Regulation 18G - Obligations of the stock broker and its employees - Securities and Exchange Board of India (Stock Brokers) Regulations, 1992

1 [Obligations of the stock broker and its employees. 18G. (1) The stock broker shall establish and maintain adequate know your client surveillance systems and shall obtain adequate information to determine and verify the identification of the clients who have or propose to have accounts with such stock brokers or conduct any transaction related to the securities market through the aid or agency of such stock broker. (2) The stock broker shall, having regard to the nature of business and the size of its operations, establish and maintain adequate surveillance system for monitoring the orders and trades and internal control procedures, in order to detect potential fraud or market abuse by its clients, employees or Authorised Persons. (3) The policies and procedures relating to the surveillance systems and internal controls shall be clearly documented and shall define the roles and responsibilities of its employees, the corrective actions to be taken and the guidelines for reporting of activities as specified under regulation 18H of this Chapter. (4) The stock broker shall customize its surveillance systems and internal controls in a manner that is commensurate with the complexity of the transactions being undertaken by it and its business activities. (5) The thresholds for generation of alerts for various scenarios shall be set at a reasonable level and be documented along with clear rationale for the same. (6) The Board of Directors or persons of other equivalent or analogous rank of the stock broker shall review and update the systems, processes, and control procedures on a periodic basis and in any case not less than once in a calendar year, to keep pace with the developments in the securities market and regulatory changes, including the progressive adoption of automated know your client procedures and the order and trade surveillance systems to enhance the monitoring of trading activities. (7) The stock broker shall have adequate systems in place to ensure that its proprietary accounts are used only for the purpose of carrying out proprietary trades and that its operations are in accordance with the requirements as may be specified by the Board or the stock exchanges from time to time. (8) The stock broker shall ensure that its trading terminals are used only by its employees and/or Authorised Persons and only at locations approved by the stock exchanges and that such terminals shall not be used by its clients in any form or manner. (9) The stock broker shall establish and maintain documented processes and systems to detect potential mule accounts or suspicious activity. (10) Any employee of the stock broker, upon having knowledge of any fraud, market abuse or suspicious activity shall forthwith inform the same to the senior management. ] ***************** NOTES:- 1. Inserted vide Notification No. SEBI/LAD-NRO/GN/2024/186 dated 27-06-2024