE’s controls on encryption and Key management, the
following shall be followed:
1. Wherever applicable:
a. “Bring Your Own Key” (BYOK) approach shall be
adopted, which ensures that the RE retains the control
and management of cryptographic keys that would be
uploaded to the cloud to perform data encryption.
b. “Bring Your Own Encryption” (BYOE) approach shall be
followed by the RE.
2. In case BYOK and BYOE approaches (as given above) are
not implemented by RE, the RE shall conduct a detailed risk
assessment and implement appropriate risk mitigation
measures to achieve equivalent functionality/ security to
BYOK and BYOE approaches.
3. Generating, storing and managing the keys in a Hardware
Security Module (HSM) shall be implemented in a dedicated
HSM to have complete control of Key management.
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However, it is to be noted that HSM should be designed in
fault tolerance mode to ensure that the failure of HSM should
not have an impact on data retrieval and processing.
6.2.10. End Point Security:
The RE shall ensure that the data security controls in the nature of
anti-virus, Data Leak Prevention (DLP) solution etc. are installed and
configured on the cloud deployments for effective data security. The
RE shall also evaluate the baseline security controls provided by the
CSP and may demand additional controls (from CSP) if required.
6.2.11. Network Security:
i. RE shall adopt the micro segmentation principle on cloud
infrastructure. Only the essential communication channels
between computing resources shall be allowed and the rest of
the communication channels shall be blocked.
ii. RE shall also consider the option of utilizing Cloud Access
Security Broker (CASB)/ Secure Access Service Edge (SASE)/
similar frameworks or tools for effective monitoring of network,
enforcement of policies etc.
6.2.12. Backup and recovery solution:
i. The RE shall ensure that a backup and recovery policy is in place
to address the backup requirement of cloud deployments. The
backup and recovery processes shall be checked at least twice
in a year to ensure the adequacy of the backups.
ii. The backup shall be logically segregated from
production/dev/UAT environment to ensure that the malware
infection in such systems does not percolate to backup
environment.
iii. Wherever CSP’s backup services are utilized, adequate care
should be taken with encryption solution and Key management.
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6.2.13. Skillset:
RE shall equip staff overseeing cloud operations with the knowledge
and skills required to securely use and manage the risks associated
with cloud computing. The skills should also be imparted to oversee
the management interfaces, security configurations etc. of CSP
infrastructure. This is a critical factor as it will reduce the
misconfigurations, vulnerabilities etc. and will increase the reliability
of services.
6.2.14. Breach Notification:
CSP shall notify the RE of any cybersecurity incident (for example
data breach, ransomware, etc.) as mandated by the RE. The
reporting shall be done as per the norms/ guidelines/ circulars issued
by SEBI/ Government of India and (wherever applicable) as per the
contractual agreement signed between the CSP and RE. The CSP
shall provide all related forensic data, reports and event logs as
required by RE/ SEBI/ CERT-In/ any other government agency. The
incident shall be dealt as per the Security Incident Management
Policy of the RE along with the relevant guidelines/ directions issued
by SEBI/ Government of India/ respective state government.
Principle 7: Contractual and Regulatory Obligations
7. Contractual and Regulatory Obligations134:
i. A clear and enforceable cloud service provider engagement agreement
should be in place to protect RE’s interests, risk management needs, and
ability to comply with supervisory expectations.
ii. The contractual/agreement terms between RE and CSP shall include the
provisions for audit, and information access rights to the RE as well as SEBI
for the purpose of performing due diligence and carrying out supervisory
reviews. RE shall also ensure that its ability to manage risks, provide
134 With respect to CSPs offering PaaS/SaaS services, REs shall deploy the services of only those CSPs which
have a back-to-back, clear and enforceable agreement with their vendor/ partner/ sub-contractor providing their
underlying infrastructure/ platform for fulfilling the requirements provided in this Principle.
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supervision and comply with regulatory requirements is not hampered by the
contractual terms and agreement with CSP.
iii. The contract/agreement shall be vetted with respect to legal and technical
standpoint by the RE. The agreement shall be flexible enough to allow the
RE to retain adequate control over the resources which are on boarded on
cloud. The agreement should also provide RE the right to intervene with
appropriate measures to meet legal and regulatory obligations.
iv. SEBI/ CERT-In/ any other government agency shall at any time:
1. Conduct direct audits and inspection of resources of CSP (and its sub-
contractors/ vendors) pertaining to the RE or engage third party auditor
to conduct the same and check the adherence with SEBI and government
guidelines/ policies/ circulars and standard industry policies.
2. Perform search and seizure of CSP’s resources storing/ processing data
and other relevant resources (including but not limited to logs, user
details, etc.) pertaining to the RE. In this process, SEBI or SEBI
authorized personnel/ agency may access RE's IT infrastructure,
applications, data, documents, and other necessary information given to,
stored or processed by the CSP and/ or its sub-contractors.
3. Engage a forensic auditor to identify the root cause of any incident (cyber
security or other incidents) related to RE.
4. Seek the audit reports of the audits conducted by CSP.
The RE shall ensure that adequate provisions are included in the agreement/
contract with CSP to enable the above functionalities. Additionally, RE shall
also include provisions (in the contract/ agreement with CSP) mandating that
CSP extends full cooperation to SEBI while conducting the above-mentioned
activities.
v. The RE shall also ensure that adequate provisions are included in the
agreement/ contract for the following audit/ VAPT functions-
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1. CSP shall be responsible for conducting audit/ VAPT of the services/
components managed by the CSP.
2. The RE shall be responsible for conducting audit/ VAPT of the services/
components managed by the RE. The audit/ VAPT shall be conducted as
per the requirements (including scope, duration for closure of
vulnerabilities, etc.) provided in various applicable circulars/ regulations
issued by SEBI from time to time.
3. Implementation and configuration audit of the resources to be deployed
by the RE in cloud environment shall be conducted by the RE and the
same shall be certified by the RE after closing all non-compliances/
observations before go-live.
4. The RE may take into consideration the report/certificate of the audit of
the CSP conducted by STQC. However, wherever required, CSP has to
conduct additional audits (from CERT-In empaneled auditors) to fulfil all
the requirements provided in various applicable circulars/ regulations
issued by SEBI, and the same shall be ensured by the RE.
5. The RE shall ensure that appropriate clauses/ terms (including SLA
clauses) are added in the agreement (signed between RE and CSP) to
enforce the above-mentioned audit/ VAPT requirements.
vi. Contract/Agreement should have adequate provisions regarding the
termination of contract with CSP, and appropriate exit strategies to ensure
smooth exit without hindering any legal, regulatory or technical obligations of
the RE.
vii. As part of exit strategy, a clear expunging clause shall be defined in
agreement with CSP, which shall state that whenever the RE intends to
expunge the data, CSP shall securely and permanently erase the RE’s data
in disks, backup devices, logs, etc. and no data shall remain in recoverable
form. However, it is the responsibility of the RE to ensure that the minimum
retention requirements for data (including logs) as prescribed by SEBI/
Government of India/ respective state government are met and that the
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required data, logs, etc. are archived, even if the RE moves out of the cloud/
changes CSPs.
viii. The RE shall ensure that their data (including but not limited to logs, business
data, etc.) is stored in an easily accessible, legible and usable manner (during
utilization of cloud services and after exit from the cloud) and it shall be
provided to SEBI/ any other government agency whenever required.
ix. The RE is required to adhere with SEBI circulars/ guidelines issued from time
to time and the cloud framework shall be seen as an addition/ complementary
to existing circulars/ guidelines and not as a replacement.
x. The agreement/contract made by RE shall also include (but not limited to)
below mentioned terms/ provisions/ clauses:
1. Definition of the IT activities and resources being on boarded on cloud,
including appropriate service and performance standards including for
the material sub-contractors, if any.
2. Effective access to all the objects/ information relevant to the RE/ RE’s
operation including data, books, records, logs, alerts, and data centre.
3. Continuous monitoring and assessment of the CSP by the RE so that any
necessary corrective measure can be taken immediately, including
termination of contract and any minimum period required to execute such
provisions, if deemed necessary.
4. Type of material adverse events (e.g., data breaches, denial of service,
service unavailability etc.) and incident reporting requirements to the RE
to take prompt mitigation and recovery measures and ensure compliance
with statutory and regulatory guidelines.
5. Compliance with the provisions of IT Act, other applicable legal
requirements and standards to protect the customer (RE) data.
6. The deliverables, including SLAs, for formalizing the performance criteria
to measure the quality and quantity of service levels.
7. Storage of data (as applicable to the RE) within the legal boundaries of
India as per extant regulatory requirements.
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8. Clauses requiring the CSP to provide details of data (captured,
processed and stored) related to RE and RE’s customers to SEBI/ any
other government agency.
9. Controls for maintaining confidentiality of data of RE and its customers,
and incorporating CSP’s liability to the RE in the event of security breach
and leakage of such information.
10. Types of data/ information that the CSP is permitted to share with the
RE’s customers and/or any other party.
11. Specifying the resolution process for events of default, insolvency, etc.
and indemnities, remedies, and recourse available to the respective
parties.
12. Contingency plan(s) to ensure business continuity planning, RPO/RTO,
and recovery requirements.
13. Provisions to fulfill the search and seizure requirements (as provided
above in this principle) and audit/ VAPT requirements (as provided above
in this principle).
14. Right to seek information (by RE/ SEBI) from the CSP about the third
parties (in the supply chain) engaged by the CSP.
15. Clauses making the CSP contractually liable for the performance and risk
management practices of its sub-contractors.
16. Obligation of the CSP to comply with directions issued by SEBI in relation
to the activities of the RE on boarded on cloud.
17. Termination rights of the RE, including the ability to orderly transfer the
proposed cloud onboarding assignment to another CSP, if necessary or
desirable.
18. Obligation of the CSP to co-operate with the relevant authorities in cases
involving the RE as and when required.
19. Clauses for performing risk assessment by CSP with respect to hiring of
third party vendors, the checks/ process followed by CSP before
onboarding personnel/ vendors, etc.
20. Any other provision(s) required to ensure compliance with respect to
circulars/ guidelines/ regulations (including this cloud framework) issued
by SEBI.
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xi. Wherever the System integrator or managed service provider or both, along
with CSP are involved, the contractual terms and agreement shall
unambiguously demarcate/ delineate the roles, and liabilities of each
participating party (in-line with the “Principle 4: Responsibility of the RE” of
the framework) for each task/ activity/ function. There shall be no “joint/
shared ownership” for any task/ activity/ function/ component.
xii. If any function/ task/ activity has to be performed jointly by the RE and
CSP/MSP/SI, there shall be a clear delineation and fixing of responsibility
between the RE and the CSP (and MSP/SI wherever applicable) for each
sub-task/ line-item within the task. The aforementioned delineation of
responsibilities shall be added explicitly in the agreement (as an annexure)
signed between the RE and the CSP (and MSP/SI wherever applicable).
However, any such clause in the agreement shall not absolve the RE from
having the ultimate responsibility and liability for any violation of the laws,
rules, regulations, circulars, etc. issued by SEBI or any other authority under
any law, regardless of any delineation/ demarcation of responsibilities.
xiii. Similarly, there shall be an explicit and unambiguous delineation/
demarcation of responsibilities between the RE and CSP (and MSP/SI
wherever applicable) for ensuring compliance with respect to applicable
circulars (for example cybersecurity and cyber resilience circular, outsourcing
circular, BCP-DR etc.) issued by SEBI from time to time. There shall be no
“joint/ shared ownership” for ensuring compliance with respect to any clause.
If compliance for any clause has to be jointly ensured by RE and CSP (and
MSP/SI wherever applicable), there should be a clear delineation and fixing
of responsibility between the RE and the CSP (and MSP/SI wherever
applicable) for each sub-task/ line-item within the clause. This delineation
shall also be added explicitly in the agreement (as an annexure) signed
between the RE and the CSP.
xiv. Reporting Requirements:
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1. It is being reiterated that the RE is solely accountable for all aspects
related to the cloud services adopted by it including but not limited to
availability of cloud applications, confidentiality, integrity and security of
its data and logs, and ensuring RE’s compliance with the applicable laws,
rules, regulations, circulars, etc. issued by SEBI/ Government of India/
respective state government.
2. The RE shall explicitly and unambiguously specify the party (RE or
CSP/MSP/SI) which is responsible for ensuring compliance with each
clause of the applicable SEBI circulars (for example cybersecurity
circular, systems audit, etc.) in its audit reports. There shall be no “joint/
shared ownership” for any of the clauses. In case the responsibility of
ensuring compliance (for any clause) rests with both parties, the task
shall be split into sub-tasks/line-items, and for each sub-task/line-items,
the responsible party shall be indicated in the report.
3. The RE shall ensure that the demarcation/ delineation of responsibilities
is provided for each clause of the applicable SEBI circular(s).
4. In view of the above requirements, as well as to ensure effective
monitoring of cloud deployments by REs, reporting of compliance (with
this framework) shall be done by the REs in their systems audit,
cybersecurity audit and VAPT reports, and it shall be done in the
standardized format notified by SEBI from time to time.
5. Reporting by Auditor: As part of system audit of the RE, the auditor
shall verify, and certify, whether there is a clear delineation/ demarcation
of roles and responsibilities between the RE and CSP/MSP/SI (in-line
with the “Principle 4: Responsibility of the RE” of the framework):
a. For each task/ function/ activity/ component (including the tasks/
functions stated in clause (x) above, wherever applicable).
b. For each clause of applicable/ relevant SEBI circular/ guidelines/
regulations.
The auditor shall also verify, and certify, whether the above-mentioned
demarcations of roles and responsibilities have been incorporated in the
agreement/ contract signed between the RE and CSP (and MSP/SI
wherever applicable).
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xv. In the event of any CSP deployed by an RE losing its empanelment status
with MeitY/ commits a passive breach of contract/ agreement in any way, the
RE shall ensure that it becomes compliant with this framework within 6 (six)
months of being notified of/ discovering the breach.
Principle 8: BCP, Disaster Recovery & Cyber Resilience
8. Business Continuity Planning (BCP), Disaster Recovery & Cyber
Resilience:
i. The RE shall assess its BCP framework and ensure that it is in compliance
with this cloud framework as well as other guidelines/ circulars issued by
SEBI from time to time.
ii. RE shall also assess the capabilities, preparedness and readiness with
respect to cyber resilience of CSP. The same can be periodically assessed
by conducting DR drills (in accordance with circulars/ guidelines issued by
SEBI) by involving necessary stakeholders.
iii. Additionally, RE shall develop a viable and effective contingency plan to cope
with situations involving a disruption/ shutdown of cloud services.
Principle 9: Vendor Lock-In and Concentration Risk Management
9. Concentration Risk Management:
i. RE shall assess its exposure to CSP lock-in and concentration risks. The risk
evaluation shall be done before entering into contract/ agreement with CSP
and the same should also be assessed on a periodic basis.
ii. In order to mitigate the CSP concentration risks, RE shall explore the option
of cloud-ready and CSP agnostic solutions (such as implementing multi-cloud
ready solutions) which can facilitate the RE in migrating the solutions as and
when necessary, with minimal changes. Exit strategies shall be developed,
which should consider the pertinent risk indicators, exit triggers, exit
scenarios, possible migration options, etc.
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iii. The RE shall also take measures to implement data portability and inter-
operability as part of exit/ transfer strategy.
iv. In order to mitigate the risk arising due to failure/ shutdown of a particular
CSP, and to limit the impact of any such failure/ shutdown on the securities
market, SEBI may specify concentration limits on CSPs (thereby setting a
limit on the number of REs that a CSP may provide its services to).
10. Recommendations:
i. RE may opt for any model of deployment on the basis of its business needs
and technology risk assessment. However, compliance should be ensured
with this cloud framework as well as other rules/ laws/ regulations/ circulars
made by SEBI/ Government of India/ respective state government.
ii. REs are solely accountable for all aspects related to the cloud services
adopted by them including but not limited to availability of cloud applications,
confidentiality, integrity and security of their data and logs, and ensuring RE’s
compliance with respect to the applicable laws, rules, regulations, circulars,
etc. issued by SEBI/ Government of India/ respective state government.
Accordingly, the RE shall be held accountable for any violation of the same.
iii. While deploying cloud services, the REs shall adopt the nine (9) principles as
provided in this framework:
1. Principle 1: Governance, Risk and Compliance Sub-Framework
2. Principle 2: Selection of Cloud Service Providers
3. Principle 3: Data Ownership and Data Localization
4. Principle 4: Responsibility of the Regulated Entity
5. Principle 5: Due Diligence by the Regulated Entity
6. Principle 6: Security Controls
7. Principle 7: Contractual and Regulatory Obligations
8. Principle 8: BCP, Disaster Recovery & Cyber Resilience
9. Principle 9: Vendor Lock-in and Concentration Risk Management
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The REs shall ensure that their cloud deployments are compliant, in letter
and spirit, with the above-mentioned principles.
iv. The cloud services shall be taken only from the MeitY empaneled CSPs. The
CSP’s data center should hold a valid STQC (or any other equivalent agency
appointed by Government of India) audit status. For selection of CSPs
offering PaaS and SaaS services in India, RE shall choose only such CSPs
which:
1. Utilize the underlying infrastructure/ platform of only MeitY empaneled
CSPs for providing services to the RE.
2. Host the application/ platform/ services provided to RE, and store/
process data of the RE, only within the data centers as empaneled by
MeitY and holding a valid STQC (or any other equivalent agency
appointed by Government of India) audit status.
3. Have a back-to-back, clear and enforceable agreement with their
partners/ vendors/ sub-contractors (including those that provide the
underlying infrastructure/ platform) for ensuring their compliance with
respect to the requirements provided in this framework including those in
Principles 6 (Security Controls), 7 (Contractual and Regulatory
Obligations) and 8 (BCP, Disaster Recovery & Cyber resilience).
v. There should be an explicit and unambiguous delineation/ demarcation of
responsibilities for all activities (technical, managerial, governance related,
etc.) of the cloud services between the RE and CSP (and MSP/SI wherever
applicable). There shall be no "joint/ shared ownership" for any function/ task/
activity between the RE and CSP. If any function/ task/ activity has to be
performed jointly by the RE and CSP, there should be a clear delineation and
fixing of responsibility between the RE and the CSP (and MSP/SI wherever
applicable) for each sub-task/ line-item within the task. The same should be
a part of the agreement (as an annexure) between the RE and the CSP (and
MSP/SI wherever applicable).
vi. Similarly, there should be an explicit and unambiguous delineation/
demarcation of responsibilities between the RE and CSP (and MSP/SI
357
wherever applicable) for ensuring compliance with respect to circulars (for
example cybersecurity and cyber resilience circular, outsourcing circular,
BCP-DR etc.) issued by SEBI from time to time. There shall be no “joint/
shared ownership” for ensuring compliance with respect to any clause. If
compliance for any clause has to be jointly ensured by RE and CSP (and
MSP/SI wherever applicable), there should be a clear delineation and fixing
of responsibility between the RE and the CSP (and MSP/SI wherever
applicable) for each sub-task/ line-item within the clause. This delineation
shall also be added explicitly in the agreement (as an annexure) signed
between the RE and the CSP (and MSP/SI wherever applicable).
vii. As part of system audit of the RE, the auditor shall verify, and certify, whether
there is a clear delineation/ demarcation of roles and responsibilities between
the RE and CSP/MSP/SI (in-line with the “Principle 4: Responsibility of the
RE” of the framework):
a. For each task/ function/ activity/ component.
b. For each clause of applicable/ relevant SEBI circular/ guidelines/
regulations
The auditor shall also verify, and certify, whether the above-mentioned
demarcations of roles and responsibilities have been incorporated in the
agreement/ contract signed between the RE and CSP (and MSP/SI wherever
applicable.
viii. The contractual/agreement terms between RE and CSP shall include the
provisions for audit, and information access rights to the RE as well as SEBI,
for the purpose of performing due diligence and carrying out supervisory
reviews. RE shall also ensure that its ability to manage risks, provide
supervision and comply with regulatory requirements is not hampered by the
contractual terms and agreement with CSP.
ix. SEBI/ CERT-In/ any other government agency shall at any time:
1. Conduct direct audits and inspection of resources of CSP (and its sub-
contractors/ vendors) pertaining to the RE or engage third party auditor
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to conduct the same and check the adherence with SEBI and government
guidelines/ policies/ circulars and standard industry policies.
2. Perform search and seizure of CSP’s resources storing/ processing data
and other relevant resources (including but not limited to logs, user
details, etc.) pertaining to the RE. In this process, SEBI or SEBI
authorized personnel/ agency may access RE's IT infrastructure,
applications, data, documents, and other necessary information given to,
stored or processed by the CSP and/ or its sub-contractors.
3. Engage a forensic auditor to identify the root cause of any incident (cyber
security or other incidents) related to RE.
4. Seek the audit reports of the audits conducted by CSP.
The RE shall ensure that adequate provisions are included in the agreement/
contract with CSP to enable the above functionalities. Additionally, RE shall
also include provisions (in the contract/ agreement with CSP) mandating that
CSP extends full cooperation to SEBI while conducting the above-mentioned
activities.
x. The cloud framework should be read along with the circulars (including
circulars on outsourcing, cybersecurity, BCP-DR, etc.), directions, advisories,
etc. issued by SEBI from time to time.
xi. Transition Period:
1. For the REs which are not utilizing any cloud services currently, the
framework shall be applicable/ come into force from the date of issuance.
2. For the REs which are currently utilizing cloud services, upto 12 months
shall be given to ensure their compliance with the framework.
Additionally, such REs shall provide regular milestone-based updates as
follows:
SN. Timeline Milestone
1 Within one (1) month of REs shall provide details of the
issuance of framework cloud services, if any, currently
deployed by them.
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2 Within three (3) months of The REs shall submit a
issuance of framework roadmap (including details of
major activities, timelines, etc.)
for the implementation of the
framework
3 From three (3) to twelve (12) Quarterly progress report as per
months of issuance of the roadmap submitted by the
framework RE.
4 After twelve (12) months of Compliance with respect to the
issuance of framework framework to be reported
regularly
3. The above-mentioned reporting shall be done to the authority as per the
existing mechanism of reporting for systems audit/ cybersecurity audit.
xii. The compliance with respect to the framework shall be submitted by the REs
as part of their systems audit, cybersecurity audit, and VAPT reports, and no
separate reporting is envisaged. The reporting shall be done as per the
standardized format notified by SEBI from time to time. All other conditions
for reporting (for example reporting authority, duration of reporting, etc.) shall
be as per the existing mechanism of reporting for systems audit/
cybersecurity audit/VAPT.
Appendix-A
Format for Submission of Details of Cloud Deployments
The REs shall provide details of their cloud deployment in the following format-
A. Entity Name:
B. Entity Type: (For example stock exchange, depository, mutual fund, etc.)
C. Whether Utilizing Cloud Services? Yes/ No
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For Each Cloud application/ service/ system, please provide a response to
the following:
SN Details Required Entity
Response
1 Name of the Application/ Service/ System
2 The type of deployment model utilized (public cloud,
community cloud, etc.)
3 The type of service model utilized (For example
IaaS, PaaS, etc.)
4 Name of the Cloud Service Provider (CSP)
5 Country of incorporation/ registration of CSP
Name of the Managed Service Provider (MSP) /
System Integrator (SI) [wherever applicable]
6 Country of incorporation/ registration of MSP/ SI
7 Whether the application/ service/ system is a critical
or core application/ service/ system?
8 Details of Data hosted/ stored in cloud
9 Whether data is stored within the legal boundaries
of India?
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Appendix-B
Indicative Mindmap for Cloud Security
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Annexure-33
Format for reporting changes in "status or constitution" of Members
Name of the Stock Exchange:
Report for the quarter ending: June/September/December/March Year:-
Date of report:
S. Date Name of Registratio Type Details of PAN Date of Date of
No. of the n number of changes (incoming Chang approval
receip member INB/F/E chang Pre Pos entities) e by Stock
t INS e t Exchang
e
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.
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Annexure-34
Declaration-Cum-Undertaking
We M/s. (Name of the intermediary/the acquirer/person who shall have the
control), hereby declare and undertake the following with respect to the
application for prior approval for change in control of (name of the
intermediary along with the SEBI registration no.):
1. The applicant/intermediary (Name) and its principal officer, the directors
or managing partners, the compliance officer and the key management
persons and the promoters or persons holding controlling interest or
persons exercising control over the applicant, directly or indirectly (in
case of an unlisted applicant or intermediary, any person holding twenty
percent or more voting rights, irrespective of whether they hold controlling
interest or exercise control, shall be required to fulfill the ‘fit and proper
person’ criteria) are fit and proper person in terms of Schedule II of SEBI
(Intermediaries) Regulations, 2008.
2. We bear integrity, honesty, ethical behaviour, reputation, fairness and
character.
3. We do not incur following disqualifications mentioned in Clause 3(b) of
Schedule II of SEBI (Intermediaries) Regulations, 2008 i.e.
i. No criminal complaint or information under section 154 of the Code
of Criminal Procedure, 1973 (2 of 1974) has been filed against us by
the Board and which is pending.
ii. No charge sheet has been filed against us by any enforcement
agency in matters concerning economic offences and is pending.
iii. No order of restraint, prohibition or debarment has been passed
against us by the Board or any other regulatory authority or
enforcement agency in any matter concerning securities laws or
financial markets and such order is in force.
iv. No recovery proceedings have been initiated by the Board against
us and are pending.
v. No order of conviction has been passed against us by a court for any
offence involving moral turpitude.
vi. No winding up proceedings have been initiated or an order for
winding up has been passed against us.
vii. We have not been declared insolvent.
viii. We have not been found to be of unsound mind by a court of
competent jurisdiction and no such finding is in force.
ix. We have not been categorized as a wilful defaulter.
x. We have not been declared a fugitive economic offender.
4. We have not been declared as not ‘fit and proper person’ by an order of
the Board.
5. No notice to show cause has been issued for proceedings under
SEBI(Intermediaries) Regulations, 2008 or under section 11(4) or section
11B of the SEBI Act during last one year against us.
6. It is hereby declared that we and each of our promoters, directors,
principal officer, compliance officer and key managerial persons are not
associated with vanishing companies.
364
7. We hereby undertake that there will not be any change in the Board of
Directors of incumbent, till the time prior approval is granted.
8. We hereby undertake that pursuant to grant of prior approval by SEBI,
the incumbent shall inform all the existing investors/ clients about the
proposed change prior to effecting the same, in order to enable them to
take informed decision regarding their continuance or otherwise with the
new management.
The said information is true to our knowledge.
(stamped and signed by the Authorised Signatories)
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Annexure-35
APPLICATION TO SEBI FOR OPENING OF WHOLLY OWNED
SUBSIDIARIES, STEP DOWN SUBSIDIARIES OR ENTERING INTO
JOINT VENTURES IN GIFT IFSC
Please read the instructions carefully before filling up the Application
form:
1. Fill in all the particulars clearly.
2. The information should be complete in all respects.
3. Please attach the relevant enclosures.
4. The application shall be submitted through Stock Exchange / Clearing
Corporation along with NOC obtained from all the Stock Exchanges/
Clearing Corporations/Depositories, where the applicant is a
member/participant and other documents as listed in the present form.
II. GENERAL INFORMATION:
1 Details of all registrations of the applicant 1. Name of the entity (Earlier
company in India and abroad name, if any)
2. Type of Intermediary (If
Broker, names of
Exchanges and if DP,
name of the Depositories)
3. Registration Number
4. Date of Registration
2 Networth of the applicant company
(in Rs.)
3 Details of the following persons:
a) Promoters (Name and PAN
number)
b) Directors ( Name, DIN and PAN
number)
c) Key Person of the applicant (Name
and PAN number)
4 Details of regulatory action taken/
initiated/ pending, if any, against the
applicant/ promoters/ directors/key
personnel/ principal officer of the applicant
company (in
India/abroad)
5 Any fee remaining unpaid to SEBI by
applicant/ associates
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6 Amount of proposed investment
(converted in Indian Rupees)
7 Whether the applicant is setting up a
Wholly Owned subsidiary (WOS) or a Step
Down
Subsidiary (SDS) or entering into Joint
Venture (JV) or acquiring stake in an
existing company.
8 Details of the proposed WOS/SDS/JV in a) Name of the proposed entity
GIFT IFSC (provide relevant details in in GIFT IFSC
case of equity participation in existing b) Purpose for setting up the
WOS/SDS/JV/Equity
company or joint venture with a company)
Participation etc.
c) Nature of proposed
activities
2. UNDERTAKING
a) Pursuant to setting up Wholly Owned Subsidiary / investment in step down
subsidiary/joint venture, etc., we shall maintain networth for each category of
registration as per SEBI Act, 1992 & Regulations/ circulars issued there
under and bye laws/ rules/ regulations/ circulars, etc. issued by respective
stock exchanges/Depositories.
Signature
Name
Designation
Place:
Date:
III. ENCLOSURES:
a. Certificate of Networth:
i) Networth Certificate of the applicant based on the latest audited
results (in Rs.), duly certified by a Chartered Accountant.
ii) In case the above Networth Certificate is more than 6 months old,
then provide i) above as well as the latest provisional networth
certificate, duly certified by a Chartered Accountant.
b. NOC obtained from all the Stock Exchanges/Depositories where the
applicant is a member/ participant, in case the applicant is a Stock
Broker/Depository Participant.
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c. Details of any non-compliance w.r.t ‘fit and proper person’ criteria as
specified in Schedule II of SEBI (Intermediaries) Regulations, 2008.
d. Declaration cum undertaking (format enclosed) with regard to compliance
with the ‘fit and proper person’ criteria as specified in Schedule II of SEBI
(Intermediaries) Regulations, 2008 duly stamped and signed by the
Authorized Signatories of the applicant.
e. Latest shareholding pattern of the applicant and list of the shareholders
who have controlling interest.
Declaration Cum Undertaking
We M/s. Name of the intermediary, having SEBI registration certificate in
the capacity of _______________ bearing registration number
________________ hereby declare and undertake the following w.r.t our
application for setting up WOS/SDS/JV in GIFT IFSC:
1. Name of the intermediary and its principal officer, directors or managing
partners, compliance officer, key management persons, promoters or
persons holding controlling interest or persons exercising control over
the intermediary directly or indirectly and person holding twenty percent
or more voting rights of the intermediary (hereinafter referred to as “We”
or “Us”) are fit and proper person as per requirement laid down in
Schedule II of SEBI (Intermediaries) Regulations, 2008.
2. We bear integrity, honesty, ethical behaviour, reputation, fairness and
character.
3. We do not incur following disqualifications mentioned in Clause 3(b) of
Schedule II of SEBI (Intermediaries) Regulations, 2008 i.e.
(i) No criminal complaint or information under section 154 of the
Code of Criminal Procedure, 1973 (2 of 1974) has been filed
against us by the Board and which is pending.
(ii) No charge sheet has been filed against us by any enforcement
agency in matters concerning economic offences and is pending.
(iii) No order of restraint, prohibition or debarment has been
passed against us by the Board or any other regulatory authority
or enforcement agency in any matter concerning securities laws
or financial markets and such order is in force.
(iv) No recovery proceedings have been initiated by the Board
against us and are pending.
(v) No order of conviction has been passed against us by a court
for any offence involving moral turpitude.
368
(vi) No winding up proceedings have been initiated or an order for
winding up has been passed against us.
(vii) We have not been declared insolvent.
(viii) We have not been found to be of unsound mind by a court of
competent jurisdiction and no such finding is in force.
(ix) We have not been categorized as a wilful defaulter.
(x) We have not been declared a fugitive economic offender.
4. We have not been declared as not ‘fit and proper person’ by an order
of the Board.
5. No notice to show cause has been issued for proceedings under SEBI
(Intermediaries) Regulations, 2008 or under section 11(4) or section
11B of the SEBI Act during last one year against us.
6. It is hereby declared that we and each of our Promoters, Directors,
Principal Officer, Compliance Officer and Key Managerial Persons are
not associated with vanishing companies.
7. There is no outstanding SEBI fee payable by the intermediary.
The said information is true to our knowledge.
(stamped and signed by the Authorised Signatories)
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Annexure-36 - Information regarding Grievance Redressal Mechanism
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.
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Annexure-37
Investor Charter – Stock Brokers
VISION
To follow highest standards of ethics and compliances while facilitating the trading
by clients in securities in a fair and transparent manner, so as to contribute in
creation of wealth for investors.
MISSION
i) To provide high quality and dependable service through innovation, capacity
enhancement and use of technology.
ii) To establish and maintain a relationship of trust and ethics with the investors.
iii) To observe highest standard of compliances and transparency.
iv) To always keep ‘protection of investors’ interest’ as goal while providing service.
v) To ensure confidentiality of information shared by investors unless such
information is required to be provided in furtherance of discharging legal
obligations or investors have provided specific consent to share such information.
Services provided to Investors by stock brokers include
I. Execution of trades on behalf of investors.
II. Issuance of Contract Notes.
III. Issuance of intimations regarding margin due payments.
IV. Facilitate execution of early pay-in obligation instructions.
V. Periodic Settlement of client’s funds.
VI. Issuance of retention statement of funds at the time of settlement.
VII. Risk management systems to mitigate operational and market risk.
VIII. Facilitate client profile changes in the system as instructed by the client.
IX. Information sharing with the client w.r.t. relevant Market Infrastructure
Institutions (MII) circulars.
X. Provide a copy of Rights & Obligations document to the client.
XI. Communicating Most Important terms and Conditions (MITC) to the client.
XII. Redressal of Investor’s grievances.
Rights of Investors
I. Ask for and receive information from a firm about the work history and
background of the person handling your account, as well as information about
the firm itself (including website providing mandatory information).
II. Receive complete information about the risks, obligations, and costs of any
investment before investing.
III. Receive a copy of all completed account forms and rights & obligation
document.
IV. Receive a copy of ‘Most Important Terms & Conditions’ (MITC).
V. Receive account statements that are accurate and understandable.
VI. Understand the terms and conditions of transactions you undertake.
VII. Access your funds in a prescribed manner and receive information about any
restrictions or limitations on access.
VIII.Receive complete information about maintenance or service charges,
transaction or redemption fees, and penalties in form of tariff sheet.
IX. Discuss your grievances with compliance officer / compliance team /
dedicated grievance redressal team of the firm and receive prompt attention to
and fair consideration of your concerns.
X. Close your zero balance accounts online with minimal documentation
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XI. Get the copies of all policies (including Most Important Terms and Conditions)
of the broker related to dealings of your account
XII. Not be discriminated against in terms of services offered to equivalent clients
XIII.Get only those advertisement materials from the broker which adhere to Code
of Advertisement norms in place
XIV. In case of broker defaults, be compensated from the Exchange Investor
Protection Fund as per the norms in place
XV. Trade in derivatives after submission of relevant financial documents to the
broker subject to brokers’ adequate due diligence.
XVI. Get warnings on the trading systems while placing orders in securities where
surveillance measures are in place
XVII. Get access to products and services in a suitable manner even if differently
abled
XVIII. Get access to educational materials of the MIIs and brokers
XIX. Get access to all the exchanges of a particular segment you wish to deal with
unless opted out specifically as per Broker norms
XX. Deal with one or more stockbrokers of your choice without any compulsion of
minimum business
XXI. Have access to the escalation matrix for communication with the broker
XXII. Not be bound by any clause prescribed by the Brokers which are
contravening the Regulatory provisions.
Various activities of Stock Brokers with timelines
S.No. Activities Expected Timelines
1. KYC entered into KRA System 3 working days of account opening
and CKYCR
2. Client Onboarding Immediate, but not later than one week
3. Order execution Immediate on receipt of order, but not
later than the same day
4. Allocation of Unique Client Code Before trading
5. Copy of duly completed Client 7 days from the date of upload of
Registration Documents to Unique Client Code to the Exchange by
clients the trading member
6. Issuance of contract notes 24 hours of execution of trades
7. Collection of upfront margin from Before initiation of trade
client
8. Issuance of intimations At the end of the T day
regarding other margin due
payments
9. Settlement of client funds First Friday/Saturday of the month /
quarter as per Exchange pre-
announced schedule
10. ‘Statement of Accounts’ for Monthly basis
Funds, Securities and
Commodities
372
11. Issuance of retention statement 5 days from the date of settlement
of funds/commodities
12. Issuance of Annual Global 30 days from the end of the financial
Statement year
13. Investor grievances redressal 21 calendar days from the receipt of the
complaint
DOs and DON’Ts for Investors
DOs DON’Ts
1. Read all documents and conditions being 1. Do not deal with unregistered
agreed before signing the account opening stock broker.
form. 2. Do not forget to strike off
2. Receive a copy of KYC, copy of account blanks in your account
opening documents and Unique Client opening and KYC.
Code. 3. Do not submit an incomplete
3. Read the product / operational framework / account opening and KYC
timelines related to various Trading and form.
Clearing & Settlement processes. 4. Do not forget to inform any
4. Receive all information about brokerage, change in information linked
fees and other charges levied. to trading account and obtain
5. Register your mobile number and email ID confirmation of updation in
in your trading, demat and bank accounts the system.
to get regular alerts on your transactions.
5. Do not transfer funds, for the
6. If executed, receive a copy of Demat Debit
purposes of trading to anyone
and Pledge Instruction (DDPI) However,
other than a stock broker. No
DDPI is not a mandatory requirement as
payment should be made in
per SEBI / Stock Exchanges. Before
name of employee of stock
granting DDPI, carefully examine the
broker.
scope and implications of powers being
6. Do not ignore any emails /
granted.
SMSs received with regards
7. Receive contract notes for trades
to trades done, from the
executed, showing transaction price,
Stock Exchange and raise a
brokerage, GST and STT/CTT etc. as
concern, if discrepancy is
applicable, separately, within 24 hours of
observed.
execution of trades.
7. Do not opt for digital
8. Receive funds and securities/ commodities
contracts, if not familiar with
on time, as prescribed by SEBI or
computers.
exchange from time to time.
8. Do not share trading
9. Verify details of trades, contract notes and
password.
statement of account and approach
9. Do not fall prey to fixed /
relevant authority for any discrepancies.
guaranteed returns schemes.
Verify trade details on the Exchange
373
websites from the trade verification facility 10. Do not fall prey to fraudsters
provided by the Exchanges. sending emails and SMSs
10. Receive statement of accounts luring to trade in stocks /
periodically. If opted for running account securities promising huge
settlement, account has to be settled by the profits.
stock broker as per the option given by the 11. Do not follow herd mentality
client (Monthly or Quarterly). for investments. Seek expert
11. In case of any grievances, approach stock and professional advice for
your investments
broker or Stock Exchange or SEBI for
getting the same resolved within
prescribed timelines.
12. Retain documents for trading activity as it
helps in resolving disputes, if they arise.
Additionally, Investors may refer to Dos and Don’ts issued by MIIs on their
respective websites from time to time.
Grievance Redressal Mechanism
The process of investor grievance redressal is as follows:
1. Investor Investor can lodge complaint/grievance against
complaint/Grievances stock broker in the following ways:
Mode of filing the complaint with stock broker
Investor can approach the Stock Broker at the
designated Investor Grievance e-mail ID of the
stock broker. The Stock Broker will strive to
redress the grievance immediately, but not later
than 21 days of the receipt of the grievance.
Mode of filing the complaint with stock exchanges
i. SCORES 2.0 (a web based centralized
grievance redressal system of SEBI)
(https://scores.sebi.gov.in)
Two level review for complaint/grievance
against stock broker:
 First review done by Designated
body/Exchange
 Second review done by SEBI
ii. Emails to designated email IDs of Exchange
2. Online Dispute If the Investor is not satisfied with the resolution
Resolution (ODR) provided by the Market Participants, then the
platform for online Investor has the option to file the complaint/
Conciliation and grievance on SMARTODR platform for its
Arbitration
374
resolution through online conciliation or
arbitration.
3. Steps to be followed in 1. Investor to approach Market Participant for
ODR for Review, redressal of complaint
Conciliation and
Arbitration
2. If investor is not satisfied with response of
Market Participant, he/she has either of the
following 2 options:
i. May escalate the complaint on SEBI
SCORES portal.
ii. May also file a complaint on SMARTODR
portal for its resolution through online
conciliation and arbitration.
3. Upon receipt of complaint on SMARTODR
portal, the relevant MII will review the matter
and endeavor to resolve the matter between
the Market Participant and investor within 21
days.
4. If the matter could not be amicably resolved,
then the matter shall be referred for
conciliation.
5. During the conciliation process, the conciliator
will endeavor for amicable settlement of the
dispute within 21 days, which may be
extended with 10 days by the conciliator with
consent of the parties to dispute.
6. If the conciliation is unsuccessful, then the
investor may request to refer the matter for
arbitration.
7. The arbitration process to be concluded by
arbitrator(s) within 30 days, which is
extendable by 30 days with consent of the
parties to dispute.
Handling of Investor’s claims / complaints in case of default of a Trading
Member / Clearing Member (TM/CM)
Default of TM/CM
375
Following steps are carried out by Stock Exchange for benefit of investor, in case
stock broker defaults:
• Circular is issued to inform about declaration of Stock Broker as Defaulter.
• Information of defaulter stock broker is disseminated on Stock Exchange
website.
• Public Notice is issued informing declaration of a stock broker as defaulter
and inviting claims within specified period.
• Intimation to clients of defaulter stock brokers via emails and SMS for
facilitating lodging of claims within the specified period.
Following information is available on Stock Exchange website for information of
investors:
• Norms for eligibility of claims for compensation from IPF.
• Claim form for lodging claim against defaulter stock broker.
• FAQ on processing of investors’ claims against Defaulter stock broker.
• Provision to check online status of client’s claim.
• Standard Operating Procedure (SOP) for handling of Claims of Investors in
the Cases of Default by Brokers
• Claim processing policy against Defaulter/Expelled members
• List of Defaulter/Expelled members and public notice issued
376
Annexure-38
Format for Investor Complaints Data to be displayed by Stock Brokers on their
respective websites
Data for every month ending
S Receive Carried Receive Total Resolve Pending at the end Average
N d from forwar d Pendin d* of the Resoluti
d from during g month** on time^
previou the (in days)
month
s
month
Pending Pending
for less for more
than 3 than 3
month month
s
s
1 2 3 4 5 6 7 8
1 Directly
from
Investors
2 SEBI
(SCORE
S 2.0)
3 Stock
Exchang
es
4 Other
Sources
(if any)
5 Grand
Total
Trend of monthly disposal of complaints
SN Month Carried forward Received Resolved* Pending**
from previous
month
1 2 3 4 5 6
1 April -YYYY
2 May-YYYY
3 June-YYYY
377
4 July-YYYY
….
…..
March-YYYY
Grand Total
*Should include complaints of previous months resolved in the current month, if any.
**Should include total complaints pending as on the last day of the month, if any.
^Average resolution time is the sum total of time taken to resolve each complaint in the
current month divided by total number of complaints resolved in the current month.
Trend of annual disposal of complaints
SN Year Carried forward Received Resolved Pending at
from previous during the during the the end of the
year year year year
1 2021-22
2 2022-23
3 2023-24
4 2024-25
Grand Total
378
Annexure-39
To be on Stamp / Franked Paper of appropriate value and notarized
AFFIDAVIT OF UNDERTAKING CUM INDEMNITY BOND TO BE SUBMITTED BY
MEMBER TO ………… [NAME OF THE STOCK EXCHANGE / CLEARING
CORPORATION]
This Undertaking cum Indemnity Bond is signed at Mumbai on this
________day of _______, 20.
By
I/We, Member of ……….. [Name of The Stock Exchange / Clearing Corporation]
(bearing Trading / Clearing No. ________), having office at
…………………………………………………, (hereinafter referred to as “Member”,
which expression, unless repugnant to the context or meaning thereof, shall be
deemed to include its successors and assigns).
In favour of:
………………..Ltd., [Name of the Stock Exchange / Clearing Corporation] a
company incorporated under the Companies Act, 1956 having its registered office
at ………………………………………………… (hereinafter referred to as “…..”,
which expression shall, unless repugnant to the context or meaning thereof, be
deemed to include its successors and assigns).
I/We hereby solemnly declare and undertake that:
Whereas the Securities and Exchange Board of India (hereinafter referred to as
“SEBI”) has issued circular dated July 01, 2020 on Standard Operating Procedure
to be followed in the case of trading member/clearing member leading to default
(hereinafter referred to as the “said circular”).
Whereas in terms of the said circular the …….. [Name of the Stock Exchange /
Clearing Corporation] has amended its bye-laws and is empowered …….. [Name of
the Stock Exchange / Clearing Corporation] to issue instructions to the concerned
bank/s to freeze the bank account/s maintained by the Member, for all debits /
withdrawal by the Member in the event of a potential default by the Member in
meeting its obligations to Stock Exchange / Clearing Member / Clearing Corporation
and / or repayment of funds / securities to his / its clients.
Now, in consideration of the above, I / We do hereby agree and confirm
unconditionally to undertake that:
1) ………… [Name of the Stock Exchange / Clearing Corporation] is empowered
to instruct the concerned banks to freeze my / our bank accounts for all debits /
withdrawals from such accounts. The details of bank accounts held by me/ us are
379
as follows:
2) Any debits to such bank account, post freezing by the banks, shall be done
only on the express instructions to the said banks by ………… [Name of the Stock
Exchange/ Clearing Corporation].
3) ………… [Name of the Stock Exchange / Clearing Corporation] shall not be
liable in any way to me/us for any losses, claims, penalties, proceedings / actions,
damages, consequential or otherwise, arising there from or occasioned thereby.
4) No proceeding/suit/action/claims would be adopted by me/us against
………… [Name of the Stock Exchange/ Clearing Corporation] for any act done with
respect to issuance of instruction to the bank/s mentioned above for freezing of
my/our account/s held with the bank/s.
5) I / We agree to indemnify and keep ………… [Name of the Stock Exchange/
Clearing Corporation] and/or its successors/assigns indemnified from time to time,
and at all times hereafter, against all claims, demands, damages, liabilities,
proceedings, losses, actions, charges and expenses made or suffered or incurred
or caused or likely to suffer / incur directly or indirectly, to ………… [Name of the
Stock Exchange/ Clearing Corporation] and/or its successors/assigns on account of
freezing of my/our account/s held with bank/s.
6) I/ We shall keep the Bank appropriately notified of the obligations undertaken
by me / us herein and authorizing them to honour the instructions from …………
[Name of the Stock Exchange / Clearing Corporation].
7) I / We undertake that a revised Undertaking cum Indemnity Bond shall be
submitted by me / us to ………… [Name of the Stock Exchange / Clearing
Corporation] within seven working days of opening of any new bank account or
change in details of any existing bank account,
8) This Undertaking cum Indemnity Bond shall be binding on my / our
successors, legal representatives and assigns.
9) I / We warrant that representations made by the undersigned / on behalf of
the Member are true and correct.
IN WITNESS WHEREOF, I/We hereby execute this Undertaking cum Indemnity
Bond on the day, month and year above written.
Solemnly declared at )
this ___ day of ______, 20 ) BEFORE ME
(Name of Designated Director)
(Name of Trading Member)
(with rubber stamp & SEBI Registration No.) In the presence of:
380
1.
2.
Note: Board Resolution for execution of the said undertaking cum indemnity and
authorization for signing the same should be enclosed along with the document.
381
Annexure-40 – Digital Mode of Payment
Dat Depart Name of Type of SEBI PA Amoun Purpose of Bank UTR
e ment of Intermed Interm Registrati N t (Rs) Payment name No.
SEBI iary / ediary on No. (If (including and
Other any) the period Accoun
entities for which t
payment number
was made from
e.g. which
quarterly, paymen
annually) t is
remitted
382
Annexure-41
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. Subject FMC Circular being SEBI circulars being made
No. repealed applicable
i Segregation of No circular issued by FMC a) SMD/SED/CIR/93/23321
Client and Own dated Nov 18, 1993.
Funds and b) MRD/DoP/SE/Cir-
Securities 11/2008 dated Apr 17,
2008.
ii Running Account a) FMC/4/2012/C/14 No. a) Clause 12 of Annexure A
Settlement 1/2/2012/IR-I/Client- to MIRSD/ SE /Cir-
Protect/ dated Feb 02, 19/2009 dated Dec 3,
2012. 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
respect to Financial 005 dated Feb 14, 2006. and 19 of Annexure A to
Documents, PAN, b) Div. III/I/(53)/06/PAN No. MIRSD/ SE /Cir-19/2009
Inactive Clients etc. dated Nov 28, 2006. dated Dec 03, 2009.135
c) 9/3/2008-MKT-II dated b) CIR/MIRSD/01 /2013
Jan 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
Aug 10, 2010.
iv In-Person Part C of a) Para 3 of MIRSD/Cir- 26
Verification FMC/4/2015/C/0015No. /2011 Dec 23, 2011.
FMC/COMPL/IV/KRA- b) Point 4 of Part
135 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.
383
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
FMC/COMPL/IV/KRA- dated 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 a) CIR/ISD/AML/3/2010
Laundering and dated Oct 30, 2009. dated Dec 31, 2010.
Maintenance of b) No.7/1/2008-MKT-II b) CIR/MIRSD/2/2013
Records dated Jan 25, 2010. dated Jan 24, 2013.
c) No. 7/1/2008-MKT-II c) CIR/MIRSD/1/2014
dated Aug 25, 2010. dated 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 dated Aug 27, 2003.
12, 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 a) FMC/4/2012/C/13 No. CIR/MIRSD/15/2011 dated
alerts facility to FMC/IR-I/Client Aug 02, 2011.
clients 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.
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-
384
c) Div.III/I/89/07 dated Mar 20/2005 dated Sep 8,
13, 2014. 2005.
d) Div.III/I/89/07 dated Dec d) Clause 13 of Annexure A
24, 2014. to MIRSD/ SE /Cir-
19/2009 dated Dec 3,
2009.
xi Exclusive e-mail ID No circular issued by FMC MRD/DoP/Dep/SE/Cir-22/06
for redressel of dated Dec 18, 2006.
Investor Complaints
xii Display of No circular issued by FMC a) Cir/MIRSD/ 9 /2010
information such as dated Nov 4, 2010.
logo, registration b) CIR/MIRSD/3/2014
number on notice dated 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 a) No. Div./III/I/301/2011- a) Para 2 to 6 of circular
brokers 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.I
II/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
c) FMC/6/2011/C/0018 No. dated Jun 3, 2011.
Div.III/I/68/MR/General c) CIR/MIRSD/14/2011
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.
385
membership dated Sep 22, 2011.
b) FMC/1/2014/C/146 dated
Dec 31, 2014.
c) No.Div.II/I/112/2015/Refu
nd 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.
386
Annexure-42
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.
e) No. FMC/COMPL/IV/KRA-05/11/14
dated Feb 26, 2015.
Ii Customer Protection such as No.FMC/Comp/VI/2009/04/06/114/5787
keeping evidence of client dated Sep 16, 2009.
placing order
Iii Nomenclature of Stock a) 4/5/2005- M&S/MCX/Unit-II dated Apr 25,
brokers 2006.
b) No.IRD-DIV-III/I/FCR-I/2009 dated Dec
21, 2009.
c) No. DIV-III/I/122/10/MR dated Jun 25,
2010.
d) 6/3/2008-MKT – II dated Feb 18, 2011.
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.
387
Annexure-43
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 No. IRD/Div./III/(1)/FMCR/1/2005 dated Oct
Code 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.
388
Annexure-44
Eligible clients:
1. Only non-individual clients shall be allowed to give BGs as margins, specifically
for commodities segment.
2. Net worth of such clients should be at least Rs. 1000 crores. If the net worth of
the client is less than Rs. 1000 crores and client is a part of a group company
of a MNC group or large conglomerate in India and that MNC or large
conglomerate has Ultimate Beneficial Ownership of more than 50% in the
concerned client, then the net worth of the MNC group as a whole or the net
worth of the large conglomerate can be considered which should be minimum
Rs. 5000 crores.
Eligibility conditions for BGs
3. Only Banks approved by CCs shall be considered for issuance of such BGs.
4. BG terms and conditions should clearly mention the Upstreaming Client Nodal
Bank Account (USCNBA) bank account number where the funds shall be
credited in case of invocation by SB/CM.
5. In the event of invocation of BG, the funds shall be credited only to USCNBA
bank account of the SB/CM and the funds shall be up-streamed on the same
day to CC.
6. SB/CM shall mandatorily inform the CC at the time of invocation of BG.
7. SB/CM cannot accept BGs as margins from the above mentioned clients in
excess of 25% of its net worth.
Declaration and undertaking to be given by clients
8. CFO / COO / CEO / MD of such clients should give an undertaking to the
Member at the time of giving BG as margins:
a. We agree to issue the BG lien in favour of trading member __________
for trading in capital markets for client code _______ as per the
contractual arrangement with the said trading member.
b. We declare that we clearly understand that in case trading member
wrongly invokes the BG, we shall not have any recourse to Exchange or
SEBI to the extent of BG amount and shall not be compensated in any
manner from Investor Protection Fund.
Other conditions
389
9. SB/CM shall put its own funds with CC to the extent of BG amount towards the
margin requirements of these clients.
10. SB/CM cannot use borrowed funds for this purpose. Trading member shall give
auditors certificate on half yearly basis to CC in this regard.
As mentioned in para 92.14 of this circular, the CCs are at liberty to apply stricter
conditions other than those specified above based on their risk assessment.
390
APPENDIX - LIST OF CIRCULARS / COMMUNICATION
Sr. Circular/ Notification No. and Date Subject
no
1. SEBI communication SE/10118 Listing fees from 1992-93 to 1996-97.
dated October 12, 1992.
2. SMD/SED/CIR/93/23321 dated Regulation Of Transactions Between
November 18, 1993. Clients and Brokers.
3. SMD/VRN/1476/95 dated April 27, Severance of connections with other
1995. businesses.
4. SMD/POLICY/CIR-6/97 dated May Applicability of Rule 8(1)(f) and 8(3)(f) of
07, 1997. the 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
December 11, 1997. into Corporate membership.
7. SMD/POLICY/CIR-11/98 dated Additional information to be submitted at
March 16, 1998. the 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- Merger/ Amalgamation of Trading
18/98 dated July 09, 1998. Members.
10. SMDRP/POLICY/CIR- 06/2000 Conditions to be met by Broker for
dated January 31, 2000. providing Internet Based Trading
Service.
11. SMDRP/Policy/Cir-48/2000 dated Securities Trading through Wireless
October 11, 2000. medium on Wireless Application Protocol
(WAP) platform.
12. SMDRP/POLICY/CIR-56/00 dated Use of Digital Signature on Contract
December 15, 2000 Notes
13. SMDRP/POLICY/CIR-39/2001 dated Unique Client Code.
July 18, 2001.
14. SMD/POLICY/CIR-49/2001 dated Advertisement by Brokers/ Sub-Brokers
October 22, 2001. and grant of trading terminals.
15. 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.
16. SEBI/SMD/SE/15/2003/29/04 dated Issuance of Contract Notes in electronic
April 29, 2003 form
17. SMD/DBA-II/Cir-16/9618/03 dated SEBI Registration Number of Brokers /
May 05, 2003. Sub-Brokers to be quoted on all
correspondences with SEBI.
18. SEBI/MIRSD/CIR-06/2004 January Review of norms relating to trading by
391
13, 2004. Members/Sub-Brokers.
19. MIRSD/DR-1/CIR-16/09 dated Market Access through Authorised
November 06, 2009. Persons.
20. MIRSD/SE/CIR-19/2009 dated Dealings between a client and a stock
December 03, 2009. broker (trading members included).
21. SEBI/MIRSD/MASTER CIR-04/2010 Master Circular on Oversight of Members
dated March 17, 2010. (Stock Brokers/Trading
Members/Clearing Members of any
Segment of Stock Exchanges and
Clearing Corporations).
22. SEBI/CIR/MIRSD/AP/8/2010 dated Market Access through Authorised
July 23, 2010. Persons.
23. CIR/MIRSD/9/2010 dated November Display of Details by Stock Brokers
04, 2010. (including Trading Members).
24. SEBI/MIRSD/CIR/01/2011 dated Clarification on circular dated December
May 13, 2011. 3, 2009 on ‘Dealings between a Client
and a Stock broker.
25. CIR/MIRSD/2/2011 dated June 03, Periodical Report – Grant of prior
2011. approval to members of Stock
Exchanges/Sub-Brokers.
26. CIR/MIRSD/03/2011 dated June 09, Pre- funded instruments / electronic fund
2011. transfers.
27. CIR/MIRSD/12/2011 dated July 11, Clarification regarding admission of
2011. Limited Liability Partnerships as
Members of Stock Exchanges.
28. CIR/MIRSD/15/2011 dated August SMS and E-mail alerts to investors by
02, 2011. Stock Exchanges.
29. CIR/MIRSD/16/2011 dated August Simplification and Rationalization of
22, 2011 Trading Account Opening Process
30. CIR/MIRSD/18/2011 dated August Redressal of investor grievances against
25, 2011. Stock Brokers and Sub-Brokers in SEBI
Complaints Redress System (SCORES).
31. MIRSD/SE/CIR-21/2011 dated Uniform Know Your Client (KYC)
October 05,2011. requirements for the securities market
32. CIR/MIRSD/24/2011 dated Guidelines on Outsourcing of Activities
December 15, 2011 by Intermediaries
33. CIR/MIRSD/13/2012 dated Oversight of Members (Stock
December 07, 2012. Brokers/Trading Members/Clearing
Members of any segment of Stock
Exchanges/Clearing Corporations).
34. CIR/MIRSD/5/2013 dated August 27, General Guidelines for dealing with
2013. Conflicts of Interest of Intermediaries,
Recognised Stock Exchanges,
Recognised Clearing Corporations,
Depositories and their Associated
Persons in Securities Market.
35. CIR/MIRSD/13/2013 dated Know Your Client Requirements
December 26, 2013
392
36. CIR/MIRSD/2/2014 dated June 30, Inter-Governmental Agreement with
2014. United States of America under Foreign
Accounts Tax Compliance Act –
Registration.
37. CIR/MIRSD/3/2014 dated August 28, Information regarding Grievance
2014. Redressal Mechanism.
38. CIR/MIRSD/4/2014 dated October Single registration for Stock Brokers &
13, 2014. Clearing Members.
39. CIR/MIRSD/2/2015 dated August 26, Implementation of the Multilateral
2015. Competent Authority Agreement and
Foreign Account Tax Compliance Act.
40. CIR/MIRSD/3/2015 dated Reporting Requirement under Foreign
September 10, 2015. Account Tax Compliance Act (FATCA)
and Common Reporting Standards
(CRS) – Guidance Note.
41. CIR/MIRSD/4/2015 dated Registration of Members of Commodity
September 29, 2015. Derivatives Exchanges.
42. CIR/MIRSD/64/2016 dated July 12, Simplification of Account Opening Kit
2016
43. CIR/MIRSD/66/2016 dated July 21, Operationalisation of Central KYC
2016 Records Registry (CKYCR)
44. SEBI/HO/MIRSD/MIRSD2/CIR/P/20 Regulatory Framework for Commodity
16/92 dated September 23, 2016. Derivatives Brokers.
45. SEBI/HO/MIRSD/MIRSD2/CIR/P/20 Enhanced Supervision of Stock
16/95 dated September 26, 2016. Brokers/Depository Participants.
46. SEBI/HO/MIRSD/MIRSD6/CIR/P/20 Redressal of complaints against Stock
17/20 dated March 10, 2017. Brokers and Depository Participants in
SEBI Complaints Redress System
(SCORES).
47. SEBI/HO/MIRSD/MIRSD1/CIR/P/20 Online Registration Mechanism for
17/38 dated May 02, 2017. Securities Market Intermediaries.
48. CIR/HO/MIRSD/MIRSD2/CIR/P/201 Clarification to Enhanced Supervision
7/64 dated June 22, 2017. Circular.
49. CIR/HO/MIRSD/MIRSD2/CIR/P/201 Policy of Annual Inspection of Members
7/73 dated June 30, 2017. by Stock Exchanges/Clearing
Corporations.
50. SEBI/HO/MIRSD/MIRSD1/CIR/P/20 Integration of broking activities in Equity
17/104 dated September 21, 2017. Markets and Commodity Derivatives
Markets under single entity.
51. CIR/HO/MIRSD/MIRSD2/CIR/PB/20 Clarification to Enhanced Supervision
17/107 dated September 25, 2017. Circular.
52. SEBI/HO/MIRSD/MIRSD2/CIR/P/20 Modification to Enhanced Supervision
17/123 dated November 29, 2017. Circular.
53. SEBI/HO/MIRSD/DOP1/CIR/P/2018 Circular on Prevention of Unauthorised
/54 dated March 22, 2018. Trading by Stock Brokers.
54. SEBI/HO/MIRSD/DOP/CIR/P/2018/ Discontinuation of acceptance of cash by
113 dated July 12, 2018 Stock Brokers
393
55. SEBI/HO/MIRSD/CIR/PB/2018/147 Cyber Security & Cyber Resilience
dated December 03, 2018 framework for Stock Brokers / Depository
Participants
56. SEBI/HO/MIRSD/DOP/CIR/P/2018/ Early Warning Mechanism to prevent
153 dated December 17, 2018 diversion of client securities
57. SEBI/HO/MIRSD/DOS2/CIR/P/2019 Reporting for Artificial Intelligence (AI)
/10 dated January 04, 2019 and Machine Learning (ML) applications
and systems offered and used by market
intermediaries
58. SEBI/HO/MIRSD/DOP/CIR/P/2019/ Uniform membership structure across
14 dated January 11, 2019 segments
59. CIR/HO/MIRSD/DOS2/CIR/PB/2019 Clarification to Cyber Security & Cyber
/038 dated March 15, 2019 Resilience framework for Stock Brokers /
Depository Participants
60. CIR/HO/MIRSD/DOP/CIR/P/2019/7 Handling of Clients’ Securities by Trading
5 dated June 20, 2019 Members/Clearing Members
61. SEBI/HO/MIRSD/DOP/CIR/P/2019/ Cyber Security & Cyber Resilience
109 dated October 15, 2019 framework for Stock Brokers / Depository
Participants-Clarifications
62. SEBI/HO/MIRSD/DOP/CIR/P/2019/ Mapping of Unique Client Code (UCC)
136 dated November 15, 2019 with demat account of the clients
63. CIR/HO/MIRSD/DOP/CIR/P/2019/1 Collection and reporting of margins by
39 dated November 19, 2019 Trading Member(TM) /Clearing
Member(CM) in Cash Segment
64. SEBI/HO/MIRSD/DOP/CIR/P/2020/ Margin obligations to be given by way of
28 dated February 25, 2020 Pledge/ Re-pledge in the Depository
System
65. SEBI/HO/MIRSD/DOP/CIR/P/2020/ Implementation of Circular on ‘Margin
88 dated May 25, 2020 obligations to be given by way of Pledge
/ Re-pledge in the Depository System’ -
Extension
66. SEBI/HO/MIRSD/DPIEA/CIR/P/202 Standard Operating Procedure in the
0/115 dated July 01, 2020 cases of Trading Member / Clearing
Member leading to default
67. SEBI/HO/MIRSD/DOP/CIR/P/2020/ Collection and Reporting of Margins by
146 dated July 31, 2020 Trading Member (TM) / Clearing Member
(CM) in Cash Segment
68. SEBI/HO/MIRSD/DOP/CIR/P/2020/ Execution of Power of Attorney (PoA) by
158 dated August 27, 2020 the Client in favour of the Stock Broker /
Stock Broker and Depository Participant
69. SEBI/HO/MIRSD/DOP/CIR/P/2020/ Collection and Reporting of Margins by
173 dated September 15, 2020 Trading Member (TM) / Clearing Member
(CM) in Cash Segment - Clarification
70. SEBI/HO/MIRSD/DPIEA/CIR/P/202 Recovery of assets of defaulter member
0/186 dated September 28, 2020 and recovery of funds from debit balance
clients of defaulter member for meeting
the obligations of clients / Stock
Exchange / Clearing Corporation
394
71. SEBI/HO/MIRSD2/DOR/CIR/P/2020 Advisory for Financial Sector
/221 dated November 03, 2020 Organizations regarding Software as a
Service (SaaS) based solutions
72. SEBI/HO/MIRSD/DOC/CIR/P/2020/ Investor Grievance Redressal
226 dated November 06, 2020 Mechanism
73. SEBI/HO/MIRSD/DOP/CIR/P/2021/ Rollout of Legal Entity Template
31 dated March 10, 2021
74. SEBI/HO/MIRSD/DOR/CIR/P/2021/ Prior Approval for Change in control:
42 dated March 25, 2021 Transfer of shareholdings among
immediate relatives and transmission of
shareholdings and their effect on change
in control
75. SEBI/HO/MIRSD/DOR/CIR/P/2021/ Transfer of business by SEBI registered
46 dated March 26, 2021 intermediaries to other legal entity
76. SEBI/HO/MIRSD/DOP/P/CIR/2021/ Settlement of Running Account of
577 dated June 16, 2021 Client’s Funds lying with Trading Member
(TM)
77. SEBI/HO/MIRSD/DOP/P/CIR/2021/ Block Mechanism in demat account of
595 dated July 16, 2021 clients undertaking sale transactions
78. SEBI/HO/MIRSD/DOP/CIR/P/2021/ Maintenance of current accounts in
653 dated October 28, 2021 multiple banks by Stock Brokers
79. SEBI/HO/MIRSD/MIRSD_IT/P/CIR/ Framework for Regulatory Sandbox
2021/0000000658 dated November
16, 2021
80. SEBI/HO/MIRSD/DOP/CIR/P/2021/ Publishing Investor Charter and
676 dated December 02, 2021 disclosure of Investor Complaints by
Stock Brokers on their websites
81. SEBI/HO/MIRSD/DoP/P/CIR/2022/4 Execution of ‘Demat Debit and Pledge
4 dated April 04, 2022 Instruction’ (DDPI) for transfer of
securities towards deliveries / settlement
obligations and pledging / re-pledging of
securities
82. SEBI/HO/MIRSD/DoR/P/CIR/2022/6 Guidelines for seeking NOC by Stock
1 dated May 13, 2022 Brokers / Clearing Members for setting
up Wholly Owned Subsidiaries, Step
Down Subsidiaries, Joint Ventures in
GIFT IFSC
83. SEBI/HO/MIRSD/DPIEA/CIR/P/202 Modification to Standard Operating
2/72 dated May 27, 2022 Procedure in the cases of Trading
Member / Clearing Member leading to
default
84. SEBI/HO/MIRSD/DOS3/P/CIR/2022 Investor Redressal Grievance
/78 dated June 03, 2022 Mechanism
85. SEBI/HO/MIRSD/TPD/P/CIR/2022/8 Modification in Cyber Security and Cyber
0 dated June 07, 2022 resilience framework for Stock Brokers /
Depository Participants
86. SEBI/HO/MIRSD/ Naming / Tagging of demat accounts
MIRSD_DPIEA/P/CIR/2022/83 maintained by Stock Brokers
395
dated June 20, 2022
87. SEBI/HO/MIRSD/TPD/P/CIR/2022/9 Modification in Cyber Security and Cyber
3 dated June 30, 2022 resilience framework for Stock Brokers /
Depository Participants
88. SEBI/HO/MIRSD/DoP/P/CIR/2022/1 Settlement of Running Account of
01 dated July 27, 2022 Client’s Funds lying with Trading Member
(TM)
89. SEBI/HO/MIRSD/DoP/P/CIR/2022/1 Block Mechanism in demat account of
09 dated August 18, 2022 clients undertaking sale transactions
90. SEBI/HO/MIRSD/DOP/P/CIR/2022/ Performance/return claimed by
117 dated September 02, 2022 unregulated platforms offering
algorithmic strategies for trading
91. SEBI/HO/MIRSD/DoP/P/CIR/2022/1 Validation of Instructions for Pay-In of
19 dated September 19, 2022 Securities from Client demat account to
Trading Member (TM) Pool Account
against obligations received from the
Clearing Corporations
92. SEBI/HO/MIRSD/MIRSD-PoD- Execution of ‘Demat Debit and Pledge
1/P/CIR/2022/137 dated October 06, Instruction’ (DDPI) for transfer of
2022 securities towards deliveries / settlement
obligations and pledging / re-pledging of
securities-Clarification
93. SEBI/HO/MIRSD/DOP/P/CIR/2022/ Block Mechanism in demat account of
143 dated October 27, 2022 clients undertaking sale transactions-
Clarification
94. SEBI/HO/MIRSD/MIRSD-PoD- Handling of Clients’ Securities by Trading
1/P/CIR/2022/153 dated November Members (TM)/ Clearing Members (CM)
11, 2022
95. SEBI/HO/MIRSD/DoP/P/CIR/2022/1 Extension of timelines for implementation
62 dated November 25, 2022 of SEBI circulars
SEBI/HO/MIRSD/MIRSD-PoD-
1/P/CIR/2022/137 and
SEBI/HO/MIRSD/DoP/P/CIR/2022/119
96. SEBI/HO/MIRSD/TPD- Framework to address the ‘technical
1/P/CIR/2022/160 dated November glitches’ in Stock Brokers’ Electronic
25, 2022 Trading Systems
97. SEBI/HO/MIRSD/MIRSD-PoD- Procedure for seeking prior approval for
2/P/CIR/2022/163 dated November change in control
28, 2022
98. SEBI/HO/MIRSD/MIRSD-PoD- Introduction of Investor Risk Reduction
1/P/CIR/2022/177 dated December Access (IRRA) platform in case of
30, 2022 disruption of trading services provided by
the Trading Member (TM)
99. SEBI/HO/MIRSD/MIRSD-PoD- Enhanced obligations and
1/P/CIR/2023/24 dated February responsibilities on Qualified Stock
06,2023 Brokers (QSBs)
396
100. S EBI/HO/MIRSD/MIRSD-PoD- Maintenance of a website by stock
1/P/CIR/2023/30 dated February 15, brokers and depository participants
2023
101. S EBI/HO/MIRSD/MIRSD-PoD- Nomination for Eligible Trading and
1/P/CIR/2023/42 dated March 27, Demat Accounts –Extension of timelines
2023 for existing account holders
102. S EBI letter dated June 24, 2008 SEBI letter number
MRD/DoP/NSE/129791/2008
103. S EBI letter dated March 31, 2015 SEBI letter number
MRD/DMS/OW/9500/2015
104. E mail dated April 13, 2022 Issuance of Electronic Contract Notes
(ECN) through SMS/electronic instant
messaging services
105. S EBI/HO/MIRSD/MIRSD-PoD- Bank Guarantees (BGs) created out of
1/P/CIR/2023/061 dated April 25, clients’ funds
2023
106. S EBI/HO/MIRSD/MIRSD-PoD- Risk disclosure with respect to trading by
1/P/CIR/2023/73 dated May 19, individual traders in Equity Futures &
2023 Options Segment
107. S EBI/HO/MIRSD/MIRSD-PoD- Transactions in Corporate Bonds
1/P/CIR/2023/83 dated June 02, through Request for Quote (RFQ)
2023 platform by Stock Brokers(SBs).
108. S EBI/HO/MIRSD/MIRSD-PoD- Trading Preferences by Clients
1/P/CIR/2023/95 dated June 21,
2023
109. S EBI/HO/MIRSD/MIRSD-PoD- Trading Preferences by Clients –
1/P/CIR/2023/132 dated August 01, Applicability for commodity derivatives
2023
110. S EBI/HO/MIRSD/POD- Extension of timelines (i) for nomination
1/P/CIR/2023/158 dated September in eligible demat accounts and (ii) for
26, 2023 submission of PAN, Nomination and KYC
details by physical security holders; and
voluntary nomination for trading
accounts
111. S EBI/HO/MIRSD/MIRSD-PoD- Most Important Terms and Conditions
1/P/CIR/2023/180 dated November (MITC)
13, 2023
112. S EBI/HO/MIRSD/MIRSD-PoD- Upstreaming of clients’ funds by Stock
1/P/CIR/2023/187 dated December Brokers (SBs) / Clearing Members (CMs)
12, 2023 to Clearing Corporations (CCs)
113. S EBI/HO/MIRSD/MIRSD- Settlement of Running Account of
PoD1/P/CIR/2023/197 dated Client’s Funds lying with Trading Member
December 28, 2023 (TM)
114. S EBI/HO/MIRSD/MIRSD-PoD- Ease of doing business-Changes in
1/P/CIR/2024/03 dated January 12, reporting
2024
115. S EBI/HO/MIRSD/POD- Ease of Doing Investments by Investors-
1/P/CIR/2024/4 dated January 12, Facility of voluntary freezing/ blocking of
2024 Trading Accounts by Clients
397
116. S EBI/HO/MIRSD/MIRSD-PoD- Measures to instill trust in securities
1/P/CIR/2024/14 dated March 11, market – Expanding the framework of
2024 Qualified Stock Brokers (QSBs) to more
stock brokers
117. S EBI/HO/MIRSD/MIRSD- Enhancement of operational efficiency
PoD1/P/CIR/2024/75 dated June 05, and Risk reduction – Pay-out of
2024 securities directly to client demat account
118. S EBI/HO/MIRSD/MIRSD-PoD- Measures to instil confidence in
1/P/CIR/2024/96 dated July 04, 2024 securities market – Brokers’ institutional
mechanism for prevention and detection
of fraud or market abuse
119. S EBI/HO/MRD/MRD-PoD- Allowing securities funded through cash
2/P/CIR/2024/118 dated September collateral as maintenance margin for
11, 2024
Margin Trading Facility(MTF)
120. S EBI/HO/MIRSD/ MIRSD-PoD- Association of persons regulated by the
1/P/CIR/2024/143 dated October 22, Board and their agents with certain
2024 persons
121. S EBI/HO/MRD- Trading supported by Blocked Amount in
PoD2/CIR/P/2024/153 dated Secondary Market
November 11, 2024
122. S EBI/HO/MIRSD/MIRSD- SMS and E-mail alerts to investors by
PoD1/P/CIR/2024/169 dated stock exchanges
December 03, 2024
123. S EBI/HO/MIRSD/MIRSD- Measure for ease of doing business -
PoD1/P/CIR/2025/1 dated January Settlement of Account of Clients who
06, 2025 have not traded in the last 30 days
124. S EBI/HO/MIRSD/TPD/CIR/2025/10 Framework for Monitoring and
dated January 31, 2025 Supervision of System Audit of Stock
Brokers (SBs) through Technology
based Measures
125. S EBI/HO/MIRSD/MIRSD- Safer participation of retail investors in
PoD/P/CIR/2025/0000013 dated Algorithmic trading
February 04, 2025
126. S EBI/HO/MIRSD/MIRSD- Facilitation to SEBI registered Stock
PoD/P/CIR/2025/14 dated February Brokers to access Negotiated Dealing
11, 2025 System-Order Matching (NDS-OM) for
trading in Government Securities-
Separate Business Units (SBU)
127. S EBI/HO/MIRSD/MIRSD- Investor Charter for Stock Brokers
PoD1/P/CIR/2025/22 dated
February 21, 2025
128. S EBI/HO/MIRSD/MIRSD- Timelines for collection of Margins other
PoD/P/CIR/2025/57 dated April 28, than Upfront Margins – Alignment to
2025 settlement cycle
129. S EBI/HO/MIRSD/MIRSD- Measure for Ease of Doing Business –
PoD/P/CIR/2025/61 dated May 02, Facilitation to SEBI registered Stock
2025 Brokers to undertake securities market
398
related activities in Gujarat International
Finance Tech-city – International
Financial Services Centre (GIFT-IFSC)
under a Separate Business Unit (SBU)
130. S EBI/HO/MIRSD/MIRSD- Margin obligations to be given by way of
PoD/P/CIR/2025/82 dated June 03, Pledge/Re-pledge in the Depository
2025 System
399