Master Circular for Stock Brokers

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..... Master Circular is given in Appendix at the end of this Master Circular. 4. In case of any inconsistency between the Master Circular and the applicable circulars, the content of the relevant circular shall prevail. 5. This circular is available on SEBI website at www.sebi.gov.in. Yours faithfully Debashis Bandyopadhyay General Manager TABLE OF CONTENTS I. REGISTRATION OF STOCK BROKERS S. No. Subject Page no. 1. Registration of Brokers - Verification of antecedents of the applicant 6 2. Conversion of individual membership into corporate membership 6 3. Additional information to be submitted at the time of registration of Stock Broker with SEBI 6 4. Additional requirements for processing applications of Stock Brokers for Registration/ Prior approval for sale of membership/ Change of name/ trade name 12 5. Merger/ Amalgamation of Trading Members 14 6. Intimation to the brokers to permit their Sub-Brokers to start business only after receipt of Sub-Broker registration certificate from SEBI 14 7. Admission of Limited Liability Partnerships as Members of Stock Exchanges 14 8. Simplification of registration requirements for Stock .....

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..... Trades Executed on Stock Exchanges (All Segments) 100 39. Margin Trading Facility 102 40. Electronic Contract Note 108 41. Conditions to be met by Broker for providing Internet Based Trading Service 111 42. Securities Trading through Wireless medium on Wireless Application Protocol (WAP) platform 115 43. Securities Trading using Wireless Technology 117 44. Additional Requirements for Internet Based Trading (IBT) and Securities trading using Wireless Technology (STWT) 119 45. Direct Market Access facility 120 46. Smart Order Routing 129 47. Broad Guidelines on Algorithmic Trading 132 48. Testing of Software used in or related to Trading and Risk Management 136 49. Safeguards to avoid trading disruption in case of failure of software vendor 140 VI. CHANGE IN STATUS, CONSTITUTION, CONTROL, AFFILIATION 50. Surrender of Certificate of Registration of Sub-Brokers and Change of Affiliation of Sub-Brokers 142 51. Change in affiliation of Sub-Brokers 145 52. Periodical Report - Grant of prior approval to members of Stock Exchanges/ Sub-Brokers 148 53. Revised procedure for seeking prior approval for .....

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..... ts (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 membership Reference: Circular SMD/POLICY/CIR-34/97 dated December 11, 1997. 2.1. In case of corporatisation of individual membership, the individual member may trade in his individual name pending registration of the corporate member by SEBI. 2.2. In case the corporate member acquires the membership through purchase of membership card of an individual member, the corporate member shall not be entitled to trade because of the provisions of Section 12 of the Securities and Exchange Board of India Act, 1992, till registration is granted to the corporate member by SEBI. 3. Additional information to be submitted at the time of registration of Stock .....

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..... ther directors in other corporate bodies engaged in capital markets (please give names and SEBI Regd. No.) Details of top five shareholders Name of shareholders Percentage of Share holding Educational Qualification Experience (specify nature and years) Whether shareholders in other corporate 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 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 registrati .....

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..... ed CA certifying the above should be enclosed) 16. Please indicate the net-worth as per the following formula (Rs in Lakhs) 16.1 Paid up Capital 16.2 Free Reserves (Exclusive of Revaluation Reserves) 16.3 Less - Misc. expenditure not written off Total Net-worth (16.1 + 16.2 + 16.3) I/we declare that the information given in this form is true to the best of my knowledge and belief. Date: Signature Name and Address of the applicant List of Enclosures: a. Registration fees -Rs 50,000/- through NEFT/RTGS/IMPS or any other mode allowed by RBI or by draft in favour of "The Securities and Exchange Board of India". b. Copy of relevant clause of MOA duly certified by the Stock Exchange. c. Certificate from the qualified Chartered Accountant certifying the networth and paid up capital. d. Undertaking by applicant that he/ it had not introduced through any member broker/ sub-broker of the Exchange any fake/forged/stolen shares in the Exchange/market. If yes, details thereof including action taken, if any, by the applicant. Certification by Stock Exchange The above details have been scrutinised as per record made available to the Stock Exchange. SIGNATURE: .....

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..... ck 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. 4.3. 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 be .....

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..... g entity and such applications in any case should be made not later than 30 days of the registration granted by the Registrar of companies to the emerging entity. 6. Intimation to the Brokers to permit their Sub-Brokers to start business only after receipt of Sub-Broker registration certificate from SEBI Reference: Circular SUB-BROK/CIR/02/2001 dated January 15, 2001. 6.1. As per Section 12(1) of the SEBI Act, 1992 read with Rule 3 of Securities and Exchange Board of India (Stock Brokers and Sub-Brokers) Rule 1992, no sub-broker shall buy, sell, deal in securities, unless he holds a certificate granted by the Board under the Regulations. Stock Exchanges shall inform all the brokers that their sub-brokers are permitted to start business only after clearance and receipt of registration certificate from SEBI. If any person contravenes or attempts to contravene or abets the contravention of the above said rule, shall be punishable under section 24(1) of SEBI Act 1992. 7. Admission of Limited Liability Partnerships as Members of Stock Exchanges Reference: Circular CIR/MIRSD/12/2011 dated July 11, 2011. 7.1. Securities Contract (Regulation) Rules, 1957 (SCRR) do not explicitly menti .....

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..... escribed in the Broker Regulations for approval. 8.2.3. Similarly, if any entity is already registered with SEBI in any segment of the Clearing Corporation, then for operating in any other segment of the Clearing Corporation or for operating in the Stock Exchange which has promoted that Clearing Corporation, the entity shall follow the procedure as prescribed in Clause 8.2.2 above. 8.2.4. Fees shall be applicable for all the stock brokers, self clearing members and clearing members as per Schedule V of the Broker Regulations. As per current practice, the entity shall continue to be liable to pay fees for each additional segment approved by the Stock Exchange or Clearing Corporation, as per the Schedule to the Brokers Regulations. For stock brokers coming under Schedule III, fees shall continue to be applicable as per that Schedule till such time as the Schedule V becomes applicable to them. 8.3. The Stock Exchange or Clearing Corporation shall grant approval for any additional segment to the stock broker, self-clearing member or clearing member, as the case may be, after exercising due diligence and on being satisfied about the compliance of all relevant eligibility requiremen .....

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..... Clearing Corporation shall report to SEBI about such grant of approval. 9.2.3. Similarly, if any entity is already registered with SEBI as a clearing member in any Clearing Corporation, then for operating in any other Clearing Corporation(s) or any Stock Exchange, the entity shall follow the procedure as prescribed in Clause 9.2.2 above. 9.2.4. Fees shall be applicable for all the stock brokers, self-clearing members and clearing members as per Schedule V of the Broker Regulations. As per current requirement, the entity shall continue to be liable to pay fees for each segment approved by the Stock Exchange or Clearing Corporation, as per the Schedule to the Brokers Regulations. 9.3. The Stock Exchange or Clearing Corporation shall grant approval for operating in any segment(s) or additional segment(s) to the SEBI registered stock broker, self-clearing member or clearing member, as the case may be, after exercising due diligence and on being satisfied about the compliance of all relevant eligibility requirements, and shall also, inter-alia ensure: 9.3.1. The applicant, its directors, proprietor, partners and associates satisfy the Fit and Proper Criteria as defined in the SEB .....

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..... y derivatives", by a member of a Stock Exchange, would not be disqualified under Rule 8(1)(f) and Rule 8(3)(f) of the Securities Contract (Regulation) Rules, 1957. 11. Online Registration Mechanism for Securities Market Intermediaries Reference: Circular SEBI/HO/MIRSD/MIRSD1/CIR/P/2017/38 dated May 02, 2017. 11.1. SEBI Intermediary Portal (https://siportal.sebi.gov.in) has been operationalized for the intermediaries to submit all the registration applications online. The SEBI Intermediary Portal includes online application for registration, processing of application, grant of final registration, application for surrender / cancellation, submission of periodical reports, requests for change of name / address / other details etc. 11.2. All applications for registration / surrender / other requests shall be made through SEBI Intermediary Portal only. The application in respect of stock brokers / sub-broker and depository participants shall continue to be made through the Stock Exchanges and Depositories respectively. 11.3. The applicants will be separately required to submit relevant documents viz. declarations / undertakings, in physical form, only for records without impacting t .....

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..... RECORDS REGISTRY 13. Unique Client Code 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. 13.1. It shall be mandatory for the broker to use unique client code for all clients. For this purpose the broker shall collect and maintain in their back office the Permanent Account Number (PAN) allotted by the Income Tax Department for all their clients. 13.2. In case of other entities - 13.2.1. Brokers shall verify the documents with respect to the unique code retain a copy of the document. 13.2.2. The brokers shall also be required to furnish the above particulars of their clients to the Stock Exchanges/Clearing Corporations and the same would be updated on a monthly basis. Such information for a specific month should reach the exchange within 7 working days of the following month. 13.2.3. The Stock Exchanges shall be required to maintain a database of client details submitted by brokers. Historical records of all quarterly submissions shall be maintained for a period of 7 years by the exchanges. 14. Simplification and Rationalization of Trading Account Opening Process Reference: Circular CIR/MIR .....

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..... Guidelines and Circulars issued by SEBI and the Stock Exchanges from time to time. Any such clause introduced in the existing as well as new documents shall stand null and void. 14.4. The client will now be required to sign only on one document i.e. Account Opening Form. Further, in the same form, the client shall continue to put his signatures instead of saying 'yes' or 'tick mark' while indicating preferences for trading in different exchanges / segments, in accordance with existing requirements. However, in case the investor wants to avail Running Account facility, execute Power of Attorney, etc., he would have to give specific authorization to the stock broker in order to avoid any dispute in the future. 14.5. In case the stock broker is also a depository participant, he can use the same KYC form (as specified in Annexure-2) for basic details and take additional information pertaining to demat account. 14.6. Stock Broker/ Depository Participant shall make available these standard documents to the clients, either in electronic or physical form, depending upon the preference of the client as part of account opening kit. The preference of the client shall be sought as part of t .....

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..... sending periodical statement of accounts to the clients, shall mention therein that their running account authorisation would continue until it is revoked by the clients. c. For the clients having outstanding obligations on the settlement date, the stock broker may retain the requisite securities/funds towards such obligations and may also retain the funds expected to be required to meet margin obligations for next 5 trading days, calculated in the manner specified by the exchanges. d. The actual settlement of funds and securities shall be done by the broker, at least once in 90 days / 30 days, depending on the preference of the client. While settling the account, the broker shall send to the client a 'statement of accounts' containing an extract from the client ledger for funds and an extract from the register of securities displaying all receipts/deliveries of funds/securities. The statement shall also explain the retention of funds/securities and the details of the pledge, if any. e. The client shall bring any dispute arising from the statement of account or settlement so made to the notice of the broker preferably within 7 working days from the date of receipt of funds/s .....

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..... 15.4.5. the right to sell clients' securities or close clients' positions, without giving notice to the client, on account of non-payment of client's dues (This shall be limited to the extent of settlement/margin obligation) 15.4.6. shortages in obligations arising out of internal netting of trades 15.4.7. conditions under which a client may not be allowed to take further position or the broker may close the existing position of a client 15.4.8. temporarily suspending or closing a client's account at the client's request, and 15.4.9. deregistering a client 15.5. All the documents in both the mandatory and the non-mandatory parts shall be printed in minimum font size of 11. 15.6. A copy of all the documents executed by client shall be given to him, free of charge, within 7 days from the date of execution of documents by the client. The stock broker shall take client's acknowledgement for receipt of the same. 15.7. The stock brokers having own web-sites shall display all the documents executed by a client, client's position, margin and other related information, statement of accounts, etc. in the web-site and allow secured access by way of client-specific user id and pass .....

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..... the intermediary may take a declaration of the residence/correspondence address on which all correspondence will be made by the intermediary with the investor. No proof is required to be submitted for such correspondence/residence address. In the event of change in this address due to relocation or any other reason, investor may intimate the new address for correspondence to the intermediary within two weeks of such a change. The residence/ correspondence address and any such change thereof may be verified by the intermediary through 'positive confirmation' such as (i) acknowledgment of receipt Welcome Kit/ dispatch of contract notes / any periodical statement, etc. (ii) telephonic conversation; (iii) visits, etc. 17. The Securities and Exchange Board of India (KYC Registration Agency) Regulations, 2011 Reference: Circular CIR/MIRSD/22/2011 dated October 25, 2011, Circular MIRSD/CIR-23/2011 dated December 02, 2011, Circular MIRSD/CIR-26 dated December 23, 2011, SEBI (KYC Registration Agency) Amendment Regulation 2013 vide Notification no. LAD-NRO/GN/2012-13/35/6998 dated March 22, 2013 and Circular CIR/MIRSD/4/2013 dated March 28, 2013. 17.1. To avoid duplication of KYC proc .....

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..... t. 17.5. Guidelines for KRAs 17.5.1. KRA system shall provide KYC information in data and image form to the intermediary. 17.5.2. KRA shall send a letter to the client within 10 working days of the receipt of the initial/updated KYC documents from intermediary, confirming the details thereof and maintain the proof of dispatch. 17.5.3. KRA(s) shall develop systems, in co-ordination with each other, to prevent duplication of entry of KYC details of a client and to ensure uniformity in formats of uploading / modification / downloading of KYC data by the intermediary. 17.5.4. KRA shall maintain an audit trail of the upload / modifications / downloads made in the KYC data, by the intermediary in its system. 17.5.5. KRA shall ensure that a comprehensive audit of its systems, controls, procedures, safeguards and security of information and documents is carried out annually by an independent auditor. The Audit Report along with the steps taken to rectify the deficiencies, if any, shall be placed before its Board of Directors. Thereafter, the KRA shall send the Action Taken Report to SEBI within 3 months. 17.5.6. KRA systems shall clearly indicate the status of clients falling .....

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..... ntral KYC Records Registry (CKYCR) Reference: Circular CIR/MIRSD/66/2016 dated July 21, 2016 and Circular CIR/MIRSD/120/2016 dated November 10, 2016. 18.1. Government of India has authorized the Central Registry of Securitization and Asset Reconstruction and Security interest of India (CERSAI), set up under subsection (1) of Section 20 of Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, to act as, and to perform the functions of, the Central KYC Records Registry under the PML Rules 2005, including receiving, storing, safeguarding and retrieving the KYC records in digital form of a "client", as defined in clause (ha) sub-section (1) of Section 2 of the Prevention of Money Laundering Act, 2002 18.2. As per the 2015 amendment to PML (Maintenance of Records) Rules, 2005 (the rules), every reporting entity shall capture the KYC information for sharing with the Central KYC Records Registry in the manner mentioned in the Rules, as per the KYC template for "individuals" finalised by CERSAI. 18.3. The "live run" of the CKYCR started with effect from July 15, 2016 in a phased manner beginning with new "individual accounts". Further, "Te .....

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..... ter of Justice K.S. Puttaswamy (Retd.) & Another vs Union of India & Others, vide order dated August 11, 2015 and October 15, 2015 directed that the usage of the Aadhaar card as issued by the Unique Identification Authority of India (UIDAI) is voluntary. In view of the said orders, the usage of Aadhaar card is optional and purely on a voluntary basis, subject to the final judgment of the Hon'ble Supreme Court in the aforesaid petition. 19.4. For accessing the details enabling client identification and authentication from UIDAI based on client authorisation, on voluntary basis, intermediaries who utilize the services of KYC Service Agencies (KSAs) would be registered as KYC User Agencies (KUA) with UIDAI. 19.5. For entering into account based relationship, the client may provide the following information to the intermediary: 19.5.1. Name 19.5.2. AADHAAR Number 19.5.3. Permanent Account Number (PAN) 19.6. The above information can be provided by the client electronically including through any web enabled device. 19.7. The intermediary shall perform verification of the client with UIDAI through biometric authentication (fingerprint or iris scanning). Mutual Funds can also pe .....

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..... r these regulations from time to time. 20.3. Further, the Prevention of Money Laundering Rules, 2005 also require that every banking company, financial institution and intermediary, as the case may be, shall identify the beneficial owner and take all reasonable steps to verify his identity. The Government of India in consultation with the regulators has now specified a uniform approach to be followed towards determination of beneficial ownership. Accordingly, the intermediaries shall comply with the following guidelines. 20.3.1. For clients other than individuals or trusts - Where the client is a person other than an individual or trust, viz., company, partnership or unincorporated association/body of individuals, the intermediary shall identify the beneficial owners of the client and take reasonable measures to verify the identity of such persons, through the following information: a. The identity of the natural person, who, whether acting alone or together, or through one or more juridical person, exercises control through ownership or who ultimately has a controlling ownership interest. Explanation: Controlling ownership interest means ownership of/entitlement to: i. more .....

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..... 17, 2010 and Circular CIR/MIRSD/13/2012 dated December 07, 2012. 21.1. Inspection of Members by Stock Exchanges / Clearing Corporations 21.1.1. The Stock Exchange or the Clearing Corporation, as the case may be, shall, in consultation with SEBI, formulate a policy for annual inspection of their members in various segments and follow up action thereon. The policy shall also cover various kinds of risks posed to the investors and market at large on account of the activities/business conduct of their members. 21.1.2. The Stock Exchange or the Clearing Corporation, as the case may be, shall conduct inspection of their members in various segments in terms of the above policy and in case of members who hold multiple memberships of the exchanges, the Stock Exchanges shall establish an information sharing mechanism with one another on the important outcome of inspection in order to improve the effectiveness of supervision. 21.1.3. The inspection shall cover: a. Compliance with the relevant provisions of the Act, Rules and Regulations made there under, Rules and Regulation of the Stock Exchange / Clearing Corporation and the circulars issued by SEBI and Stock Exchanges / Clearing .....

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..... plinary - against the members where deficiencies are noticed in audit reports or where audit report has not been received, and inform the details of action taken to SEBI, within six months from the end of the half year period. 21.3. Default in case of Multiple Membership 21.3.1. Whenever a member of any segment is declared defaulter, the concerned Stock Exchange/Clearing Corporation shall immediately declare it a defaulter in all its segments. It shall also immediately inform all other Stock Exchanges/Clearing Corporations the details of the defaulter member such as name of the member, the names of the proprietors/partners/promoters/dominant shareholders, as applicable. 21.3.2. Immediately on receipt of the information about default of a member, the Stock Exchange / Clearing Corporation shall declare the said member defaulter on all its segments. 21.3.3. The Stock Exchanges / Clearing Corporations shall take appropriate action against the associates of defaulter member. For this purpose, the term 'associate' shall include a person: a. who, directly or indirectly, by itself, or in combination with other persons, exercises control over the member, whether individual, body co .....

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..... on non equity funds transactions by the brokers. 7. Brokerage is not shown separately on contract notes. The correct rate at which the transaction was executed is not passed on to the client. 8. Charges other than brokerage and statutory charges levied on the clients which are not specifically agreed upon by the clients or charging more than the limits prescribed. 9. In case the Electronic Contract Notes (ECN) are issued, the same are not made available on brokers' websites/ sending ECN on single email-id for a group of clients/not maintaining ECN logs for ECN sent to the clients. III Relating to Investor services 10. Deficiency in service to the clients. 11. Non maintenance of investor grievance register and lack of proper system for receipt and reconciliation of investor grievances/not taking adequate steps for redressal of grievances of investors within one month from the date of receipt of the complaint. 12. Non maintenance of client database or details captured wrongly in the database. 13. There are delays between pay-out by the exchange to their members and the transmission of shares/money received in such pay-out to their clients by brokers without any record of re .....

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..... in front running, circular trading, creating false markets, misuse of the exchange mechanism for securing financing transactions, entering fictitious transactions and illegal transactions. 32. Non submission of audit report/internal audit reports within the prescribed time limit. 33. Dealing with unregistered sub-brokers/acting through brokers of other exchanges for its clients without registering as a sub-broker of these brokers. 34. Involved in business other than the securities business in violation of applicable laws. 35. Non payment/ inadequate payment of SEBI registration fees by the stock brokers and also by their sub-brokers. 36. Not complying with the provisions of advertisements/internet based trading 37. Non appointment of compliance officer. 38. Non- compliance with trading restrictions imposed by Stock Exchanges 39. Trading in unlisted securities and in securities prior to their admission to dealings by Exchanges 40. Not reporting off-the-floor transactions (e.g.) (a) The transactions with stock brokers of other exchanges (b) Principal to principal transactions with clients (c) Transactions done after the trading hours. 41. Not informing the investors/general .....

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..... n shall be irrespective of the fact of when the last inspection was carried out. 1.9. Apart from the above few stock brokers shall be selected by the Stock Exchanges on a random basis for inspection. 1.10. Stock Brokers who do not fall under any of the above category shall be inspected by the Stock Exchanges at least once in three years. 1.11. Stock Brokers selected on the above category shall be inspected for all segments and also for clearing activity if the stock broker is undertaking clearing for other stock brokers. 1.12. Inspections of Professional Clearing Members shall be conducted by Clearing Corporations once in two years. 2. Clearing activity undertaken by stock brokers for other stock brokers shall be inspected by Clearing Corporations. Other activities of stock brokers shall be inspected by Stock Exchanges. If Stock Exchanges and Clearing Corporations so desire, they can conduct joint inspections of stock brokers. Where Clearing Corporation has not been set up, Stock Exchange shall inspect all activities of stock brokers including activity of clearing for other stock brokers. 3. The Stock Exchanges/Clearing Corporations are advised to continuously assess the risk .....

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..... ts for better transparency. b) Clarification on Running Account Settlement c) Providing PAN details of Directors, Key Management Personnel and Dealers, to Stock Exchanges and any change thereof. 23.2. The provisions of enhanced supervision circular is not applicable to Regional Commodity Exchanges till further notice. ANNEXURE 1. Naming/Tagging of Bank and Demat Accounts by Stock Broker 1.1. Bank accounts and Demat accounts maintained by all stock brokers shall have appropriate nomenclature to reflect the purpose for which those bank/demat accounts are being maintained. 1.2. The nomenclature for bank accounts and demat accounts to be followed is given as under: 1.2.1. Bank account(s) which hold clients funds shall be named as "Name of Stock Broker - Client Account". 1.2.2. Demat account(s) which hold clients' securities shall be named as "Name of Stock Broker- Client Account". 1.2.3. Demat account(s), maintained by the stock broker for depositing securities collateral with the Clearing Corporation, shall be named as "Name of Stock Broker-Collateral Account". 1.2.4. Demat account(s) held for the purpose of settlement would be named .....

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..... rement, it is reiterated that; 2.4.1. Stock Broker shall not use client funds and securities for proprietary purposes including settlement of proprietary obligations. 2.4.2. Transfer of funds between "Name of Stock Broker - Client Account" and "Name of Stock Broker - Settlement Account" and client's own bank accounts is permitted. Transfer of funds from "Name of Stock Broker - Client Account" to "Name of Stock Broker - Proprietary Account" is permitted only for legitimate purposes, such as, recovery of brokerage, statutory dues, funds shortfall of debit balance clients which has been met by the stock broker, etc. For such transfer of funds, stock broker shall maintain daily reconciliation statement clearly indicating the amount of funds transferred. 2.4.3. Transfer of securities between "Name of the Stock Broker - Client Account" and individual client's BO account, "Name of the Stock Broker - Pool Account" and "Name of the Stock Broker - Collateral Account" is permitted. Transfer of securities between "Name of the Stock Broker - Client Account" to "Name of the Stock Broker - Proprietary Account" is permitted only .....

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..... 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. 3. Monitoring of Clients' Funds lying with the Stock Broker by the Stock Exchanges 3.1. Stock Exchanges shall put in place a mechanism for monitoring clients' funds lying with the stock broker to generate alerts on any misuse of clients' funds by stock brokers, as per the guidelines stipulated in para 3.2 & 3.3 below. 3.2. The uploading of the following data by the stock broker to the Stock Exchanges shall be on weekly basis i.e. stock brokers shall submit the data as on last trading day of every week on or before the next three trading days. Further, the Stock Broker shall not be required to upload data with respect to custodian settled clients. A- Aggregate of fund balances available in all Client Bank Accounts, including the Settlement Account, maintained by the stock broker across Stock Exchanges. B- Aggregate value of collateral deposited with Clearing Corporation and/or clearing .....

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..... s. The negative value of G acts as an alert to the Stock Exchanges. Thereafter, the absolute value of G shall be compared with debit balance of all clients as per client ledger D as follows: If the absolute value of (G) is lesser than |D|, then the stock broker has possibly utilised funds of credit balance clients towards settlement obligations of debit balance clients to the extent of value of G. If the absolute value of (G) is greater than |D|, then the stock broker has possibly utilised a part of funds of credit balance clients towards settlement obligations of debit balance clients and remaining part for his own purposes. In such cases the amount of client funds used for own purpose is calculated as follows: H= |G|- |D| 3.3.2. Funds of clients used for Margin obligation of proprietary trading: Stock Exchanges shall thereafter, verify whether the proprietary margin obligations (across Stock Exchanges) is less than the own funds and securities lying with the Stock Exchanges as collateral deposit, as follows: Principle: The sum of Proprietary funds and securities i.e. (G + E + F) lying with the Clearing Corporation/clearing member should be greater than or equal to .....

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..... balance clients and the free deposits available with the Clearing Corporation/clearing member. The value of J, which is clients' funds utilised towards margin obligations of debit balance clients and proprietary margin obligations, is calculated as under: J = (C - A) - (MC + MF) The value of J, if positive, indicates the extent of clients' funds utilised towards margin obligations of debit balance clients and proprietary margin obligations. This value of J acts as an alert to the Stock Exchanges on the possible misutilisation of clients' funds towards margin obligations of debit balance clients and proprietary margin obligations. 3.4. Based on the alerts generated, Stock Exchange shall, inter-alia, seek clarifications, carry out inspections and initiate appropriate actions to protect the clients' funds from being misused. Stock Exchanges shall also maintain records of such clarifications sought and details of such inspections. The aforesaid calculations are illustrated in tabular format in Table 1, 2 & 3 given at the end of the Annexure. 3.5. Stock Exchanges shall carry out the monitoring of clients' funds for all stock brokers, except for those who are carrying ou .....

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..... a, which shall mention not only the sample size but also the method used for arriving at the sample size. For example, with respect to verification of compliance with KYC norms, instead of the current practice of selecting a minimum number of KYCs, the sample selected may be a certain percentage of the top clients in each client category (Corporate, Partnership, Individual, Trust, Others) based on total turnover on the Stock Exchange and whose account has been opened during the audit period. For each theme/area of audit, internal audit report shall clearly specify the sample size verified, number of instances where adverse observations have been made as also the details of the adverse observations. 4.4. Monitoring of quality of Internal Audit Reports 4.4.1. The Stock Exchange shall every year identify a certain number of internal auditors based on criteria, such as, number and size of stock brokers audited, discrepancy in findings of auditor vis-à-vis Stock Exchange inspection, regulatory actions taken against the auditor/partners/directors, etc. A certain number of stock brokers who have been audited by these identified internal auditors shall be selected for inspection .....

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..... collaterals from customers over last year/submission. d. Percentage change in inter corporate deposits given over last year/submission. 5.1.2. Financial Ratios: a. (Total outside liabilities i.e. all liabilities of a broker except those owed to his shareholders) / (Net worth). b. (Value of Investments or advances or loans to group companies or associates or firms or entities) / (Net worth). c. (Value of maximum outstanding inter corporate debt during the year) / (Net worth). d. (Value of maximum outstanding inter corporate debt during the year) / (Share capital). 5.2. Stock Brokers shall submit financial statements to Stock Exchanges in the same format as prescribed under Companies Act, 2013 irrespective of whether they fall under the purview of Companies Act, 2013 or not. The due date for submission of the aforesaid financial statements to Stock Exchanges shall be the same as prescribed under Companies Act, 2013 for submission to Registrar of Companies. 5.3. No stock broker shall appoint or re-appoint- 5.3.1. an individual as statutory auditor for more than one term of five consecutive years; and 5.3.2. an audit firm as statutory auditor for more than two terms .....

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..... pending for more than 30 days and total value of which is more than 50 per cent of the Networth of the Broker. i. If, at any point of time, Net worth of the Broker is negative or lower than 75 per cent of the requirement. j. In case stock broker shares incomplete/wrong data or fails to submit data on time. k. Failure to submit financial statements as per timeline prescribed under Companies Act, 2013. 6.1.2. Monitoring criteria for Depository Participants a. Failure to furnish Networth certificate to Depository for year ending March 31st by September 30th. b. Failure to furnish Internal Audit report to Depository for half year ending September 30th by November 15th and half year ending March 31st by May 15th. c. Failure to co-operate with the Depository for conducting inspection by not submitting all the information/records sought within 45 days from the due date specified in the letter of intimation. d. Failure to submit data for the half yearly Risk Based Supervision within the time specified by Depositories. e. Failure to furnish half yearly compliance certificate/report to Depository for half year ending June 30th by July 30th and half year ending December 31st .....

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..... nformation at Para 7.1.1, 7.1.2 (only consolidated data) and 7.1.3 (only consolidated data) to clients via SMS on mobile numbers uploaded by the stock broker to the Exchange for their clients. 8. Running Account Settlement 8.1. The stock broker shall ensure that; 8.1.1. There must be a gap of maximum 90/30 days (as per the choice of client viz. Quarterly/Monthly) between two running account settlements. 8.1.2. For the purpose of settlement of funds, the mode of transfer of funds shall be by way of electronic funds transfer viz., through National Electronic Funds Transfer (NEFT), Real Time Gross Settlement (RTGS), etc. 8.1.3. The required bank details for initiating electronic fund transfers shall be obtained from new clients and shall be updated for existing clients. Only in cases where electronic payment instructions have failed or have been rejected by the bank, then the stock broker may issue a physical payment instrument. 8.1.4. Statement of accounts containing an extract from client ledger for funds & securities along with a statement explaining the retention of funds/securities shall be sent within five days from the date when the account is considered to be settled .....

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..... nges Non funded portion of the Bank Guarantee (F) - across all Stock Exchanges Proprietary margin Obligation across all Stock Exchanges Difference G (from the reconciliation stage I - positive value) E F P I = P - (G+E+F) Proprietary Obligation mentioned in column P shall be the sum of cash margin obligations and derivative margin obligations for proprietary trading as on reporting day. Table 3 RECONCILIATION - Funds of credit balance clients used for Margin obligations of debit balance clients and proprietary trading: Total of end of the day balance in all Client Bank Accounts across all Stock Exchanges Total Credit Balance of all clients (after adjusting for open bills and uncleared cheques)- across all Stock Exchanges Collateral deposited with Clearing Corporation/ clearing member in form of Cash and Cash Equivalents across all Stock Exchanges Margin utilized for positions of Credit Balance Clients (all exchanges) Free/unblocked Collateral deposited with Clearing Corporation/ clearing member (MF) Difference A (from the reconciliation stage 1 - positive value) C B MC MF B-(MC+M F) Or (C-A)- (MC+MF) 24. Annual System Audit of Stock Brokers / Trading Members .....

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..... it requirement for Type I brokers may be kept on hold till further communication from SEBI. 1.2.2. Type II Broker: Brokers who trade through API based trading terminals like [CTCL or IML] or IBT/DMA/STWT or SOR facility and who may also be TYPE I Brokers. (ToR attached as Annexure II below) 1.2.3. Type III Broker: Brokers who use Algorithmic Trading facility to trade and who may also be TYPE II Brokers. (ToR attached as Annexure III below) 1.3. Stock brokers shall select auditors as per the selection norms provided in the guidelines and directions issued by Stock Exchanges and SEBI from time to time. The Auditor may perform a maximum of 3 successive audits of the stock broker. 1.4. The Stock Exchanges shall periodically review ToR of such system audit and, if required, shall suitably revise the ToR after taking into consideration developments that have taken place in the securities market since the last review of ToR, observations reported in the audit reports of the stock brokers and directions issued by SEBI from time to time in this regard. 1.5. The auditor in its report shall specify compliance / non-compliance status with regard to areas mentioned in ToR. Observations o .....

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..... he stock broker. Further, the directors / partners of Auditor firm shall not be related to any stock broker including its directors or promoters either directly or indirectly. 2.5. The Auditor shall not have any cases pending against its previous audited companies/firms, which fall under SEBI's jurisdiction, which point to its incompetence and/or unsuitability to perform the audit task. Annexure I 3. Terms of Reference (ToR) for Type I Broker The system auditor shall at the minimum cover the following areas: 3.1. System controls and capabilities 3.1.1. Order Tracking - The system auditor should verify system process and controls at exchange provided terminals with regard to order entry, capturing of IP address of order entry terminals, modification / deletion of orders, status of the current order/outstanding orders and trade confirmation. 3.1.2. Order Status/ Capture - Whether the system has capability to generate / capture order id, time stamping, order type, scrip details, action, quantity, price and validity etc. 3.1.3. Rejection of orders - Whether system has capability to reject orders which do not go through order level validation at the end of the stock broker a .....

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..... ess Policy - Whether the organization has a well documented policy that provides for a password policy as well as access control policy for the exchange provided terminals. 3.3.2. Authentication Capability - Whether the system authenticates user credentials by means of a password before allowing the user to login, and whether there is is a system for authentication of orders originating from Internet Protocol by means of two-factor authentication, including Public Key Infrastructure (PKI) based implementation of digital signatures. 3.3.3. Password Best Practices - Whether there is a system provision for masking of password, system prompt to change default password on first login, disablement of user id on entering multiple wrong passwords (as defined in the password policy document), periodic password change mandate and appropriate prompt to user, strong parameters for password, deactivation of dormant user id, etc. 3.4. Session Management 3.4.1. Session Authentication - Whether the system has provision for Confidentiality, Integrity and Availability (CIA) of the session and the data transmitted during the session by means of appropriate user and session authentication mecha .....

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..... pable of authenticating the user after asking for additional details or OTP (One-Time-Password). 3.8.3. High Availability - Whether BCP / DR systems and network connectivity provide high availability and have no single point of failure for any critical operations as identified by the BCP/DR policy. 3.8.4. Connectivity with other FMIs - The system auditor should check whether there is an alternative medium to communicate with Stock Exchanges and other FMIs. 3.9. Segregation of Data and Processing facilities - The system auditor should check and comment on the segregation of data and processing facilities at the stock broker in case the stock broker is also running other business. 3.10. Back office data 3.10.1. Data consistency - The system auditor should verify whether aggregate client code data available at the back office of broker matches with the data submitted / available with the Stock Exchanges through online data view / download provided by exchanges to members. 3.10.2. Trail Logs - The system auditor should specifically comment on the logs of Client Code data to ascertain whether editing or deletion of records have been properly documented and recorded and does no .....

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..... order id, time stamping, order type, scrip details, action, quantity, price and validity, etc. 4.1.3. Rejection of orders - Whether system has capability to reject orders which do not go through order level validation at CTCL servers and at the servers of respective Stock Exchanges. 4.1.4. Communication of Trade Confirmation / Order Status - Whether the system has capability to timely communicate to Client regarding the Acceptance/ Rejection of an Order / Trade via various media including e-mail; facility of viewing trade log. 4.1.5. Client ID Verification - Whether the system has capability to recognize only authorized Client Orders and mapping of Specific user Ids to specific predefined location for proprietary orders. 4.1.6. Order type distinguishing capability - Whether system has capability to distinguish the orders originating from (CTCL or IML) / IBT/ DMA / STWT. 4.2. Software Change Management - The system auditor should check whether proper procedures have been followed and proper documentation has been maintained for the following: 4.2.1. Processing / approval methodology of new feature request or patches. 4.2.2. Fault reporting / tracking mechanism and proc .....

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..... hether the system allows only authorized users to set the risk parameter in the RMS. 4.4. Smart order routing (SOR) - The system auditor should check whether proper procedures have been followed and proper documentation has been maintained for the following: 4.4.1. Best Execution Policy - System adheres to the Best Execution Policy while routing the orders to the exchange. 4.4.2. Destination Neutral - The system routes orders to the recognized Stock Exchanges in a neutral manner. 4.4.3. Class Neutral - The system provides for SOR for all classes of investors. 4.4.4. Confidentiality - The system does not release orders to venues other than the recognized Stock Exchange. 4.4.5. Opt-out - The system provides functionality to the client who has availed of the SOR facility, to specify for individual orders for which the clients do not want to route order using SOR. 4.4.6. Time stamped market information - The system is capable of receiving time stamped market prices from recognized Stock Exchanges from which the member is authorized to avail SOR facility. 4.4.7. Audit Trail - Audit trail for SOR should capture order details, trades and data points used as a basis for rout .....

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..... ng encryption algorithms. 4.8. Network Integrity 4.8.1. Seamless connectivity - Whether the stock broker has ensured that a backup network link is available in case of primary link failure with the exchange. 4.8.2. Network Architecture - Whether the web server is separate from the Application and Database Server. 4.8.3. Firewall Configuration - Whether appropriate firewall is present between stock broker's trading setup and various communication links to the exchange. Whether the firewall is appropriately configured to ensure maximum security. 4.9. Access Controls 4.9.1. Access to server rooms - Whether adequate controls are in place for access to server rooms and proper audit trails are maintained for the same. 4.9.2. Additional Access controls - Whether the system provides for two factor authentication mechanism to access to various CTCL or IML components. Whether additional password requirements are set for critical features of the system. Whether the access control is adequate. 4.10. Backup and Recovery 4.10.1. Backup and Recovery Policy - Whether the organization has a well documented policy on periodic backup of data generated from the broking operations. .....

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..... Whether there is a proper documentation of the authorized users in the form of User Application approval, copies of User Qualification and other necessary documents. 4.14.3. User Creation / Deletion - The system auditor should check whether new users ids were created / deleted as per CTCL or IML guidelines of the exchanges and whether the user ids are unique in nature. 4.14.4. User Disablement - The system auditor should check whether non-complaint users are disabled and appropriate logs (such as event log and trade logs of the user) are maintained. 4.15. IT Infrastructure Management (including use of various Cloud computing models such as Infrastructure as a service (IaaS), Platform as a service (PaaS), Software as a service (SaaS), Network as a service (NaaS)) 4.15.1. IT Governance and Policy - The system auditor should verify whether the relevant IT Infrastructure-related policies and standards exist and are regularly reviewed and updated. Compliance with these policies is periodically assessed. 4.15.2. IT Infrastructure Planning - The system auditor should verify whether the plans/policy for the appropriate management and replacement of aging IT infrastructure componen .....

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..... ade confirmation. 5.1.2. Order Status/ Capture - Whether the system has capability to generate / capture order id, time stamping, order type, scrip details, action, quantity, price and validity etc. 5.1.3. Rejection of orders - Whether the system has capability to reject orders which do not go through order level validation at CTCL servers and at the servers of respective exchanges. 5.1.4. Communication of Trade Confirmation / Order Status - Whether the system has capability to timely communicate to client regarding the Acceptance/ Rejection of an Order / Trade via various media including e-mail; facility of viewing trade log. 5.1.5. Client ID Verification - Whether the system has capability to recognize only authorized Client Orders and mapping of Specific user Ids to specific predefined location for proprietary orders. 5.1.6. Order type distinguishing capability - Whether the system has capability to distinguish the orders originating from (CTCL or IML) / IBT / DMA / STWT / SOR / Algorithmic Trading. 5.2. Software Change Management - The system auditor should check whether proper procedures have been followed and proper documentation has been maintained for the followi .....

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..... stem maintains logs of alerts / changes / deletion / activation / deactivation of client codes and logs of changes to the risk management parameters mentioned above. Whether the system allows only authorized users to set the risk parameter in the RMS. 5.4. Smart order routing (SOR) - The system auditor should check whether proper procedures have been followed and proper documentation has been maintained for the following: 5.4.1. Best Execution Policy - System adheres to the Best Execution Policy while routing the orders to the exchange. 5.4.2. Destination Neutral - The system routes orders to the recognized Stock Exchanges in a neutral manner. 5.4.3. Class Neutral - The system provides for SOR for all classes of investors. 5.4.4. Confidentiality - The system does not release orders to venues other than the recognized Stock Exchange. 5.4.5. Opt-out - The system provides functionality to the client who has availed of the SOR facility, to specify for individual orders for which the clients do not want to route order using SOR. 5.4.6. Time stamped market information - The system is capable of receiving time stamped market prices from recognized Stock Exchanges from which t .....

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..... ll 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. 5.5.8. Systems and Procedures - The system auditor should check and comment on the procedures, systems and technical capabilities of stock broker for carrying out trading through use of Algorithms. The system auditor should also identify any misuse or unauthorized access to algorithms or the system which runs these algorithms. 5.5.9. Reporting to Stock Exchanges - The system auditor should check whether the stock broker is informing the Stock Exchange regarding any incidents where the algos have not behaved as expected. The system auditor should also .....

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..... link is available in case of primary link failure with the exchange. 5.9.2. Network Architecture - Whether the web server is separate from the Application and Database Server. 5.9.3. Firewall Configuration - Whether appropriate firewall are present between the stock broker's trading setup and various communication links to the exchange. Whether the firewalls should be appropriately configured to ensure maximum security. 5.10. Access Controls 5.10.1. Access to server rooms - Whether adequate controls are in place for access to server rooms, proper audit trails should be maintained for the same. 5.10.2. Additional Access controls - Whether the system should provide for two factor authentication mechanism to access to various CTCL or IML components. Whether additional password requirements are set for critical features of the system. Whether the access control is adequate. 5.11. Backup and Recovery 5.11.1. Backup and Recovery Policy - Whether the organization has a well documented policy on periodic backup of data generated from the broking operations. 5.11.2. Log generation and data consistency - Whether backup logs are maintained and backup data should be tested .....

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..... l, copies of user qualification and other necessary documents. 5.15.3. User Creation / Deletion - The system auditor should verify whether new users ids should be created / deleted as per CTCL or IML guidelines of the exchanges and whether the user ids are unique in nature. 5.15.4. User Disablement - The system auditor should verify whether non-complaint users are disabled and appropriate logs such as event log and trade logs of the user should be maintained. 5.16. IT Infrastructure Management (including use of various Cloud computing models such as Infrastructure as a service (IaaS), Platform as a service (PaaS), Software as a service (SaaS), Network as a service (NaaS)) 5.16.1. IT Governance and Policy - The system auditor should verify whether the relevant IT Infrastructure-related policies and standards exist and are regularly reviewed and updated. Compliance with these policies is periodically assessed. 5.16.2. IT Infrastructure Planning - The system auditor should verify whether the plans/policy for the appropriate management and replacement of aging IT infrastructure components have been documented, approved, and implemented. The activities, schedules and resources .....

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..... ription 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. Ro .....

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..... eep one consolidated clients account for all the clients or accounts in the name of each client, as he thinks fit. Provided that when a Member broker receives a cheque or draft representing in part money belonging to the client and in part money due to the Member, he shall pay the whole of such cheque or draft into the clients account and effect subsequent transfer as laid down below in para 25.1.4(b). 25.1.3. What moneys to be paid into "clients account". No money shall be paid into clients account other than a. money held or received on account of clients. b. such money belonging to the Member as may be necessary for the purpose of opening or maintaining the account. c. money for replacement of any sum which may by mistake or accident have been drawn from the account in contravention of 25.1.4 given below. d. a cheque or draft received by the Member representing in part money belonging to the client and in part money due to the Member. 25.1.4. What moneys to be withdrawn from "clients account". No money shall be drawn from clients account other than a. money properly required for payment to or on behalf of clients or for or towards payment of a d .....

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..... ent to the Member Broker for the execution of the contract within two days of contract note having been delivered for cash shares and seven days for specified shares or before pay-in day (as fixed by Stock Exchange for the concerned settlement period), whichever is earlier; unless the client already has an equivalent credit with the Member. The loss incurred in this regard, if any, will be met from the margin money of that client. 25.6. In case of sales on behalf of clients, Member broker shall be at liberty to close out the contract by effecting purchases if the client fails to deliver the securities sold with valid transfer documents within 48 hours of the contract note having been delivered or before delivery day (as fixed by Stock Exchange authorities for the concerned settlement period), whichever is earlier. Loss on the transaction, if any, will be deductible from the margin money of that client. 26. Collateral deposited by Clients with Brokers Reference: Circular MRD/DoP/SE/CIR-11/2008 dated April 17, 2008. 26.1. For brokers to maintain proper records of client collateral and to prevent misuse of client collateral, it is advised that: 26.1.1. Brokers should have adequa .....

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..... and lending of funds, by a trading member, in connection with or incidental to or consequential upon the securities business, would not be disqualified under Rule 8(1)(f) and 8(3)(f) of the Securities Contract (Regulation) Rules, 1957. 29. Mode of payment and delivery Reference: Circular SEBI/MRD/SE/CIR-33/2003/27/08 dated August 27, 2003. 29.1. Brokers and sub-brokers should not accept cash from the client whether against obligations or as margin for purchase of securities and / or give cash against sale of securities to the clients. 29.2. All payments shall be received / made by the brokers from / to the clients strictly by account payee crossed cheques / demand drafts or by way of direct credit into the bank account through EFT, or any other mode allowed by RBI. The brokers shall accept cheques drawn only by the clients and also issue cheques in favour of the clients only, for their transactions. However, in exceptional circumstances the broker or sub-broker may receive the amount in cash, to the extent not in violation of the Income Tax requirement as may be in force from time to time. 29.3. Similarly, in the case of securities also giving / taking delivery of securities in .....

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..... : 32.1.1. Certain members are putting large number of orders on pro-account from various locations rather than using "pro-account" at the terminals located at the corporate office from where the owner / directors normally function. 32.1.2. These trades executed from various locations under "pro-account" are, many a time, transferred subsequently to the respective clients in the back office of the members. 32.2. The aforementioned practices clearly violate the requirement of putting the orders of clients under the appropriate client code through trading terminals. 32.3. With a view to check such misuse of the above facility, if any, Stock Exchanges are directed to ensure the following:- 32.3.1. Facility of placing orders on "pro-account" through trading terminals shall be extended only at one location of the members as specified / required by the members. 32.3.2. Trading terminals located at places other than the above location shall have a facility to place orders only for and on behalf of a client by entering client code details as required / specified by the Exchange / SEBI. 32.3.3. In case any member requires the facility of using "pro-account" through trading termin .....

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..... r. 34. Market Access through Authorised Persons Reference: Circular MIRSD/DR-1/CIR-16/09 dated November 06, 2009 and Circular SEBI/CIR/MIRSD/AP/8/2010 dated July 23, 2010. The framework governing the market access through authorised persons is prescribed below. This framework provides the minimum requirements and the Stock Exchanges and stock brokers may prescribe additional requirements, as they may deem appropriate, in the interest of investors and market. Regulatory Framework for Market Access through Authorised Persons 34.1. Who is an "Authorised Person"? Any person - individual, partnership firm, LLP or body corporate - who is appointed as such by a stock broker (including trading member) and who provides access to trading platform of a Stock Exchange as an agent of the stock broker. 34.2. Appointment of Authorised Person A stock broker may appoint one or more authorised person(s) after obtaining specific prior approval from the Stock Exchange concerned for each such person. The approval as well as the appointment shall be for specific segment of the exchange. 34.3. Procedure for Appointment 34.3.1. Stock Broker shall select a person in compliance with the criteria .....

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..... re 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. 34.6. Withdrawal of Approval 34.6.1. Approval given to an authorised person may be withdrawn by the Stock Exchange: a. on receipt of a request to that effect from the stock broker concerned or the authorised person, subject to compliance with the requirements prescribed by the Stock Exchange, or b. on being satisfied that the continuation of authorised person is detrimental to the interest of investors or securities market or the authorised person at a subsequent date becomes ineligible under clause 34.4 above. 34.7. Obligations of Stock Broker 34.7.1. The stock broker shall be responsible for all acts of omission and commission of his authorised person(s) and/or their employees, including liabilities arising there from. 3 .....

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..... e made available on web site of the Stock Exchange. 34.8.2. While conducting the inspection of the stock broker, the Stock Exchange shall also conduct inspection of branches where the terminals of authorised persons are located and records of the operations carried out by them. 34.8.3. Dispute between a client and an authorised person shall be treated as dispute between the client and the stock broker and the same shall be redressed by the Stock Exchange accordingly. 34.8.4. In case of withdrawal of approval of authorised person due to disciplinary action, the Stock Exchange shall issue a press release and disseminate the names of such authorised persons on its website citing the reason for cancellation. 35. SMS and e-mail alerts to investors by Stock Exchanges Reference: Circular CIR/MIRSD/15/2011 dated August 02, 2011 and SEBI communication SE/10118 dated October 12, 1992. 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: 35.1. Applicability - 35.1.1. These guidelines are applicable to equity - cash and derivative - segments of the Stock .....

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..... . 36.1. SEBI in the past has taken several steps to tackle the menace of "Unauthorized Trades" viz Periodic Running Account Settlement, Post transactions SMS/email by Stock Exchanges/Depositories, Ticker on broker/DP websites etc. It was observed that in spite of measures taken, a considerable proportion of investor complaints is of the nature of "Unauthorized Trades". 36.2. To further strengthen regulatory provisions against un-authorized trades and also to harmonise the requirements across markets, it has now been decided that all brokers shall execute trades of clients only after keeping evidence of the client placing such order, it could be, inter alia, in the form of: a. Physical record written & signed by client, b. Telephone recording, c. Email from authorized email id, d. Log for internet transactions, e. Record of SMS messages, f. Any other legally verifiable record. 36.3. When a dispute arises, the broker shall produce the above mentioned records for the disputed trades. However, for exceptional cases such as technical failure etc. where broker fails to produce order placing evidences, the broker shall justify with reasons for the same and depending upon m .....

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..... xure shall be made applicable to stock brokers/ stock broker and depository participants. 37.5. Standardizing the norms for PoA must not be construed as making the PoA a condition precedent or mandatory for availing broking or depository participant services. PoA is merely an option available to the client for instructing his broker or depository participant to facilitate the delivery of shares and pay-in/pay-out of funds etc. No stock broker or depository participant shall deny services to the client if the client refuses to execute a PoA in their favour. However, internet based trading is exempted from this clause. 37.6. Stock Broker/ DP may revoke those authorizations that are inconsistent with the present guidelines by communicating the inconsistent clauses to the existing clients. In the event, the deleted clauses are not accepted by the client, Stock Broker/ DP may be required to either obtain fresh PoA or close the account. In case of any addition to the existing PoA, Stock Broker / DP shall be required to obtain a new PoA from clients. ANNEXURE 1. PoA favouring Stock Brokers 1.1. PoA executed in favour of a stock broker by the client should be limited to the following .....

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..... 2.1.2. Provide the list of clients' & brokers' Bank accounts & demat accounts where funds and securities can be moved. Such bank & demat accounts should be accounts of related party only. The list of clients' and brokers' Bank account and demat accounts may be updated / amended by proper communication without executing a new PoA every time. Copies of such communication may be preserved as annexure to PoA. 2.1.3. Be executed in the name of the concerned SEBI registered entity only and not in the name of any employee or representative of the stock broker /depository participant. 2.1.4. Not provide the authority to transfer the rights in favour of any assignees of the stock broker/depository participant. 2.1.5. Be executed and stamped as per the rules / law prevailing in the place where the PoA is executed or the place where the PoA is kept as a record, as applicable. 2.1.6. Contain a clause by which the stock broker would return to the client(s), the securities or fund that may have been received by it erroneously or those securities or fund that it was not entitled to receive from the client(s). 2.1.7. Be revocable at any time. However, such revocation shall not be appli .....

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..... er. 38. Modification of Client Codes of Non-institutional Trades executed on Stock Exchanges (All Segments) Reference: Circular CIR/DNPD/6/2011 dated July 05, 2011 and Circular CIR/MRD/DP/29/2014 dated October 21, 2014. 38.1. Stock Exchanges may allow modifications of client codes of non-institutional trades only to rectify a genuine error in entry of client code at the time of placing / modifying the related order. 38.2. If a Stock Exchange wishes to allow trading members to modify client codes of non-institutional trades, it shall 38.2.1. lay down strict objective criteria, with the approval of its Governing Board, for identification of genuine errors in client codes which may be modified, and disclose the same to market in advance, 38.2.2. set up a mechanism to monitor that the trading members modify client codes only as per the strict objective criteria, and 38.2.3. ensure that modification of client codes is covered in the internal audit of trading members. 38.3. Notwithstanding the above, 38.3.1. The Stock Exchanges shall levy a penalty from trading members and credit the same to its Investor Protection Fund as under: 'a' as % of 'b' Penalty as % of 'a' ≤ 5 .....

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..... lassified as 'Group I security' shall be eligible for margin trading facility. Group I securities are liquid securities which are traded at least 80% of the days over the previous six months and impact cost for which over the previous six months is less than or equal to 1%. (For securities that have been listed for less than six months, the trading frequency and the impact cost shall be computed using the entire trading history of the scrip) 39.2. Margin Requirement 39.2.1. In order to avail margin trading facility, initial margin required shall be as under: Category of Stock Applicable margin Group I stocks available for trading in the F & O Segment VaR + 3 times of applicable ELM(*) Group I stocks other than F&O stocks VaR + 5 times of applicable ELM(*) (*) For aforesaid purpose the applicable VaR and ELM shall be as in the cash segment for a particular stock. 39.2.2. The initial margin payable by the client to the stock broker shall be in the form of cash, cash equivalent or Group I equity shares, with appropriate haircut as specified by SEBI. 39.2.3. The stock brokers shall be required to comply with the following conditions: a. The stocks deposited as c .....

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..... Source of Funds 39.5.1. For the purpose of providing the margin trading facility, a stock broker may use own funds or borrow funds from scheduled commercial banks and/or NBFCs regulated by RBI. Stock Brokers may borrow funds by way of issuance of Commercial Paper (CP) and by way of unsecured long term loans from their promoters and directors. The borrowing by way of issuance of CPs shall be subject to compliance with appropriate RBI Guidelines. The borrowing by way of unsecured long term loans from the promoters and directors shall be subject to the appropriate provisions of Companies Act. 39.5.2. A stock broker shall not be permitted to borrow funds from any other source, except the sources stated at para 39.5.1 above 39.5.3. The stock broker shall not use the funds of any client for providing the margin trading facility to another client, even if the same is authorized by the first client. 39.6. Leverage and Exposure Limits 39.6.1. At any point of time, the total indebtedness of a stock broker for the purpose of margin trading shall not exceed 5 times of its net worth, calculated as per para 39.4.2 above. 39.6.2. The maximum allowable exposure of the broker towards th .....

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..... tional 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 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 d .....

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..... ing Electronic Contract Notes (ECNs) to their clients shall comply with the following conditions: 40.3.1. Authorization for Electronic Contract Notes - The stock broker may issue electronic contract notes (ECN) if specifically authorized by the client subject to the following conditions: a. The authorization shall be in writing and be signed by the client only and not by any authorised person on his behalf or holder of the Power of Attorney. b. The email id shall not be created by the broker. The client desirous of receiving ECN shall create/provide his own email id to the stock broker. c. The authorization shall have a clause to the effect that that any change in the email-id shall be communicated by the client through a physical letter to the broker. In respect of internet clients, the request for change of email id may be made through the secured access by way of client specific user id and password. 40.3.2. Issuing ECNs when specifically consented a. The digitally signed ECNs may be sent only to those clients who have opted to receive the contract notes in an electronic form, either in the Member - Client agreement / Tripartite agreement or by a separate letter. The m .....

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..... hin the stipulated time under the extant regulations of SEBI/stock exchanges and maintain the proof of delivery of such physical contract notes. 40.3.7. General requirements a. ECNs through website i. In addition to the e-mail communication of the ECNs in the manner stated above, in order to further strengthen the electronic communication channel, the member shall simultaneously publish the ECN on his designated website in a secured way and enable relevant access to the clients. b. Access to the website i. In order to enable clients to access the ECNs posted in the designated website in a secured way, the member shall allot a unique user name and password for the purpose, with an option to the client to access the same and save the contract note electronically or take a print out of the same. c. Preservation/Archive of electronic documents i. The member shall retain/archive such electronic documents as per the extant rules/regulations/circulars/guidelines issued by SEBI/Stock Exchanges from time to time. 41. Conditions to be met by Broker for providing Internet Based Trading Service Reference: Circular SMDRP/POLICY/CIR-06/2000 dated January 31, 2000 and Circular FITT .....

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..... : The Stock Exchange must ensure that the brokers maintain adequate backup systems and data storage capacity. The Stock Exchange must also ensure that the brokers have adequate system capacity for handling data transfer, and arranged for alternative means of communications in case of Internet link failure. iii. Qualified Personnel: The Stock Exchange must lay down the minimum qualification for personnel to ensure that the broker has suitably qualified and adequate personnel to handle communication including trading instructions as well as other back office work which is likely to increase because of higher volumes. iv. Written Procedures: Stock Exchange must develop uniform written procedures to handle contingency situations and for review of incoming and outgoing electronic correspondence. v. Signature Verification/ Authentication: It is desirable that participants use authentication technologies. For this purpose it should be mandatory for participants to use certification agencies as and when notified by Government / SEBI. They should also clearly specify when manual signatures would be required. c. Client Broker Relationship i. Know Your Client: The Stock Exchange mus .....

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..... xchanges must ensure that brokers have a system-based controlon the trading limits of clients, and exposures taken by clients. Brokers must set pre-defined limits on the exposure and turnover of each client. ii. The broker systems should be capable of assessing the risk of the client as soon as the order comes in. The client should be informed of acceptance/rejection of the order within a reasonable period. In case system based control rejects an order because of client having exceeded limits etc., the broker system may have a review and release facility to allow the order to pass through. iii. Reports on margin requirements, payment and delivery obligations, etc. should be informed to the client through the system. e. Contract Notes i. Contract notes must be issued to clients as per existing regulations, within 24 hours of the trade execution. f. Cross Trades i. As in the case of existing system, brokers using Internet based systems for routing client orders will not be allowed to cross trades of their clients with each other. All orders must be offered to the market for matching. ii. It is emphasised that in addition to the requirements mentioned above, all existing .....

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..... some additional requirements are to be met by the broker for providing securities transaction through WAP. These requirements are provided in the following criteria: 42.2. Network Security 42.2.1. The break in data encryption at the WAP gateway server raises security issues. Until the shortcoming is addressed by WAP, the WAP server should be hosted by the broker itself and not by a third party. 42.2.2. Suitable firewalls should be installed between trading set-up directly connected to an Exchange trading system and the WAP server. 42.2.3. WTLS (Wireless Transport Layer Security) level security or a higher level of security (as and when available) for wireless communication is mandatory for wireless transactions. 42.2.4. The WTLS encrypts data upto the WAP Gateway server. Transmission from the WAP Gateway server to the Internet server should be secured using Secured Socket Level Security, preferably with 128 bit encryption, for server access through Internet. Alternately, the WAP Gateway server and Internet server may be co-hosted. The server resource should not be shared for any other applications. 42.2.5. The following security measures applicable for fixed Internet bas .....

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..... k exchange shall ensure that the broker complies with the following: 43.3.1. There shall be secure access, encryption and security of communication for internet based trading and securities trading using wireless technology. DOT policy and regulation shall govern the level of encryption. 43.3.2. Adequate measures should be taken for user identification, authentication and access control using means such as user-id, passwords, smart cards, biometric devices or other reliable means, to prevent misuse of facility by unauthorized persons. 43.3.3. Unique identification number as given in case of internet based trading shall be made applicable for securities trading using wireless technology. 43.3.4. In case of failure of the wireless network, alternative means of communication for placing orders should be available. 43.3.5. Additional provisions specifying possible risks, responsibilities and liabilities associated with securities trading using wireless technology should be incorporated in the Broker-Client agreement as an addendum or by bringing to the notice of clients, who are desirous of availing such facility, and taking their concurrence on the same. 43.3.6. As it may .....

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..... alternate channel of communication shall have adequate capabilities for client identification and authentication. 44.1.6. Two-factor authentication for login session may be implemented for all orders emanating using Internet Protocol. Public Key Infrastructure (PKI) based implementation using digital signatures, supported by one of the agencies certified by the government of India, is advisable. Further the two factors in the Two-factor authentication framework should not be same. 44.1.7. In case of no activity by the client, the system should provide for automatic trading session logout. Further to the above, the following practice is advisable - 44.1.8. The back-up and restore systems implemented by the broker should be adequate to deliver sustained performance and high availability. The broker system should have on-site as well as remote site back-up capabilities 45. Direct Market Access facilityReference: 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. 45.1. Direct Market Access (DMA) is a facility which allows brokers to offer clients direct access to .....

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..... the Exchange to treat DMA client orders. Brokers should maintain all activities/ alerts log with audit trail facility. The DMA Server should have internally generated unique numbering for all such client order/trades. 45.4.6. A systems audit of the DMA systems and software shall be periodically carried out by the broker as may be specified by the exchange and certificate in this regard shall be submitted to the exchange. 45.4.7. The exchanges and brokers should provide for adequate systems and procedures to handle the DMA trades. 45.5. Risk Management 45.5.1. The broker shall ensure that trading limits/ exposure limits/ position limits are set for all DMA clients based on risk assessment, credit quality and available margins of the client. The broker system shall have appropriate authority levels to ensure that the limits can be set up only by persons authorized by the risk / compliance manager. 45.5.2. The broker shall ensure that all DMA orders are routed through electronic/automated risk management systems of the broker to carry out appropriate validations of all risk parameters including Quantity Limits, Price Range Checks, Order Value, and Credit Checks before the or .....

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..... ce such other safeguards as it deems fit to mitigate any concerns it may have. 45.12. The terms and conditions for the purpose of DMA is specified in Annexure below. The "Terms and Conditions" shall be provided to the client or investment manager acting on behalf of a client (s) for availing the DMA facility. In case the DMA facility provided by the stock broker is used by the client the paragraphs 1 to 18 of Part A of Annexure shall be applicable. In case the DMA facility provided by the stock broker is used by the client through an investment manager the paragraphs 1 to 18 of Part B of Annexure shall be applicable and additionally, the investment manager shall provide to the stock broker the details as specified at the end of the Annexure. ANNEXURE PART A: DMA FACILITY USED BY THE CLIENT 1. The client is expected to be fully aware of the risks associated with the market and the financial instruments being traded on stock exchanges through DMA. The client shall be responsible for complying with laws, rules, regulations, notifications etc issued by regulatory authorities as may be applicable from time to time. 2. The client shall ensure that DMA facility provided by the Broker .....

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..... rd party. 10. The client acknowledges that all DMA orders placed by them through the DMA facility would be validated by the risk management system of the broker. The Broker has the right to accept or reject any DMA order placed by the client at its sole discretion. 11. The client shall be solely responsible for all acts or omissions of any person using a DMA facility and shall be bound to accept and settle all transactions executed through the DMA facility provided by the Broker notwithstanding that such order(s) may have been submitted erroneously or by an unauthorized user, or that its data is inaccurate or incomplete when submitted, or the client subsequently determines for whatever reason that the order should not have been submitted. 12. The client shall notify the Broker in the event of DMA facility being compromised. Upon receipt of this notice, client's DMA facility shall be promptly disabled but the client shall continue to be responsible for any misuse of the DMA facility or any orders placed through the DMA facility as a result of the compromise of the DMA facility at their end. The Broker shall not be liable for any loss, liability or cost whatsoever arising as a res .....

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..... o time. PART - B: DMA FACILITY USED BY THE CLIENT THROUGH AN INVESTMENT MANAGER 1. The client shall be solely responsible for all acts or omissions of any person using a DMA facility and shall be bound to accept and settle all transactions executed through the DMA facility provided by the Broker to the investment manager acting on behalf of the client, notwithstanding that such order(s) may have been submitted erroneously or by an unauthorized user, or that its data is inaccurate or incomplete when submitted, or the client subsequently determines for whatever reason that the order should not have been submitted. 2. The investment manager is expected to be fully aware of the risks associated with the market and the financial instruments being traded on stock exchanges through DMA. The investment manager shall be responsible for complying with laws, rules, regulations, notifications etc issued by regulatory authorities as may be applicable from time to time. 3. Where the DMA facility provided by the Broker is used to execute trade on behalf of one or more clients, by the investment manager, then it is represented and warranted that, at each time an order is placed by such investm .....

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..... to engage in any form of market misconduct including insider trading and market manipulation or conduct that is otherwise in breach of applicable laws, rules and regulation. 9. The investment manager is aware that Algorithmic trading i.e. generation of orders using automated execution logic is governed by Algorithmic trading guidelines issued by SEBI and Exchanges and requires prior approval of the exchanges. The investment manager shall ensure that new algorithms and changes to existing approved algorithms are not used through the DMA facility without prior approval of concerned stock exchanges. The investment manager shall ensure that it has necessary checks and balances, in place to identify and control dysfunctional algorithms and the Broker shall have the right to shut down the DMA facility and remove any outstanding client orders in case of any suspected dysfunctional algo. 10. The investment manager is aware that authentication technologies and strict security measures are required for routing orders through DMA facility and undertakes to ensure that the password of the investment manager and/or his representative are not revealed to any third party. 11. The investment ma .....

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..... DMA facility by the client/ investment manager or on instructions from SEBI/Exchanges. 16.3. Any other reason, at the discretion of the broker. Broker shall endeavor to give reasonable notice to the client in such instances. 17. The Broker shall not be liable or responsible for non-execution of the DMA orders of the client due to any link/system failure at the client/ Broker/ exchange(s) end. 18. This document shall not be altered, amended and /or modified by the parties in a manner that shall be in contravention of any other provisions of this document. Any additional terms and conditions should not be in contravention with rules / regulations /bye-laws/circulars, of the relevant authorities including applicable stock exchanges as amended from time to time. DETAILS TO BE PROVIDED TO THE STOCK BROKER On the letter head of the Investment manager PART A DETAILS OF THE INVESTMENT MANAGER: NAME OF THE INVESTMENT MANAGER: NAME OF THE HOME REGULATOR COUNTRY OF JURISDICTION OF HOME REGULATOR REGISTERED /REGULATED IN HOME JURISDICTION AS: SEBI REGISTRATION NUMBER: PART B CLIENT(s) DETAILS: S. No. NAME OF THE ENTITY NAME OF THE REGULATOR REGULATED IN INDIA AS REGISTRATIO .....

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..... le risks, rights, responsibilities and liabilities associated with the smart order routing facility. The client desirous of availing such facility shall do so by entering into a broker-client agreement, as applicable. For the existing clients, the same shall be implemented through an addendum to the existing broker-client agreement, as applicable. 46.2.9. Stock broker shall maintain logs of all activities to facilitate audit trail. Broker shall maintain record of orders, trades and data points for the basis of decision. 46.2.10. Stock exchange shall permit smart order routing for all orders, without restricting to any specific type of order. The choice on order types shall be left to the client. 46.2.11. If stock exchange desires to advise its brokers to seek re-approval, it may do so only in case of - a. Inclusion of a new stock exchange for offering SOR facility; and/or, b. Material changes in the software/system of the smart order routing facility. 46.2.12. In case the client has availed Smart Order Routing facility and does not want to use the same for a particular order, the same shall be well documented by the stock broker. 46.2.13. System audit of the Smart Ord .....

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..... ll be known as algorithmic trading. 47.2. Guidelines to the stock exchanges and the stock brokers: Stock exchanges shall ensure the following while permitting algorithmic trading: 47.2.1. The stock exchange shall have arrangements, procedures and system capability to manage the load on their systems in such a manner so as to achieve consistent response time to all stock brokers. The stock exchange shall continuously study the performance of its systems and, if necessary, undertake system upgradation, including periodic upgradation of its surveillance system, in order to keep pace with the speed of trade and volume of data that may arise through algorithmic trading. 47.2.2. In order to ensure maintenance of orderly trading in the market, stock exchange shall put in place effective economic disincentives with regard to high daily order-to-trade ratio of algo orders of the stock broker. Further, the stock exchange shall put in place monitoring systems to identify and initiate measures to impede any possible instances of order flooding by algos. 47.2.3. The stock exchange shall ensure that all algorithmic orders are necessarily routed through broker servers located in India and .....

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..... ck with the atomic clock before the start of market such that its clock has precision of atleast one microsecond and accuracy of atleast +/- one millisecond. 47.3. Stock exchange shall ensure that the stock broker shall provide the facility of algorithmic trading only upon the prior permission of the stock exchange. Stock exchange shall subject the systems of the stock broker to initial conformance tests to ensure that the checks mentioned below are in place and that the stock broker's system facilitate orderly trading and integrity of the securities market. Further, the stock exchange shall suitably schedule such conformance tests and thereafter, convey the outcome of the test to the stock broker. 47.4. For stock brokers already providing algo trading, the stock exchange shall ensure that the risk controls specified herein are implemented by the stock broker. 47.5. The stock brokers / trading members that provide the facility of algorithmic trading shall subject their algorithmic trading system to a system audit every six months in order to ensure that the requirements prescribed by SEBI / stock exchanges with regard to algorithmic trading are effectively implemented. Such syst .....

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..... ck broker system. 47.8.5. Automated Execution check - An algo shall account for all executed, unexecuted and unconfirmed orders, placed by it before releasing further order(s). Further, the algo system shall have pre-defined parameters for an automatic stoppage in the event of algo execution leading to a loop or a runaway situation. 47.8.6. All algorithmic orders are tagged with a unique identifier provided by the stock exchange in order to establish audit trail. 47.9. The other risk management checks already put in place by the exchange shall continue and the exchange may re-evaluate such checks if deemed necessary in view of algo trading. 47.10. The stock broker, desirous of placing orders generated using algos, shall submit to the respective stock exchange an undertaking that - 47.10.1. The stock broker has proper procedures, systems and technical capability to carry out trading through the use of algorithms. 47.10.2. The stock broker has procedures and arrangements to safeguard algorithms from misuse or unauthorized access. 47.10.3. The stock broker has real-time monitoring systems to identify algorithms that may not behave as expected. Stock broker shall keep stock .....

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..... g 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 havingundergone change or not, shall participate in the mock trading sessions. iv. User Acceptance Test (UAT): The stock broker / trading member shall undertake UAT of the software to satisfy itself that the newly developed / modified software meets its requirements. c. With respect to testing of software related to (i) fixes to bugs in the software, (ii) changes undertaken to the stock brokers' software / systems pursuant to a change to any stock exchange's tr .....

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..... he respective stock exchanges for deployment of the software in the securities market by submitting necessary details required by stock exchange including details of software, tests undertaken and certificate / report provided by the system auditor. Stock exchange may seek additional details as deemed necessary for evaluating the application of the stock broker / trading member. 48.3.2. Stock exchanges shall grant approval or reject the application of the stock broker as the case may be, and communicate the decision to the stock broker / trading member within fifteen working days from the date of receipt of completed application (or within any other such time period specified vide SEBI circulars on DMA, IBT, STWT, SOR, AT, etc.). In case of rejection of the application, the stock exchange shall also communicate reasons of rejection to the stock broker / trading member within such time period. 48.3.3. Before granting approval to use software in securities market, stock exchange shall ensure that the requirements specified by SEBI / stock exchange with regard to software are met by the stock broker / trading member. 48.3.4. Stock exchanges may suitably schedule the requirements .....

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..... oping software for the securities market, after establishing their respective credentials. 48.5.3. In case of refusal to share APIs, stock exchanges shall provide reasons in writing to the desirous stock brokers / trading members or software vendors within a period of fifteen working days from the date of receipt of such request for sharing of API. 48.5.4. Further, stock exchanges shall not selectively release updates / modifications, if any, of the existing API specifications to few stock brokers / trading members or software vendors ahead of others and shall provide such updated / modified API specifications to all stock brokers / trading members and software vendors with whom the earlier API specifications were shared. 48.6. Penalty on malfunction of software used by stock broker / trading member: 48.6.1. Stock exchanges shall examine the cases of malfunctioning of software used by stock brokers / trading members and apply deterrent penalties 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 .....

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..... 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. VI. CHANGE IN STATUS, CONSTITUTION, CONTROL, AFFILIATION 50. Surrender of Certificate of Registration of Sub-Brokers and Change of Affiliation of Sub-Brokers 57 Reference: Circular MIRSD-DR 1/SRP/CIR-43/28408/04 dated December 15, 2004. Circular CIR/MIRSD/2/2011 dated June 03, 2011, Circular CIR/MIRSD/10/2012 dated August 27, 2012. Para A (1 & 2) of Circular MIRSD-DR 1/SRP/CIR-43/28408/04 dated December 15, 2004, deleted in view of Notification LAD-NRO/GN/2011-12/03/12650 dated April 19, 2011. 50.1. Surrender of registration by sub-broker 50.1.1. The affiliating stock broker shall issue a public advertisement in a .....

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..... date of de-recognition by the Exchange. Until SEBI cancels the registration and issues no due certificate, the deposit, if any, of the sub- broker shall not be released to the sub-broker by the Exchange. 50.2. In case of transition from sub-broker to Authorized Person (AP) (where the sub-broker surrenders registration while seeking approval as AP) with the same stock broker and the same Stock Exchange, issue of advertisement in newspaper regarding surrender of sub-broker registration shall not be required. However, the affiliating stock broker shall furnish an undertaking/ confirmation to the Stock Exchanges at the time of surrender of sub-broker registration that he has sent communication to the clients of the sub-broker individually about the surrender of sub-brokership and also the fact of approval as AP. 50.3. The affiliating stock broker and/or Stock Exchange shall publish the details of sub-brokers whose registration has been surrendered or their new status as AP, as the case may be on their respective websites for the information of the investors. 50.4. Forwarding of application 50.4.1. On receipt of the application(s) for prior approval and / or for surrender and / or .....

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..... b-broker or affiliating broker 50.6.1. Change in name of the sub-broker or in name of affiliating broker would not amount to change in status and constitution of the sub-broker and hence no approval is required for the same. If a sub-broker changes name, it shall be the responsibility of the affiliating broker to submit the registration certificate of such sub-broker to SEBI through the concerned exchange for recording change of name on the registration certificate. If the name of the affiliating broker changes, the broker shall submit the registration certificates of all its sub-brokers to SEBI through the concerned exchange for carrying out appropriate changes on the certificate. All requests for recording such changes in the certificate of registration must be sent to SEBI within 7 days of change of name. 51. Change in affiliation of Sub-Brokers Reference: Circular MIRSD-DR 1/MK/CIR-15/111600/07 dated December 20, 2007. 51.1. Regulation 11(2) of the SEBI (Stock Brokers and Sub-Brokers) Regulations, 1992 stipulates that: "No fresh certificate needs to be obtained under sub-regulation (1) where a sub-broker merely changes his affiliation from one stock broker to another stock .....

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..... oker wishes to discontinue business. Certified true copy of the agreement between the broker and the sub-broker. ii. A broker merges / amalgamates with another broker or is acquired by another broker. The sub-broker affiliated to merging / amalgamating / acquired broker entities may either choose to surrender registration or affiliate with the incoming entity or any other broker. The broker must ensure that all the sub-brokers affiliated to it submit the application for change in affiliation or surrender within a period of 15 days. The application for surrender of certificate of registration of sub-broker shall be submitted to the exchange through the existing broker whereas the application for change in affiliation of sub-broker shall be submitted to the exchange through the broker with whom affiliation is being sought. The exchange shall forward the application for surrender / change in affiliation to SEBI for approval. iii. A broker applies for surrender. Sub-Brokers affiliated to a broker who has applied for surrender of registration may apply for change in affiliation to another broker or apply for surrender. The broker must ensure that all the sub-brokers affiliated .....

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..... change through the existing broker whereas the application for change in affiliation of sub-broker shall be submitted to the exchange through the broker with whom affiliation is being sought. The exchange shall forward the application for surrender / change in affiliation to SEBI for approval. vi. The broker or the sub-broker terminates the agreement. In case the broker or the sub-broker terminates the agreement, the sub-broker may apply for change in affiliation or surrender registration. In case the sub-broker intends change in affiliation and broker does not issue NOC, the sub-broker may apply for change in affiliation after completion of one month from the date of termination of agreement with the proof of request to the broker for NOC. In case the sub-broker terminates the agreement, the sub-broker shall submit an application to the exchange for surrender of certificate of registration as sub-broker and enclose proof of service of notice for termination of agreement with the broker. In case the sub-broker is not traceable or does not either apply for change in affiliation or surrender after termination of agreement by the broker, the broker may submit an application for .....

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..... individual, partnership firm, Hindu undivided family, private company, public company, unlimited company or statutory corporation and other similar changes; 52.2.3. in case of a partnership firm any change in partners not amounting to dissolution of the firm; 52.2.4. any other purpose as may be considered appropriate by the Stock Exchanges. 52.3. The Stock Exchanges shall submit a periodical report with details of the changes in status or constitution of the members / sub-brokers, as per the format and in accordance with guidelines given at Annexure below. ANNEXURE Format for reporting changes in "status or constitution" of Members/ Sub-Brokers Name of the Stock Exchange: Report for the quarter ending: June/September/December/March Year:- Date of report: S. No. Date of receipt Name of the member/ sub-broker Registration number INB/F/E INS Type of change Details of changes PAN (incoming entities) Date of Change Date of approval by Stock Exchange Pre Post 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 correspondin .....

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..... g information about itself, the acquirer and the directors/partners of the acquirer: a. Whether any application was made in the past to SEBI seeking registration in any capacity but it was not granted? If yes, details thereof. b. Whether any action has been initiated / taken under SCRA/SEBI Act or rules and regulations made thereunder? If yes, status thereof along with corrective action taken to avoid such violations in the future. The acquirer shall also confirm that it shall honour all past liabilities / obligations of the applicant, if any. c. Whether any investor complaint is pending? If yes, steps taken and confirmation that the acquirer shall resolve the same. d. Details of litigation, if any. e. That all the fees due to SEBI have been paid. f. That there will not be any change in the Board of Directors of incumbent, till the time prior approval is granted. g. That the incumbent shall inform all its existing investors / clients in order to enable them to take informed decision regarding their continuance or otherwise with the entity with new management. 53.2.2. Further, in case the incumbent is a registered stock broker and / or depository participant, in addi .....

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..... subsidiary/company. This deposit could be maintained 25% in the form of cash and the balance 75% in irrevocable bank guarantees / Fixed Deposit Receipts (FDRs). These FDRs would be discharged in favour of the subsidiary/company and the subsidiary/company would be given a complete unencumbered and unconditional lien on these FDRs. 54.1.8. The trading/exposure limit of the sub-brokers shall be based on the deposit received by the subsidiary/company from the sub-brokers and these limits shall not exceed the limits as prescribed by the Stock Exchange of which the subsidiary/company is a member. 54.1.9. The subsidiary/company shall collect margins from the sub-brokers for the payment of margins to the respective Stock Exchanges of which the subsidiary/company is a member. The margin imposed by the subsidiary/company on its sub-brokers shall not be less than the margin payable to the Stock Exchanges of which the subsidiary/company is the member. 54.1.10. The Stock Exchange shall incorporate the above mentioned conditions in the Memorandum of Association/Articles of Association of the subsidiary/company. 55. Exclusion of turnover from the turnover of the SubsidiaryReference: Circu .....

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..... company shall be a director on the Board of Subsidiary. The CEO shall not be a sub-broker of the subsidiary company or a broker of the parent exchange. b. At least 50% of Directors representing on the Governing Board of subsidiary company shall not be sub-brokers of the subsidiary company or brokers of the promoter / holding exchange (parent exchange). These directors (excluding CEO) shall be called the Public Representatives. c. The Public Representatives shall be nominated by the parent exchange (subject to prior approval of SEBI). d. Public Representatives to be nominated as directors of subsidiary company shall be from amongst the persons of integrity having necessary professional competence and experience in the areas related to securities market. e. For purpose of nomination as Public Representatives the Governing body of parent exchange may forward the names of the persons to the SEBI for its approval. The SEBI shall, however have the right to nominate persons, whose names have not been forwarded by the governing body of the Stock Exchange. f. The Public Representatives to be appointed as directors shall hold the office for a period of one year from the date of ass .....

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..... with United States of America under Foreign Accounts Tax Compliance Act - Registration Reference: Circular CIR/MIRSD/2/2014 dated June 30, 2014. 59.1. The Government of India has advised that India and the United States of America (US) have reached an agreement in substance on the terms of an Inter-Governmental Agreement (IGA) to implement Foreign Accounts Tax Compliance Act (FATCA) and India is now treated as having an IGA in effect from April 11, 2014. However, the IGA may be signed in due course. Information on FATCA is available at: http://www.irs.gov/Businesses/Corporations/Foreign-Account-Tax-ComplianceAct-FATCA. 59.2. As advised by the Government, the following points may be noted by all SEBI registered intermediaries: 59.2.1. Indian Financial Institutions would have time upto December 31, 2014 to register with US authorities and obtain a Global Intermediary Identification Number (GIIN). This time limit would also be applicable to Indian Financial Institutions having overseas branches in Model 1 jurisdictions, including those jurisdictions where an agreement under Model 1 has been reached in substance. Registration should be done only after the formal IGA is signed. 5 .....

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..... s") 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 60.4. A "Guidance Note on implementation of Reporting Requirements under Rules 114F to 114H of the Income Tax Rules" as issued by the Department of Revenue, Ministry of Finance vide F.No.500/137/2011-FTTR-III dated August 31, 2015 is available at http://www.incometaxindia.gov.in/communications/notification/guidance_notes_on_im plementation_31_08_2015.pdf, for information and necessary action. 60.5. All registered intermediaries shall take necessary steps to ensure compliance with the requirements specified in the aforesaid Rules after carrying out necessary due diligence. IX. SCORES, INVESTOR GRIEVANCES 61. Exclusive e-mail ID for redressal of Investor Complaints Reference: Circular MRD/DoP/Dep/SE/CIR-22/06 dated December 18, 2006. 61.1. All the Stock Exchanges/registered brokers/registered sub-brokers/listed companies/Depositories/registered depository participants shall designate an e-mail ID of the grievance redres .....

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..... also approach CEO/ Partner/Proprietor (Name) / email-id ([email protected]) 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 [email protected] BSE www.nesindia.com Xxxxxxxxxx [email protected] MSEI www.msei.in xxxxxxxxxx [email protected] Web Address Contact No. Email-id CDSL www.cdslindia.com xxxxxxxxxx [email protected] NSDL www.nsdl.co.in xxxxxxxxxx [email protected] 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. X. GENERAL 64. Advertisement by Brokers/ Sub-Brokers and grant of trading terminalsReference: Circular SMD/POLICY/CIR-49/2001 dated October 22, 2001. 64.1. The Stock Exchanges shall ensure that brokers and sub-brokers do not issue advertisements of their business, including in their internet sites, by subsidiaries, group companies etc. in contravention to Clause C(4) and C(5) of the Code of Conduct specified in .....

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..... serve the originals of the documents, both in electronic and physical form, copies of which have been taken by CBI, Police or any other enforcement agency during the course of any investigation till the trial is completed. 67. Display of details by Stock Brokers (including Trading Members) Reference: Circular CIR/MIRSD/9/2010 dated November 04, 2010. 67.1. While a stock broker may use the brand name / logo of its group companies, it must display more prominently: a. its name as registered with SEBI, its own logo, if any, its registration number, and its complete address with telephone numbers in its portal /web site, if any, notice / display boards, advertisements, publications, know your client forms, and member client agreements; b. its name as registered with SEBI, its own logo, if any, its registration number, and its complete address with telephone numbers, the name of the compliance officer, his telephone number and e-mail address in contract notes, statement of funds and securities, and correspondences with the clients. 68. Unauthenticated news circulated by SEBI Registered Market Intermediaries through various modes of communication Reference: Circular CIR/ISD/1/2011 da .....

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..... vities by Intermediaries Reference: Circular CIR/MIRSD/24/2011 dated December 15, 2011. 69.1. SEBI Regulations for various intermediaries require that they shall render at all times high standards of service and exercise due diligence and ensure proper care in their operations. 69.2. It has been observed that often the intermediaries resort to outsourcing with a view to reduce costs, and at times, for strategic reasons. 69.3. Outsourcing may be defined as the use of one or more than one third party - either within or outside the group - by a registered intermediary to perform the activities associated with services which the intermediary offers. 69.4. Principles for Outsourcing 69.4.1. The risks associated with outsourcing may be operational risk, reputational risk, legal risk, country risk, strategic risk, exit-strategy risk, counter party risk, concentration and systemic risk. The principles for outsourcing are given below in Annexure. 69.5. Activities that shall not be Outsourced 69.5.1. The intermediaries desirous of outsourcing their activities shall not, however, outsource their core business activities and compliance functions. A few examples of core business activi .....

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..... assessment of outsourcing risk which depends on several factors, including the scope and materiality of the outsourced activity, etc. The factors that could help in considering materiality in a risk management programme include- 2.1.1. The impact of failure of a third party to adequately perform the activity on the financial, reputational and operational performance of the intermediary and on the investors / clients; 2.1.2. Ability of the intermediary to cope up with the work, in case of non performance or failure by a third party by having suitable back-up arrangements; 2.1.3. Regulatory status of the third party, including its fitness and probity status; 2.1.4. Situations involving conflict of interest between the intermediary and the third party and the measures put in place by the intermediary to address such potential conflicts, etc. 2.2. While there shall not be any prohibition on a group entity / associate of the intermediary to act as the third party, systems shall be put in place to have an arm's length distance between the intermediary and the third party in terms of infrastructure, manpower, decision-making, record keeping, etc. for avoidance of potential confl .....

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..... monitoring of its performance. 4.1. It is important that the intermediary exercises due care, skill, and diligence in the selection of the third party to ensure that the third party has the ability and capacity to undertake the provision of the service effectively. .2. The due diligence undertaken by an intermediary shall include assessment of: 4.2.1. third party's resources and capabilities, including financial soundness, to perform the outsourcing work within the timelines fixed; 4.2.2. compatibility of the practices and systems of the third party with the intermediary's requirements and objectives; 4.2.3. market feedback of the prospective third party's business reputation and track record of their services rendered in the past; 4.2.4. level of concentration of the outsourced arrangements with a single third party; and 4.2.5. the environment of the foreign country where the third party is located. 5. Outsourcing relationships shall be governed by written contracts / agreements / terms and conditions (as deemed appropriate) {hereinafter referred to as "contract"} that clearly describe all material aspects of the outsourcing arrangement, including the rights, respons .....

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..... when intermediary outsources its activities to foreign third party. For example, the contract shall include choice-of-law provisions and agreement covenants and jurisdictional covenants that provide for adjudication of disputes between the parties under the laws of a specific jurisdiction; 5.2.12. neither prevents nor impedes the intermediary from meeting its respective regulatory obligations, nor the regulator from exercising its regulatory powers; and 5.2.13. provides for the intermediary and /or the regulator or the persons authorized by it to have the ability to inspect, access all books, records and information relevant to the outsourced activity with the third party. 6. The intermediary and its third parties shall establish and maintain contingency plans, including a plan for disaster recovery and periodic testing of backup facilities. 6.1. Specific contingency plans shall be separately developed for each outsourcing arrangement, as is done in individual business lines. 6.2. An intermediary shall take appropriate steps to assess and address the potential consequence of a business disruption or other problems at the third party level. Notably, it shall consider conti .....

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..... hanges, Recognised Clearing Corporations, Depositories and their Associated Persons in Securities Market. Reference: Circular CIR/MIRSD/5/2013 dated August 27, 2013. 70.1. All intermediaries, recognized Stock Exchanges, recognised Clearing Corporations and Depositories (hereinafter collectively referred to as "such entities") are presently governed by the provisions for avoidance of conflict of interest as mandated in the respective regulations read with relevant circulars issued from time to time by SEBI. On the lines of Principle 8 of the International Organisation of Securities Commissions (IOSCO) Objectives and Principles of Securities Regulations, it has been decided to put in place comprehensive guidelines to collectively cover such entities and their associated persons, for elimination of their conflict of interest, as detailed hereunder. 70.2. Such entities shall adhere to these guidelines for avoiding or dealing with or managing conflict of interest. They shall be responsible for educating their associated persons for compliance of these guidelines. 70.3. For the purpose of these guidelines "intermediaries" and "associated persons" have th .....

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..... f conflict of interest situations. The Boards shall review the compliance of the above guidelines periodically. 70.6. The said guidelines shall be in addition to the provisions, if any, contained in respective regulations/ circulars issued by the Board from time to time regarding dealing with conflict of interest, in respect of such entities. 71. Digital Mode of Payment Reference: Circular SEBI/HO/GSD/T&A/CIR/P/2017/42 dated May 16, 2017. 71.1. SEBI has notified the SEBI (Payment of Fees and Mode of Payment) (Amendment) Regulations, 2017 on March 06, 2017 to enable digital mode of payment (RTGS/NEFT/IMPS etc.) of fees/penalties/remittance/other payments etc. 71.2. Pursuant to above, SEBI has been receiving direct credit of amounts from various intermediaries / other entities. 71.3. In order to identify and account such direct credit in the SEBI account, intermediaries / other entities shall provide the information as mentioned in Annexure below to SEBI once the payment is made. 71.4. The above information should be emailed to the respective department(s) as well as to Treasury & Accounts division at [email protected]. ANNEXURE Date Department of SEBI Name of Intermediary / .....

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..... nt-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. a) Clause 12 of Annexure A to MIRSD/ SE /Cir-19/2009 dated Dec 3, 2009. b) MIRSD /Cir/ 01/ 2011 dated May 13, 2011. iii Requirements with respect to Financial Documents, PAN, Inactive Clients etc. a) No.IRD/Div/(1)FMCR/1/2005 dated Feb 14, 2006. b) Div. III/I/(53)/06/PAN No. dated Nov 28, 2006. c) 9/3/2008-MKT-II dated Jan 12, 2009. d) No. 18/1/2007/MKT-III dated Feb 11, 2008. e) No. 9/1/2009-MKT-I dated Dec 07, 2009. f) No. 9/12009-MKT-I dated Aug 10, 2010. a) Clauses 6,8,14,15,16,18 and 19 of Annexure A to MIRSD/ SE /Cir-19/2009 dated Dec 03, 2009. 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 .....

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..... on notice board and contract note and investor grievance redressal mechanism on notice board No circular issued by FMC a) Cir/MIRSD/ 9 /2010 dated Nov 4, 2010. b) CIR/MIRSD/3/2014 dated Aug 28, 2014. xiii Internal Audit No circular issued by FMC Para 7 to 11 of circular MIRSD/Master Cir-04/2010 dated Mar 17, 2010. xiv Inspection of brokers a) No. Div./III/I/301/2011-12/Audit dated Dec 23, 2011. b) No. Div./III/I/104/2008-09/Audit dated Feb 02, 2012. c) FMC/1/2014/C/50No.Div.III/I/300/2011-12/Audit dated Apr 23, 2014. d) FMC/1/2014/C/47 No. FMC/1/2014/Audit/C Dated Apr 23, 2014. a) Para 2 to 6 of circular MIRSD/Master Cir-04/2010 dated Mar 17, 2010. b) CIR/MIRSD/13/2012 dated Dec 07, 2012. xv Change in control/ constitution a) No.IRD-Div-III/1/143/10-MR dated Aug 14, 2010. b) Div:III/I/120/MR-2011/2 dated Apr 07, 2011. c) FMC/6/2011/C/0018 No. Div.III/I/68/MR/General dated Sep 22, 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. a) MIRSD/MSS/Cir- 30/ 13289/03 dated Jul 09, 2003. b) CIR/MIRSD/2/2011 dated Jun 3, 2011. c) CIR/MIRSD/14/ .....

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..... t; the words "in the Statement within such time as may be prescribed by the relevant Exchange from time to time where the trade was executed, from the receipt thereof to the Stock broker" shall be substituted. In Clause 31, for the words "monthly", the words "daily" shall be substituted. Para 3 C.A.iv which restricted seeking authorization through non-mandatory documents for any adjustment of funds among securities (stock) exchange and commodities exchange, will not be applicable, if such adjustment is within the same broking entity. 72.5. Part C: Following FMC circulars shall stand repealed. S. No. Subject FMC Circular No. and Date i Segregation of Client Accounts in Commodity Futures Exchange and Spot Exchanges FMC/2/2011/C/0008; No.9/1/2011-MKT/I dated Sep 26, 2011. ii Member to obtain FMC Unique Code No. IRD/Div./III/(1)/FMCR/1/2005 dated Oct 28, 2005. iii Submission of networth certificate from the members No. Div-III/I/122/10/MR dated Nov 22, 2010. iv Nomenclature of Stock Brokers No. IRD-DIV-III/I/FCR-I/2009 dated Dec 21, 2009. No. DIV-III/I/122/10/MR dated Jun 25, 2010. 6/3/2008-MKT -II dated Feb 18, 2011. 72.6. All commodi .....

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..... me, phone no. & email id: ----------------------------------------------------------------------------- For any grievance/dispute please contact stock broker (name) at the above address or email id- [email protected] and Phone no. 91-XXXXXXXXXX. In case not satisfied with the response, please contact the concerned exchange(s) at [email protected] and Phone no. 91-XXXXXXXXXX. Annexure - 4 RIGHTS AND OBLIGATIONS OF STOCK BROKERS, SUB-BROKERS AND CLIENTS as prescribed by SEBI and Stock Exchanges 1. The client shall invest/trade in those securities/contracts/other instruments admitted to dealings on the Exchanges as defined in the Rules, Byelaws and Regulations of Exchanges/ Securities and Exchange Board of India (SEBI) and circulars/notices issued there under from time to time. 2. The stock broker, sub-broker and the client shall be bound by all the Rules, Byelaws and Regulations of the Exchange and circulars/notices issued there under and Rules and Regulations of SEBI and relevant notifications of Government authorities as may be in force from time to time. 3. The client shall satisfy itself of the capacity of the stock broker to deal in securities and/or deal in derivatives contracts .....

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..... (s) in which the client trades. The stock broker is permitted in its sole and absolute discretion to collect additional margins (even though not required by the Exchange, Clearing House/Clearing Corporation or SEBI) and the client shall be obliged to pay such margins within the stipulated time. 12. The client understands that payment of margins by the client does not necessarily imply complete satisfaction of all dues. In spite of consistently having paid margins, the client may, on the settlement of its trade, be obliged to pay (or entitled to receive) such further sums as the contract may dictate/require. TRANSACTIONS AND SETTLEMENTS 13. The client shall give any order for buy or sell of a security/derivatives contract in writing or in such form or manner, as may be mutually agreed between the client and the stock broker. The stock broker shall ensure to place orders and execute the trades of the client, only in the Unique Client Code assigned to that client. 14. The stock broker shall inform the client and keep him apprised about trading/settlement cycles, delivery/payment schedules, any changes therein from time to time, and it shall be the responsibility in turn of the cli .....

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..... ent or his/its otherwise becoming incapable of receiving and paying for or delivering or transferring securities which the client has ordered to be bought or sold, stock broker may close out the transaction of the client and claim losses, if any, against the estate of the client. The client or his nominees, successors, heirs and assignee shall be entitled to any surplus which may result there from. The client shall note that transfer of funds/securities in favor of a Nominee shall be valid discharge by the stock broker against the legal heir. 21. The stock broker shall bring to the notice of the relevant Exchange the information about default in payment/delivery and related aspects by a client. In case where defaulting client is a corporate entity/partnership/proprietary firm or any other artificial legal entity, then the name(s) of Director(s)/Promoter(s)/Partner(s)/Proprietor as the case may be, shall also be communicated by the stock broker to the relevant Exchange(s). DISPUTE RESOLUTION 22. The stock broker shall provide the client with the relevant contact details of the concerned Exchanges and SEBI. 23. The stock broker shall co-operate in redressing grievances of the cli .....

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..... k broker and all clauses in the 'Rights and Obligations' document(s) governing the stock broker, sub-broker and client shall continue to be in force as it is, unless the client intimates to the stock broker his/its intention to terminate their relationship by giving a notice in writing of not less than one month. ADDITIONAL RIGHTS AND OBLIGATIONS 30. The stock broker shall ensure due protection to the client regarding client's rights to dividends, rights or bonus shares, etc. in respect of transactions routed through it and it shall not do anything which is likely to harm the interest of the client with whom and for whom they may have had transactions in securities. 31. The stock broker and client shall reconcile and settle their accounts from time to time as per the Rules, Regulations, Bye Laws, Circulars, Notices and Guidelines issued by SEBI and the relevant Exchanges where the trade is executed. 32. The stock broker shall issue a contract note to his constituents for trades executed in such format as may be prescribed by the Exchange from time to time containing records of all transactions including details of order number, trade number, trade time, trade price, trade quant .....

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..... r change of email id may be made through the secured access by way of client specific user id and password. 38. The stock broker shall ensure that all ECNs sent through the e-mail shall be digitally signed, encrypted, non-tamper able and in compliance with the provisions of the IT Act, 2000. In case, ECN is sent through e-mail as an attachment, the attached file shall also be secured with the digital signature, encrypted and non-tamperable. 39. The client shall note that non-receipt of bounced mail notification by the stock broker shall amount to delivery of the contract note at the e-mail ID of the client. 40. The stock broker shall retain ECN and acknowledgement of the e-mail in a soft and non-tamperable form in the manner prescribed by the exchange in compliance with the provisions of the IT Act, 2000 and as per the extant rules/regulations/circulars/guidelines issued by SEBI/Stock Exchanges from time to time. The proof of delivery i.e., log report generated by the system at the time of sending the contract notes shall be maintained by the stock broker for the specified period under the extant regulations of SEBI/stock exchanges. The log report shall provide the details of th .....

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..... and circulars/notices issued thereunder of the Exchanges/SEBI. 47. All additional voluntary clauses/document added by the stock broker should not be in contravention with rules/regulations/notices/circulars of Exchanges/SEBI. Any changes in such voluntary clauses/document(s) need to be preceded by a notice of 15 days. Any changes in the rights and obligations which are specified by Exchanges/SEBI shall also be brought to the notice of the clients. 48. If the rights and obligations of the parties hereto are altered by virtue of change in Rules and regulations of SEBI or Bye-laws, Rules and Regulations of the relevant stock Exchanges where the trade is executed, such changes shall be deemed to have been incorporated herein in modification of the rights and obligations of the parties mentioned in this document. INTERNET & WIRELESS TECHNOLOGY BASED TRADING FACILITY PROVIDED BY STOCK BROKERS TO CLIENT (All the clauses mentioned in the 'Rights and Obligations' document(s) shall be applicable. Additionally, the clauses mentioned herein shall also be applicable.) 1. Stock broker is eligible for providing Internet based trading (IBT) and securities trading through the use of wireless t .....

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..... horized 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 ag .....

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..... 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 .....

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..... e 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 possibilit .....

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..... mbination of technologies and computer systems to place and route orders. Thus, there exists a possibility of communication failure or system problems or slow or delayed response from system or trading halt, or any such other problem/glitch whereby not being able to establish access to the trading system/network, which may be beyond control and may result in delay in processing or not processing buy or sell orders either in part or in full. You are cautioned to note that although these problems may be temporary in nature, but when you have outstanding open positions or unexecuted orders, these represent a risk because of your obligations to settle all executed transactions. 2. As far as Derivatives segments are concerned, please note and get yourself acquainted with the following additional features:- 2.1 Effect of "Leverage" or "Gearing": In the derivatives market, the amount of margin is small relative to the value of the derivatives contract so the transactions are 'leveraged' or 'geared'. Derivatives trading, which is conducted with a relatively small amount of margin, provides the possibility of great profit or loss in comparison with the .....

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..... r, for example when a currency is deregulated or fixed trading bands are widened. 3. Currency prices are highly volatile. Price movements for currencies are influenced by, among other things: changing supply-demand relationships; trade, fiscal, monetary, exchange control programs and policies of governments; foreign political and economic events and policies; changes in national and international interest rates and inflation; currency devaluation; and sentiment of the market place. None of these factors can be controlled by any individual advisor and no assurance can be given that an advisor's advice will result in profitable trades for a participating customer or that a customer will not incur losses from such events. 2.3 Risk of Option holders: 1. An option holder runs the risk of losing the entire amount paid for the option in a relatively short period of time. This risk reflects the nature of an option as a wasting asset which becomes worthless when it expires. An option holder who neither sells his option in the secondary market nor exercises it prior to its expiration will necessarily lose his entire investment in the option. If the price of the underlying does not cha .....

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..... s. 4.2 The term 'stock broker' shall mean and include a stock broker, a broker or a stock broker, who has been admitted as such by the Exchanges and who holds a registration certificate from SEBI. Annexure-6 GUIDANCE NOTE - DO's AND DON'Ts FOR TRADING ON THE EXCHANGE(S) FOR INVESTORS BEFORE YOU BEGIN TO TRADE 1. Ensure that you deal with and through only SEBI registered intermediaries. You may check their SEBI registration certificate number from the list available on the Stock exchanges www.exchange.com and SEBI website www.sebi.gov.in. 2. Ensure that you fill the KYC form completely and strike off the blank fields in the KYC form. 3. Ensure that you have read all the mandatory documents viz. Rights and Obligations, Risk Disclosure Document, Policy and Procedure document of the stock broker. 4. Ensure to read, understand and then sign the voluntary clauses, if any, agreed between you and the stock broker. Note that the clauses as agreed between you and the stock broker cannot be changed without your consent. 5. Get a clear idea about all brokerage, commissions, fees and other charges levied by the broker on you for trading and the relevant provisions/ guidelines specified .....

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..... the details of the pledged shares, if any. c) On the date of settlement, the stock broker may retain the requisite securities/funds towards outstanding obligations and may also retain the funds expected to be required to meet derivatives margin obligations for next 5 trading days, calculated in the manner specified by the exchanges. In respect of cash market transactions, the stock broker may retain entire pay-in obligation of funds and securities due from clients as on date of settlement and for next day's business, he may retain funds/securities/margin to the extent of value of transactions executed on the day of such settlement in the cash market. d) You need to bring any dispute arising from the statement of account or settlement so made to the notice of the stock broker in writing preferably within 7 (seven) working days from the date of receipt of funds/securities or statement, as the case may be. In case of dispute, refer the matter in writing to the Investors Grievance Cell of the relevant Stock exchanges without delay. 14. In case you have not opted for maintaining running account and pay-out of funds/securities is not received on the next working day of the receipt of .....

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..... 476/95 dated April 27, 1995. Severance of connections with other businesses. 4. SMD/POLICY/CIR-6/97 dated May 07, 1997. Applicability of Rule 8(1)(f) and 8(3)(f) of the Securities Contract (Regulation) Rules, 1957. 5. SMD/POLICY/CIRCULAR/30/97 dated November 25, 1997. Registration of Brokers. 6. SMD/POLICY/CIR-34/97 dated December 11, 1997. Conversion of individual membership into Corporate membership. 7. SMD/POLICY/CIR-11/98 dated March 16, 1998. Additional information to be submitted at the time of registration of Stock Broker with SEBI. 8. FITTC/DC/CR-1/98 dated June 16, 1998. Derivatives Trading in India. 9. SMD/POLICY(BRK.REG.)/CIR-18/98 dated July 09, 1998. Merger/ Amalgamation of Trading Members. 10. SMD-II/POLICY/CIR-37/99 dated November 26, 1999. Floating of a Subsidiary/Company by a Stock Exchange to acquire the membership of other Stock Exchange. 11. SMD-I/POLICY/CIR-40/99 dated December 16, 1999. Floating of a Subsidiary/Company by a Stock Exchange to acquire the membership of other Stock Exchange. 12. SMD-II/ALLSE/CIR-02/2000 dated January 10, 2000. Meeting Of All Stock Exchanges. 13. SMDRP/POLICY/CIR- 06/2000 dated January 31, 2000. Cond .....

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..... to Client. 33. SEBI/MIRSD/CIR-06/2004 January 13, 2004. Review of norms relating to trading by Members/Sub-Brokers. 34. SEBI/MRD/SE/CIR-15/2005 dated August 04, 2005. Maintenance of books of accounts and other documents sought by Enforcement Agencies from Stock Exchanges and Brokers. 35. MRD/DoP/SE/CIR-20/2005 dated September 08, 2005. Electronic issuance of contract notes - Additional conditions. 36. MRD/DoP/Dep/SE/CIR-22/06 dated December 18, 2006. Exclusive e-mail ID for redressel of Investor Complaints. 37. MIRSD-DR 1/MK/CIR-15/111600/07 dated December 20, 2007. Change in affiliation of Sub-Brokers. 38. MRD/DoP/SE/CIR-7/2008 dated April 03, 2008. Introduction of Direct Market Access facility. 39. MRD/DoP/SE/CIR-11/2008 dated April 17, 2008. Collateral deposited by Clients with Brokers. 40. MRD/DoP/SE/CIR-03/2009 dated February 20, 2009. Direct Market Access - Clarification. 41. MIRSD/DR-1/CIR-16/09 dated November 06, 2009. Market Access through Authorised Persons. 42. MIRSD/SE/CIR-19/2009 dated December 03, 2009. Dealings between a client and a stock broker (trading members included). 43. SEBI/MIRSD/MASTER CIR-04/2010 dated March 17, 2010. Maste .....

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..... d August 02, 2011. SMS and E-mail alerts to investors by Stock Exchanges. 62. CIR/MIRSD/16/2011 dated August 22, 2011. Simplification and Rationalization of Trading Account Opening Process. 63. CIR/MIRSD/18/2011 dated August 25, 2011. Redressal of investor grievances against Stock Brokers and Sub-Brokers in SEBI Complaints Redress System (SCORES). 64. MIRSD/SE/CIR-21/2011 dated October 05, 2011. Uniform Know Your Client (KYC) Requirements for the Securities Markets. 65. CIR/MIRSD/22/2011 dated October 25, 2011. 'In-person' verification (IPV) of Clients by Subsidiaries of Stock Exchanges, acting as Stock Brokers. 66. MIRSD/CIR-23/2011 dated December 02, 2011. The Securities and Exchange Board of India (KYC Registration Agency) Regulations, 2011. 67. MIRSD/CIR-26/2011 dated December 23, 2011. Guidelines in pursuance of the SEBI KYC Registration Agency (KRA) Regulations, 2011 and for In-Person Verification (IPV). 68. CIR/MRD/DP/09/2012 dated March 30, 2012. Broad Guidelines on Algorithmic Trading. 69. CIR/MRD/DP/20/2012 dated August 02, 2012. Direct Market Access - Clarification. 70. CIR/MIRSD/09/2012 dated August 13, 2012. Aadhaar Letter as Proof of Addres .....

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..... in Status and Constitution of the Sub-Brokers, Surrender of Certificate of Registration of Sub-Brokers and Change of Affiliation of Sub-Brokers. 90. CIR/MIRSD/1/2015 dated March 04, 2015. SARAL Account Opening Form for Resident Individuals. 91. CIR/MIRSD/2/2015 dated August 26, 2015. Implementation of the Multilateral Competent Authority Agreement and Foreign Account Tax Compliance Act. 92. CIR/MIRSD/3/2015 dated September 10, 2015. Reporting Requirement under Foreign Account Tax Compliance Act (FATCA) and Common Reporting Standards (CRS) - Guidance Note. 93. CIR/MIRSD/4/2015 dated September 29, 2015. Registration of Members of Commodity Derivatives Exchanges. 94. CIR/MIRSD/29/2016 dated January 22, 2016. Know Your Client Requirements - Clarification on voluntary adaptation of Aadhaar based e-KYC process. 95. CIR/MIRSD/64/2016 dated July 12, 2016. Simplification of Account Opening Kit. 96. CIR/MIRSD/66/2016 dated July 21, 2016. Operationalisation of Central KYC Records Registry (CKYCR). 97. SEBI/HO/MIRSD/MIRSD2/CIR/P/2016/92 dated September 23, 2016. Regulatory Framework for Commodity Derivatives Brokers. 98. SEBI/HO/MIRSD/MIRSD2/CIR/P/2016/95 dated Septe .....

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