Inspection Compliance Procedures 2010 BSE Training Institute Limited
Contents Inspection Procedure Areas covered in inspection Other Aspects 2010 BSE Training Institute Limited 2
Inspection Procedure Why Inspection SEBI circular SEBI/SMD/DBA-1/Cir 27/2003 dated June 25, 2003 : Min 20% Legal Framework SCR Act, 1956 and SCR Rules, 1957 SEBI Act, 1992 and SEBI Rules & Regulations Exchange Rules, Bye-Laws & Regulations SEBI & Exchange Circulars, Directives, Notices, Orders RBI Guidelines Inspection Process 2010 BSE Training Institute Limited 3
Areas covered in Inspection - Accounts Books of Mandatory Books of Accounts Register of transactions (Sauda Book) Clients ledger General ledger Journals Cash book Bank pass book Register of Securities Counterfoils or duplicates of contract notes issued to clients Written consent of clients in respect of contracts entered into as principals Continue 2010 BSE Training Institute Limited 4
Areas covered in Inspection - Accounts Books of Margin deposit book; Register of accounts of sub-brokers; Tripartite Agreement between broker, sub-broker and clients specifying scope of authority and responsibilities of the Broker and such sub-broker. Other Book of Accounts Register of Complaints Dividend Ledger Brokerage Ledger Statement of funds and securities obligations received Client Master. Separate books of accounts Exchange wise & for Own & Clientele transactions To be preserved for 10 yrs, some times even beyond. 2010 BSE Training Institute Limited 5
Areas covered in Inspection - Registration Documents Client Trading Account Opening Process SEBI circular no. CIR/MIRSD/16/2011 dated August 22, 2011 To be executed before trading It should consist of Index of documents Account Opening Form in two parts Basic information about client Additional information about client relating to Trading A/c Rights & Obligations of stock broker, sub-broker & client Risk Disclosure Document Guidance Note detailing Do s & Don ts for investors 2010 BSE Training Institute Limited 6
Areas covered in Inspection - Contract Note Physical Contract Notes In the prescribed format Issue within 24 hours & maintain Duplicate & Proof of dispatch Electronic Contract Note(ECN) Only if specifically consented by client Has to be digitally signed, encrypted, in non-tamperable form & in accordance with the provisions of the Information Technology Act, 2000. Bounce mail clause Log report for sent & bounce mails Physical contract note in case mail bounces back Publish on website with user ID & password 2010 BSE Training Institute Limited 7
Areas covered in Inspection - Clients Dealing with Client Funds Payment within one working day of pay-out Client & Own funds in separate bank A/c Client Bank A/c is to be designated Client A/c be used for authorised purposes All receipt and payments of funds shall be received from / paid to respective clients bank accounts only All payments made to/received from clients should be through account payee cheques or demand drafts or by way of direct credit to the account through EFT Cash transactions with clients Client Securities Delivery within one working day of pay-out Separate A/c for clients & own securities Receipt & Delivery from respective clients 2010 BSE Training Institute Limited 8
Other Aspects Permanent Account Number (PAN) Compulsory for trading on the exchange To be uploaded as part of UCC Unique Client Code (UCC) Broker to allot Client Code to all the clients & upload the same in the UCC Database. Definition of UCC Client Code modification for defined criteria Error Account policy Client Code modification penalty 2010 BSE Training Institute Limited 9
Other Aspects System Audit In order to ensure reliability of IML & Internet Trading Every financial year wise through Certified System Auditor (CISA/ISA/CISSP) Report to be submitted by July 31 st every year Empanelment Internal Audit Stock brokers/clearing members to get Internal Audit done on a half yearly basis Audits to be done by Chartered Accountants, Company Secretaries or Cost and Management Accountants who are in practice and who do not have any conflict of interest Guidelines & Report formats are give by the Exchange 2010 BSE Training Institute Limited 10
Other Aspects Settlement Cycle in India How to transfer funds & securities Safeguarding of investors interest Role of Clearing Corporation Guarantees settlement Acts as a Counter Party Investor Grievance Department Arbitration Mechanism 2010 BSE Training Institute Limited 11
Other Aspects Principal to Principal transaction Written consent of client for each transaction C. N. in Form B or BB. Can not be entered into in delisted or suspended scrip Price in range of opening & closing Inform Exchange on same day using DUS software & settle on same or next day 2010 BSE Training Institute Limited 12
Other Aspects Block Deals Separate window for execution of large trades Minimum qty of 5,00,000 shares or value of Rs.5 Crore through single transaction Timing is first 35 minutes of trading hours Price to be within +/- 1% of rulling mkt. Price Order valid only for 90 seconds & to be settled on T to T basis Details of trades such as date, scrip, qty, buy/sell, client, client name to be confirmed / reported to Exchange through DUS on same day of execution (Notice no.20080905-25) Each trade in Block Deal to be reported separately Information uploaded by TM disseminated to mkt. on same day by Exchange after mkt. hours 2010 BSE Training Institute Limited 13
Miscellaneous Brokerage Other Aspects Transferring of Corporate Benefits Margin reporting Investor Grievance Register & E-mail ID Disclosure of Own trading to clients Sub-broker can not be affiliated to more than one TM of same Exchange Front Running 2010 BSE Training Institute Limited 14
THANK YOU Mitesh Thakkar 2010 BSE Training Institute Limited