Overview of Compliance for Stock

Overview of Compliance for Stock Broker 10 March 2010 1 Compliance – What is it ? Compliance means ensuring conformity and adherence to regulatory...
Author: Ethan Walsh
1 downloads 0 Views 23MB Size
Overview of Compliance for Stock Broker

10 March 2010


Compliance – What is it ? Compliance means ensuring conformity and adherence to regulatory acts, rules, Procedures, laws, regulations, directives and circulars.



Why Comply ? Stand alone benefits: • Prevents internal frauds & losses • Structuring an effective risk management system • Boosts Client confidence • Minimizes/Eliminates the risk of disciplinary action • Ensures continuity of business • Increases efficiency in operations • Above all, guarantees peace of mind www.nseindia.com


Why Comply? (Contd…) Larger benefits: • Ensures risk containment and safer market place • Increases credibility of Stock Market operations • Protect the interest of Investors • Improved Awareness and putting a check on the malpractices

• Uniform practices - No compliance arbitrage



SCOPE OF COMPLIANCE Compliance requirement broadly flow from the relevant provisions of :• Securities Contracts (Regulation) Act, 1956 • Securities Contracts (Regulation) Rules, 1957 • SEBI Act, Rules, Regulation and Circulars • SEBI Intermediaries Regulation NSEIL / NSCCL • Rules and Byelaws of NSEIL • Rules and Byelaws of NSCCL • Capital Market - Regulations of NSEIL & NSCCL • F&O Segment - Regulations of NSEIL & NSCCL • F&O Segment - Rules and Byelaws of NSCCL • WDM Segment - Regulations of NSEIL • NSEIL/ NSCCL Circulars and Directives



Broad Areas Covered Major compliances relating to • Dealing with Clients • Trading requirements • Dealing with Intermediaries • Membership requirements • Maintenance of Books of Accounts & Records • Code of Conduct • Prevention of Money Laundering Act, 2002 www.nseindia.com


Compliances relating to Dealing with Clients



REGISTRATION OF CLIENTS • Know Your Client Form (KYC) • Member Constituent Agreement (MCA) • Risk Disclosure Document (RDD) • Maintenance/Upload of Unique Client Code ` www.nseindia.com


REGISTRATION OF CLIENTS (Contd…) • In KYC ensure that – complete details of Client information / Status, Bank and Depository Account details, Financial details of the constituent, Investment/ Trading experience, References, Financial documents (for Non Individual Constituents) and Signature of client are provided – Photograph, Proof of identity and address, Board Resolution from corporate clients permitting trading in derivative products are attached. – The segments/ Exchanges in which a client wants to transact are selected and marked by the client clearly www.nseindia.com


REGISTRATION OF CLIENTS (Contd…) In MCA ensure that – In respect of clients registered in other exchange(s) also (if a member is attached to different exchanges), separate exchange-wise agreement is executed – agreement is printed on a non-judicial stamp paper of appropriate value and is dated – agreement is signed by both the member and the client and is witnessed – agreement contains clauses prescribed by SEBI / NSE from time to time – in respect of clients introduced by sub-broker, tripartite agreement is to be executed



REGISTRATION OF CLIENTS (Contd…) – In RDD ensure that • Client acknowledges the risk disclosure document and is aware that certain basic risks are involved in trading in equity and derivative products. • Client should be made aware that contracts cannot be rescinded on the ground of lack of awareness or any other ground • Additional clauses may be introduced by the trading member but shall not contradict with the basic format or the Rules, Byelaws, Regulations, etc



REGISTRATION OF CLIENTS (Contd…) • Conduct in person verification of individual and HUF clients (TM/ DP of TM) • Collect PAN card copy of client, verify the same with the web site of Income tax Department and upload details of the client before placing orders for the client • Allot a unique client code to each client and maintain a file mapping the client codes and the PAN’s. • Provide copies of all the executed documents to the clients and get acknowledgement for the same. • Periodically update the clients’ financial and other details.



Recent circular – NSE/INSP/13606 SEBI Ref : MIRSD/ SE /Cir-19/2009 dated 3rd December, 2009 & Clarification circular NSE/INSP/14048 dated 3rd Feb 2010 •


TM to make available folder/ book with index in the client registration documents and indicate significance of each document

Copy of documents to be given to client free of charge within 7 days from date of execution (starts from day of upload of UCC to Exchange) and obtain acknowledgement for the same. For Existing clients to whom not sent, TM to send upon request by clients and maintain proof of dispatch/ delivery. For Internet clients, if made available electronically in a secured manner then physical documents need not be sent..

Segregation of Mandatory and Voluntary documents – Prospective. For clients registered before date of circular, any additional information can be in the form of addendum. Any additional clauses executed for existing clients as part of mandatory documents which is not contrary to any rules/ regulations/ byelaws/ circulars of SEBI/ Exchange, TM may not execute fresh documents

Any term or condition other than stated in mandatory shall form part of non-mandatory documents – Prospective

Action taken by SEBI/ other authorities in the past 3 years to be captured – To be self declared by the client. TM to verify details available in public domain provided by any financial sector regulator

NSE/INSP/13606 & 14048 contd… • – – – – – – – – – –

Evidence of financial details from clients who opt to deal in derivatives segment. Illustrative list of documents Copy of ITR Acknowledgement Copy of Annual Accounts Copy of Form 16 in case of salary income Net worth certificate Salary Slip Bank account statement for last 6 months Copy of demat account Holding statement. Any other relevant documents substantiating ownership of assets. Self declaration along with relevant supporting For clients registered before circular date, TM to collect documents during annual updation of financial information

Introducer’s identity and address to be captured in KYC – Prospective

Client signature against market segment/ stock Exchange in which client intends to trade – Prospective. For existing clients, information on this to be sent along with quarterly SOA for funds and securities and to maintain POD

NSE/INSP/13606 & 14048 contd… •

Mandatory document on policies & procedures to include the following – – – – – – –

Refusal of orders for penny stocks, (TM may refer to list of illiquid securities issued by Exchanges every month) Setting up client’s exposure limits, Applicable brokerage rate Imposition of penalty/delayed payment charges by either party, specifying the rate and the period (This must not result in funding by the broker in contravention of the applicable laws), The right to sell clients’ securities or close clients’ positions, without giving notice to the client, on account of nonpayment of client’s dues (This shall be limited to the extent of settlement/margin obligation), Shortages in obligations arising out of internal netting of trades, conditions under which a client may not be allowed to take further position or the broker may close the existing position of a client, Temporarily suspending or closing a client’s account at the client’s request, and Deregistering a client.

Wherever the above policies & procedures are not explicitly elaborated for existing clients, TM to intimate and maintain records of such intimation/ documents (POD)

For internet clients, it can be made available electronically in a secured manner

NSE/INSP/13606 & 14048 contd… •

Running account authorisation on specific consent else settlement within 24 hours of payout. (One working day)

Running account authorisation to be renewed atleast once a year and shall be dated. For Existing clients, it is applicable wherein it is obtained prior to one year and is due for renewal

To be signed only by client and not by anybody else including PoA holder

Actual settlement to be done once in a calendar quarter or month as per preference of client and can be settled across segment of same Exchange.

Statement of accounts containing extract of fund and securities (received/ delivered) to be sent once in a calendar quarter or month at the time of above settlement and it is treated as sufficient compliance for the purpose of quarterly SOA for funds/ securities

Client to bring any dispute to the notice of TM preferably within 7 working days from date of receipt of funds/ securities or statement as the case may be.

NSE/INSP/13606 & 14048 contd… •

Clients having Outstanding obligations on settlement date, TM may retain funds/ securities towards such obligations and may also retain funds expected to be required to meet margin obligation for next 5 trading days as per manner specified by Exchanges. Clarified as follows – In respect of derivative market transactions, apart from margin liability as on the date of settlement, trading member may retain additional margins (maximum up-to 75% of margin requirement on the day of settlement) to take care of any margin obligation arising in next 5 days. – In respect of cash market transactions, trading member may retain entire payin obligation of funds & securities due from clients as on date of settlement

NSE/INSP/13606 & 14048 contd… • Electronic Contract Notes – To be issued only on specific authorisation from client • ECN authorisation to be signed only by client and not any one else including PoA holder • Email id for receiving ECN should not be created by TM. Client to create/ provide his own email id to TM. For existing clients wherever TM has created, to obtain duly signed physical confirmation letter confirming the email id and choice to receive documents on this email id • Any change in email id to be communicated by client to TM in writing through physical letter. For internet clients it can be through secured access by way of client specific user id and password

NSE/INSP/13606 & 14048 contd… •

All Documents (mandatory and non mandatory) should be printed in minimum font size of 11 – Prospective and contents to be legible for investors to read

To provide access to client documents, client position, margin and other related information, SOA etc in website (wherever available) and allow access in secured manner by way of client specific user id and password

Any change other than those prescribed by SEBI cannot be done without consent of client and that too to be preceded by 15 days notice

To frame policy on inactive accounts (to be defined) covering time period, return of client assets and procedure for reactivation of same and policy and set of standard documents to be displayed in their own website (if any)

As on 31st March every year, a statement of balance of funds and securities in hard form and signed by TM to be sent to clients upon specific request. Wherever mentioned as prospective implies from the date of circular (Dec 3, 2009) and TM’s are required to ensure due compliance in true spirit of the circular

DEALING WITH CLIENTS Compliance related to Contract Notes • Trading Member has to ensure that contract notes are issued in the prescribed format within 24 hours of execution of trades on the Exchange. • To be issued on pre-printed stationary and signed by an Authorised Signatory mentioning name. • Unique Client Code and PAN of the Constituent to be printed. • With running serial number (reset to one at the beginning of the Financial Year) • Dealing office details and PAN of the Trading Member to be printed • Trade price and brokerage to be mentioned separately • For contract notes issued with weighted average price for multiple trades resulting from single order, annexure containing details of all the trades to be provided • Copies of contract notes / proof of Delivery / Despatch to be maintained



Electronic issue of Contract notes  ECNs can be issued only if specifically consented by client  ECNs to be digitally signed, encrypted, non-tamperable and in compliance with provisions of IT Act, 2000.  Delivery of ECNs to be made by sending e-mail to the mail id provided by client  Log reports for sent mails and rejected / bounced mails to be maintained  Client to consent that non-receipt of bounced back mail by trading member amounts to delivery of contract notes  ECNs are required to be simultaneously published on the web-site of trading member and clients are given secured access to the same by way of client specific logon and password.  In case of non-delivery of ECNs, contract note should be sent in physical form.



DEALING WITH CLIENTS (contd..) Funds and Securities of constituents

◦ Separate Bank and Demat Account to be maintained for client funds and securities ◦ Segregation of own and clients funds/ securities ◦ Funds / securities to be received by TM only from respective clients accounts directly ◦ Pay-out of funds / securities directly to respective clients by TM within one working day of pay-out by Exchange ◦ Funds / securities of a client should not be transferred to the account of the trading member / another client www.nseindia.com


DEALING WITH CLIENTS (contd..) Funds and Securities of constituents ◦ Funds / securities of a client should not be used for pay-in obligation of another constituent / protrades ◦ Client funds to be used only for the purposes specified ◦ Clients funds / securities not to be misused- No payments towards expenses / levies can be made from client bank account ◦ TM not to receive/ pay cash to clients for margin/ Settlement ◦ Dividends received on clients’ securities to be disbursed within 90 days www.nseindia.com


DEALING WITH CLIENTS (contd..) Statement of funds and securities − Sending statement of funds and securities to clients on a quarterly basis within one month from the end of the relevant period − Statement of funds and securities/ margin and settlements should contain an error reporting clause of 30 days − Proof of dispatch/ delivery to be maintained



DEALING WITH CLIENTS (contd..) Margins from Constituents (CM Segment) TM at its discretion may collect margin from its client as a risk containment measure Margins from Constituents (F&O Segment) TM to mandatorily collect initial margin (MG 13 file) upfront on a daily basis from the clients. • • • •

Daily reporting of Initial Margin collected Non-reporting considered as 100% shortfall Penalty for shortfall in collection Wrong reporting (Considered as serious violation with stringent disciplinary actions) www.nseindia.com


DEALING WITH CLIENTS (contd..) Forms of Collateral Mode of collection • Funds • Securities- Liquid securities with VaR based Haircut. • FDR and Bank Guarantee favoring TM- From approved banks Other requirements • Maintenance of adequate records for identifying client-wise margin collection • If securities collected as margins, statement of securities to be issued to the clients



Procedure for margin collection & reporting – Unencumbered funds received only from the respective clients on an upfront basis can be included. Any Debit balances in the F&O client ledger should first be set off by apportioning the free balances / value of securities and the only balance amount if any should be considered towards margins collected from clients. – Any free balance of the same clients in other segments after considering the debit balances and margins (if any) applicable in the respective segments can be considered towards margins for the F&O segment. – Margins taken in the form of liquid securities (not specifically declared as illiquid) should be valued as per the closing rate on the previous trading day and not the trading day, with appropriate VaR based haircut.

– NSCC/F&O/C&S/97 (download no. NSE/CMPT/03167) dated 01-Feb-02 , NSE/INSP/10367NSE /INSP/2009/77 dated 02nd June 2009 and NSE/INSP/2009 dated 30th June 2009 www.nseindia.com


Client margin information • •

• • • •

Client code and name, Trade day (T) Total margin deposit placed by the client upto day T-1 (with break-up in terms of cash, FDRs, BGs and securities) Margin utilised upto the end of day T-1 Margin deposit placed by the client on day T (with break-up in terms of cash, FDRs, BGs and securities) Margin adjustments for day T Margin status (balance with the member / due from the client) at the end of day T



Collateral deposited by clients with members towards Margin  Receipt of collateral from client and acknowledgement issued to client on receipt of collateral  Client authorization for deposit of collateral with the exchange / clearing corporation / clearing house towards margin  Record of deposit of collateral with exchange / clearing corporation / clearing house  Record of return of collateral to client  Credit of corporate action benefits to clients

 Clients’ securities should not be pledged to bank / financier for raising funds www.nseindia.com


DEALING WITH CLIENTS (contd..) Brokerage −Brokerage not to exceed 2.5% incase of retail clients − Brokerage not to exceed 1.5 % in case of subbrokers − Maximum brokerage of 25 paise per share if trade price of a share is Rs. 10/- or less − Incase of option contract, brokerage to be charged on option premium amount which shall not exceed 2.5% of premium amount or Rs. 100/- per lot whichever is higher www.nseindia.com


DEALING WITH CLIENTS (contd..) Straight Through Processing (STP) −All institutional trades to be mandatorily processed through STP system Transfer of Trades −No Transfer of trades from PRO to client and vice versa −No transfer of trades from one client to another www.nseindia.com


DEALING WITH CLIENTS (contd..) Others − Exclusive

e-mail ID for redressal of Investor Complaints − Not charging excess rates for the trades − Declaration of PRO trading to clients − Confidentiality of client information − No false inducement to trade by giving misleading advice or information to clients − Client trades to be done with CLI code only − Not resorting to unfair means to induce clients from other stock brokers www.nseindia.com


Compliances relating to Trading requirements



Financing of securities transactions and transfer of securities and funds  TM not to be a party to any agreement or arrangement, directly or indirectly, entered into between their clients and any other person financing such clients  TM not to entertain any instructions to trade or transfer funds or securities from any other entity other than the clients to facilitate financing  TM not to obtain any authorisation or POA to exclusively operate bank or demat account of client to facilitate financing  TM not to act as a conduit or front for financing any secondary market transactions except in accordance with the provisions of margin trading facility.  TM not to transfer funds or securities to joint bank or demat account of clients with financer



INTERNET TRADING  Prior permission to be obtained for providing Internet Trading Facility to the clients  Agreements to be entered into with all the clients in the prescribed format  Prior approval to be obtained incase of use of internet trading software other than that of empanelled vendors  Trading member to ensure reliability, security and confidentiality of internet trading system www.nseindia.com


INTERNET TRADING  Client specific user id and password to be used for execution of trades  Password policy to be adhered for security, reliability and confidentially  Trading Member to ensure clients do not deal on behalf of others  Submission of SSL Certificate (Yearly) & Internet Trade Statistics (Weekly)  Trading Member to submit system audit certificate on a yearly basis www.nseindia.com


OFFICE MANAGEMENT Notice Board •Display of permanent nature Notice Board (viz. painted board) containing required details, at all places where trading terminals are located including registered offices and branch offices of trading member /sub-broker •Display of copy of SEBI Registration Certificate



OFFICE MANAGEMENT (contd..) Compliance related to trading terminals • Trading Terminal to be located at registered offices and/ or branch offices of trading member /subbroker • No extension of NEAT terminal without prior approval of the Exchange • Trading terminal to be operated by approved persons only



OFFICE MANAGEMENT (contd..) Compliance related to trading terminals • Upload of CTCL terminal to the Exchange before activation • All information to be correctly uploaded in the prescribed format particularly user name, location of the terminal and CTCL id • Any change in the uploaded details to be immediately uploaded to the Exchange • Due diligence to be exercised while allotting trading terminal and prevent misuse • PRO trading to be done only from trading terminals enabled for PRO trading www.nseindia.com


OFFICE MANAGEMENT (contd..) Compliance related to NCFM certification • Trading terminals in the F&O segment to be operated by users having valid NCFM certification • Capital market Segment • NEAT Terminal – Corporate Manager ID and Branch Manager • After IP migration, 1 user for ever 5 CTCL users shall be NCFM certified. • CTCL Terminal – 1 user for ever 5 CTCL users or part thereof in the branch (each CTCL location is identified as a branch)



OFFICE MANAGEMENT (contd..) Compliance Officer  Trading member to appoint compliance officer  Compliance officer to monitor the compliance with regulatory requirements and redress investor’s grievances. Inspection  Trading member to inspect on a yearly basis - 10% active sub-brokers ; - 10% of active branches ; - each active sub-broker/ branch to be inspected atleast once in every 5 years - Authorised persons www.nseindia.com


Control over branches and sub brokers • Ensure due diligence and credentials of entities proposed to be appointed as sub brokers/authorized persons. • Ensure proper procedures while opening and closing branches • Ensure that clients are informed in advance in case of closure of branch • Ensure that branches, sub-brokers, authorised persons do not indulge in unauthorised trading activities. • Monitor the activities of sub brokers/relationship managers/officials in-charge of branches to avoid unregistered intermediation, fraudulent activities, misuse of clients’ accounts, etc. • Recent circular on Authorised person states inspection to be done for them as well www.nseindia.com


Control over branches and sub brokers • Ensure proper procedure for accounting of demand drafts and pay orders received from clients in the respective clients’ accounts. • Obtain and analyse periodic reports and information from all branches/sub brokers, to address various risk areas. • Take feedback from the clients of sub brokers and branches on their dealings with the sub brokers and branch officials • Inspect at least 10% of branches and sub brokers every year and ensure that each branch and sub broker is inspected at least once in every five years.



Internal Audit •

Stock brokers/clearing members to carry out complete internal audit on a half yearly basis by independent qualified Chartered Accountants/Company Secretaries/Cost accountants.

NSE/INSP/2009/76 dated March 25,09 NSE/INSP/13272 dated Oct 16,09 (Revised format) The first half year period would start from October 01, 08. •

Areas to be covered in internal audit and areas on which comments needs to be incorporated in the report are given as annexure II to the above mentioned circular.

Format for certificate for internal audit is given as annexure III to the above mentioned circular

Internal auditor would submit the audit report to the Proprietor/Partners/Board of respective trading/clearing member who would place the report before its Board of Directors/proprietor/partners and shall forward the same along with para-wise comments to respective stock exchange within 3 months of the end of half year period. The audit report may be combined across segments and activity (trading/clearing) for respective Exchange.

If in the opinion of the Exchange, the quality of the reporting is not satisfactory or the audit is not carried out in accordance with the aforesaid guidelines, the Exchange reserves the right to advise the concerned members to change the auditors and/or submit revised reports.



Due diligence in employee activities – Trading Member shall establish and enforce procedures to supervise its business and the activities of its employees that are reasonably designed to achieve compliance with all the relevant regulatory requirements. – Trading Member shall specifically authorise in writing, persons who may be authorised to transact on behalf of the member and do such acts which the member delegates to such persons www.nseindia.com


Compliances relating to Dealing with Intermediaries



DEALING WITH INTERMEDIARIES The trading member should not deal with any unregistered entities and should have dealings • directly with clients; or • through Registered sub-brokers (CM Segment); or • through Authorised Persons



DEALING WITH INTERMEDIARIES (Contd..) Trading member to exercise due diligence and care that none of its clients, authorized persons and any other entity with which it is dealing act as an unregistered intermediary and ensure that :

• Contract notes are issued to clients for the client code entered while executing the order • Funds / Securities for margin and pay-in/ pay-out are received / delivered from/ to respective clients bank and de-mat accounts only • Remarks column is not misused for doing unregistered intermediary activities www.nseindia.com


DEALING WITH INTERMEDIARIES (Contd..) • Dealing with sub-broker/ authorized person to commence after receipt of approval from Exchange • For client introduced by sub-broker, tripartite agreement to be entered • Inspect Sub-brokers on a periodic basis-10% of active sub brokers



Compliances relating to Membership Requirements



Membership Requirements • Trading member should not undertake fund based activities • Approval of the Exchange/ SEBI to be obtained for any change in status and constitution/transfer of membership • Prior approval of the Exchange must be taken for any change in the shareholding pattern / profit sharing ratio / change in other directors • Written prior approval of the Exchange to be obtained before releasing any advertisement and advertisement code to be adhered

10 March 2010

Overview of Compliance for Stock Broker


Compliances relating to maintenance of Books of Accounts & Records



Maintenance of Books & Records • •

Members to maintain Exchange-wise separate books of accounts, other records and documents, in accordance with the Rules, Regulations, Byelaws and relevant circulars of Stock Exchanges Regulation 17 (1) of SEBI Regulations provides for maintenance of following books, records and documents by the Brokers.

– – – – –

Register of transactions (Sauda Book) Clients ledger General ledger Journals Cash book

10 March 2010

Overview of Compliance for Stock Broker


Maintenance of Books & Records(Contd..) • • • • • • •

Bank pass book Register of Securities Members’ contract books Counterfoils or duplicates of contract notes issued to clients; 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. Register of Complaints • Records of Particulars of Approved Users • Record of Brokerage Collected • Dividend Ledger • Statement of funds and securities obligations received from the Clearing Corporation All these books of accounts and other records are to be preserved by the broker for a minimum period of five years as per Regulation 18 of SEBI (Stock Brokers and Sub Brokers) Regulations,1992 10 March 2010

Overview of Compliance for Stock Broker


Compliances relating to Code of Conduct



CODE OF CONDUCT Trading Member shall • Maintain integrity and fairness in the conduct of all his business • Act with due diligence, care and skill and ensure compliance with statutory requirements • Abide with its duties towards the investors • Render fair, prompt and competent services to its clients • Co-operate to protect the interest of the clients www.nseindia.com


CODE OF CONDUCT (Contd…) Misconduct : • Violation of governing statutes • Improper / Fraudulent conduct • Breach of Rules, Bye laws & Regulations • Failure to comply with Circulars, Arbitration award, testify or give information, submit Special Returns / Audited Accounts, pay dues and fines, etc. • Filing malicious complaints www.nseindia.com


CODE OF CONDUCT (Contd…) Unbusiness-like conduct : • Transacting in fictitious names • Circulating rumours • Prejudicial business for upsetting market equilibrium • Market manipulation / rigging • Dishonouring cheques • Refusing to undertake committed business for the client without proper reason www.nseindia.com


CODE OF CONDUCT (Contd…) Unprofessional conduct : • Business in securities in which dealings not permitted • Business for insolvents, employees of other trading members (without other TM consent) • Business when under suspension • Dealings for / with suspended, expelled or defaulter trading members www.nseindia.com


Prevention of Money Laundering Act, 2002 (PMLA)

10 March 2010

Overview of Compliance for Stock Broker


Prevention of Money Laundering Act, 2002 (PMLA) Obligations of intermediaries under Prevention of Money Laundering Act, 2002 (PLMA)  Appoint a Principal Officer who would be responsible for ensuring compliance of provisions of PMLA  Name, designation, address and e-mail address of such Principal officer be intimated to Office of Director – FIU (Financial Intelligence Unit), Delhi  Adopt written procedures to implement the anti-money laundering provisions 10 March 2010

Overview of Compliance for Stock Broker


PMLA (cont..) • Trading Member has to adopt customer due diligence processes. • Identify the beneficial ownership or control of trading account • Policy for acceptance of clients • Risk based approach • Clients of special category (CSC) • Client Identification procedure 10 March 2010

Overview of Compliance for Stock Broker


PMLA ( cont..) • Trading member has adequate systems in place to monitor and identify suspicious transactions and have appropriate procedures for reporting of suspicious transactions to FIU • Trading Member has adequate systems in place to generate alerts based on set parameters for suspicious transactions • Trading Member has adequate systems in place to scrutinize the alerts and arrive at suspicious transactions • Trading Member have appropriate procedures for reporting of suspicious transactions to FIU 10 March 2010

Overview of Compliance for Stock Broker


PMLA ( cont..) • Trading Member has maintained and preserved all such records of transactions which are prescribed under Rule 3 of PMLA • Trading Member has adequate systems and procedures in place to ensure screening of employees while hiring • Trading Member has ongoing Training program for staff.

10 March 2010

Overview of Compliance for Stock Broker



– Annual Compliance Report – Proof of Insurance Cover – Certified Annual Financial Statements and forms – SSL Certificate (internet trading) – System Audit Report (CTCL /Internet trading) Half yearly Submissions

– Net worth Certificate – Internal Audit – Auditors Compliance certificate (margin trading) www.nseindia.com


PERIODIC SUBMISSIONS Monthly Submissions – Client Funding Disclosure

Weekly Submissions – Internet trading statistics

Daily submissions – Trade details of bulk/ block deals of trade date – Disclosure of exposure to margin trading facility – Client margin reports on trade date – Unique Client Code www.nseindia.com



◦ CTCL 12-digit file and information regarding CTCL terminals before activation of terminal ◦ Change in share holding pattern/profit sharing ratio / directors ◦ Change in Authorised Persons / Compliance officers ◦ Compliance Calendar – Please refer Circular NSE/MEM/8536 dated February 19, 2007



Trading members to comply with the provisions of the Rules, Byelaws, Regulations and Circulars of the Exchange / NSCCL / SEBI, as may be applicable from time to time, in addition to the requirements illustrated in the presentation