TaxTMI 
TaxTMI 
Enhanced Supervision of Stock Brokers/Depository Participants
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...., formulation of objective sample criteria, monitoring of quality of Internal Audit Reports, timeline for submissions of Internal Audit Reports, etc. IV. Monitoring of Financial Strength of Stock Brokers by Stock Exchanges so as to detect any signs of deteriorating financial health of stock brokers and serve as an early warning system to take preemptive and remedial measures. V. Imposition of uniform penal action on stock brokers/depository participants by the Stock Exchanges/Depositories in the event of non-compliance with specified requirements. VI. Other Requirements: a. Uploading client's funds and securities balances by Stock Brokers to Stock Exchange System and onwards transmission of the same to the clients for better transparency. b. Clarification on Running Account Settlement c. Providing PAN details of Directors, Key Management Personnel and Dealers, to Stock Exchanges and any change thereof. 2. The Stock Exchanges/Depositories are directed to: a. bring the provisions of this circular to the notice of the Stock Brokers/depository participants and also disseminate the same on their websites. b. make necessary amendments to the relevant bye-laws, rules and....
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....changes of existing and new demat account(s) in the following format: Name of DP Account Number/ Client ID DP ID Name of Account Holder PAN Sub-type/ tag of Demat Account (Proprietary/ Client/ Pool/ Collateral) Date of Opening 2.3. Stock Exchanges and/or Depositories, as the case may be, shall ensure the following: 2.3.1. All existing demat accounts maintained by stock brokers are assigned the appropriate nomenclature as mentioned above, within three months from the date of this circular. 2.3.2. All existing bank accounts maintained by stock brokers which do not have the above mentioned nomenclature, shall be assigned appropriate nomenclature, within six months from the date of this circular. 2.3.3. Details of all existing bank and demat accounts shall be communicated to Stock Exchanges by the stock brokers in the format specified above within one month from the date of this circular. 2.3.4. All new bank and demat accounts opened by the stock brokers shall be named as per the above given nomenclature and the details shall be communicated to the Stock Exchanges within one week of the opening of the account. 2.3.5. In case of closure of any of the reported bank and ....
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....nitor compliance with the above requirements, during inspections and the same shall be reviewed by the internal auditor of the broker during the half yearly internal audits. 2.5. As per existing norms, a stock broker is entitled to have a lien on client's securities to the extent of the client's indebtedness to the stock broker and the stock broker may pledge those securities. This pledge can occur only with the explicit authorization of the client and the stock broker needs to maintain records of such authorisation. Pledge of such securities is permitted, only if, the same is done through Depository system in compliance with Regulation 58 of the SEBI (Depositories and Participants) Regulations,1996. To strengthen the existing mechanism, the stock brokers shall ensure the following: 2.5.1. Securities of only those clients can be pledged who have a debit balance in their ledger. 2.5.2. Funds raised against such pledged securities for a client shall not exceed the debit balance in the ledger of that particular client. 2.5.3. Funds raised against such pledged securities shall be credited only to the bank account named as "Name of the Stock Broker - Client Account"....
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.... open bills of clients, uncleared cheques deposited by clients and uncleared cheques issued to clients and the margin obligations) D- Aggregate value of Debit Balances of all clients as obtained from trial balance across Stock Exchanges (after adjusting for open bills of clients, uncleared cheques deposited by clients, uncleared cheques issued to clients and the margin obligations) E- Aggregate value of proprietary non-cash collaterals i.e. securities which have been deposited with the clearing corporations and/or clearing member (across Stock Exchanges ) F- Aggregate value of Non-funded part of the BG across Stock Exchanges P - Aggregate value of Proprietary Margin Obligation across Stock Exchanges MC - Aggregate value of Margin utilized for positions of Credit Balance Clients across Stock Exchanges MF- Aggregate value of Unutilized collateral lying with the clearing corporations and/or clearing member across Stock Exchanges 3.3. Based on the aforesaid information submitted by the stock broker, Stock Exchanges shall put in place a mechanism for monitoring of clients' funds lying with the stock brokers on the principles enumerated below: 3.3.1. Funds of credit balance clie....
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....obligations (P). If P > (G+E+F), then Stock Exchange shall calculate the difference I, which is the amount of proprietary margin obligation funded from clients assets. I = P - (G+E+F) If G is negative, then, value of G is considered as 0, as there is no proprietary funds lying with the stock exchange. The value of I indicates the extent of funds and securities of clients which is possibly utilised towards proprietary margin obligations. This value of I acts as an alert to the Stock Exchanges on the possible mis-utilisation of clients' assets towards proprietary margin obligations. 3.3.3. Funds of credit balance clients used for Margin obligations of debit balance clients and proprietary trading: Stock Exchanges shall thereafter, verify whether the clients funds lying with the clearing corporation/clearing member are utilised towards margin obligations of debit balance clients and proprietary margin obligations. Principle: The clients' funds lying with the clearing corporation/clearing member should be less than or equal to sum of credit clients' margin obligations (MC) and free collateral deposits available with the clearing corporation/clearing member (MF) If ....
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....following additional requirements in relation to internal auditors shall become applicable: 4.2. Appointment and Rotation of Internal auditors 4.2.1. Stock Exchanges shall ensure that; 4.2.1.1. Stock Broker obtains from the internal auditor the following details and shares the same with the Stock Exchange: a. Declaration stating that the internal auditor or its directors/partners have no interest in or relation with the stock broker concerned other than the proposed internal audit assignment, and b. Details of the internal auditor viz., Name, Address, PAN, Designation of Auditor, Name & Address of the Audit Firm, registration number of the Auditor and the Audit firm, any regulatory action taken against internal auditor/partner/director, if any, etc. 4.2.1.2. No stock broker shall appoint or re-appoint- a) an individual as internal auditor for more than one term of five consecutive years; and b) an audit firm as internal auditor for more than two terms of five consecutive years: Provided that- 4.2.1.3. An individual internal auditor who has completed his term under clause 4.2.1.2 (a) above shall not be eligible for re-appointment as internal auditor for the same stock b....
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....ernal audit. 4.4.2. In cases where material deviations are observed between the findings of the internal audit report and the Stock Exchange inspection report, the Stock Exchanges shall caution the stock broker to reconsider the appointment of that particular internal auditor. The same shall also be brought to notice of all the stock brokers who are audited by that particular internal auditor. The Stock Exchange shall also bring the deviations to the notice of the internal auditor.The Stock Exchange inspections shall be so planned that at least one client (i..e stock broker) of each internal auditor is covered at least once in five years. 4.5. Submissions of Internal Audit Report 4.5.1. Stock Brokers shall ensure that the internal audit reports are submitted to the Exchanges within two months of the end of respective half years for which the audit is being conducted. The due date for submissions shall be as under: S. No. Period of Audit Due Date for submission 1. For half year ending September 30th November 30th 2. For half year ending March 31st May 31st 4.6. Other requirements 4.6.1. The Stock Exchanges shall provide a mechanism to enable the internal auditor to ....
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....ing a common partner or partners to the other audit firm, whose tenure has expired in a stock broker immediately preceding the financial year, shall be appointed as statutory auditor of the same stock broker for a period of five years: 5.7. The above provisions shall be applicable from April 01, 2017 6. Standard Operating Procedures for Stock Brokers/Depository Participants - Actions to be contemplated by Stock Exchanges/Depositories for any event based discrepancies 6.1. As per existing norms, Stock Exchanges /Depositories are required to monitor their members/depository participants. It has been decided that the Stock Exchanges and Depositories shall frame various event based monitoring criteria based on market dynamics and market intelligence. An illustrative list of such monitoring criterias are given below: 6.1.1. Monitoring criteria for Stock Brokers a. Failure to furnish Networth certificate to Stock Exchange within 60 days for half year ending September 30th and half year ending March 31st. b. Failure to furnish Internal Audit report to Stock Exchanges for half year ending September 30th by November 30th and half year ending March 31st by May 31st. c. Failure to fu....
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....ther that Stock Exchanges and Depositories may also frame more stringent criteria than as mentioned above. 6.1.4. The above provisions shall be applicable 3 months from the date of this circular. 7. Uploading clients' fund balance and securities balance by the Stock Brokers on Stock Exchange system The Stock Exchanges shall put in place a mechanism and ensure that stock brokers upload the following data on a monthly basis for every client onto each Stock Exchange system where the broker is a member 7.1.1. Exchange-wise end of day fund balance as per the client ledger, consolidated across all segments and also net funds payable or receivable by the broker to/from the client across all Exchanges 7.1.2. End of day securities balances (as on last trading day of the month) consolidated ISIN wise (i.e., total number of ISINs and number of securities across all ISINs) 7.1.3. For every client, number of securities pledged, if any, and the funds raised from the pledging of such securities 7.1.4. The data at Para 7.1.1, 7.1.2 and 7.1.3 pertains to the last trading day of the month. The stock broker shall submit the aforesaid data within seven days of the last trading day of the....
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.... of all clients (after adjusting for open bills and uncleared cheques) Total debit balance (after adjusting for open bills and uncleared cheques ) Amount of funds of one client used for another client Amount of fund used for own purpose (only if absolute value G is greater than debit balance clients) A B C G=(A+ B)C D G, if |G|<|D| H = |G| - |D| * cash equivalents contains other components of collateral deposited by the stock broker, such as, FD, bank Guarantee etc excluding the Non- cash component. If G is negative, then there is utilization of clients' funds for other purposes i.e. either funds of credit balance clients are being utilized for settlement obligations of debit balance clients or for the stock brokers' own purposes. The difference has following two components: Component I: Use of fund of one client for giving exposure to another client Component II: Use of client fund for own purposes by stock broker Amount of funds of one client used for settlement obligation another client = Total Debit balances of all Clients (after adjusting for open bills and uncleared cheques) Misuse of client's fund for own purpose = Absolute value of G - Total Debit ....