In terms of regulation 2(g), ‘small investor’ means any investor buying or selling securities on a cash transaction for a market value not exceeding rupees fifty thousand in aggregate on any day as shown in a contract note issued by the stock-broker.
Registration of Stock Broker
A stock broker applies in the prescribed format for grant of a certificate through the stock exchange or stock exchanges, as the case may be, of which he is admitted as a member (Regulation 3). The stock exchange forwards the application form to SEBI as early as possible as but not later than thirty days from the date of its receipt.
SEBI takes into account for considering the grant of a certificate all matters relating to buying, selling, or dealing in securities and in particular the following, namely, whether the stock broker:
(a) is eligible to be admitted as a member of a stock exchange,
(b) has the necessary infrastructure like adequate office space, equipment and man power to effectively discharge his activities,
(c) has any past experience in the business of buying, selling or dealing in securities,
(d) is subjected to disciplinary proceedings under the rules, regulations and bye-laws of a stock exchange with respect to his business as a stockbroker involving either himself or any of his partners, directors or employees, and
(e) is a fit and proper person. SEBI on being satisfied that the stock-broker is eligible, grants a certificate to the stock-broker and sends intimation to that effect to the stock exchange or stock exchanges, as the case may be. Where an application for grant of a
certificate does not fulfil the requirements, SEBI may reject the application after giving a reasonable opportunity of being heard.
Fees by stock brokers
Every applicant eligible for grant of a certificate shall pay such fees and in such manner as specified in Schedule III or schedule IIIA, as the case may be. Provided that SEBI may on sufficient cause being shown permit the stockbroker to pay such fees at any time before the expiry of six months from the date for which such fees become due (Regulation 10). Where a stock-broker fails to pay the fees, SEBI may suspend the registration certificate, whereupon the stock- broker shall cease to buy, sell or deal in securities as a stock- broker.
Appointment of Compliance Officer
Every stock broker shall appoint a compliance officer who shall be responsible for monitoring the compliance of the Act, rules and regulations, notifications, guidelines, instructions etc issued by SEBI or the Central Government and for redressal of investors’ grievances. The compliance officer shall immediately and independently report to SEBI any non-compliance observed by him (Regulation 18A).
Code of conduct
The stock-broker holding a certificate at all times abides by the Code of Conduct as given hereunder:
I. General
1. Integrity: A stock-broker, shall maintain high standards of integrity, promptitude and fairness in the conduct of all his business.
2. Exercise of Due Skill and Care: A stock-broker, shall act with due skill, care and diligence in the conduct of all his business.
3. Manipulation: A stock-broker shall not indulge in manipulative, fraudulent or deceptive transactions or schemes or spread rumours with a view to distorting market equilibrium or making personal gains.
4. Malpractices: A stock-broker shall not create false market either singly or in concert with others or indulge in any act detrimental to the investors’ interest or which leads to interference with the fair and smooth functioning of the market. A stock-broker shall not involve himself in excessive speculative business in the market beyond reasonable levels not commensurate with his financial soundness.
5. Compliance with Statutory Requirements: A stock-broker shall abide by all the provisions of the Act and the rules, regulations issued by the Government, SEBI and the stock exchange from time to time as may be applicable to him.
II. Duty to the investor
1. Execution of Orders: A stock-broker, in his dealings with the clients and the general investing public, shall faithfully execute the orders for buying and selling of securities at the best available market price and not refuse to deal with a small investor merely on the ground of the volume of business involved. A stock-broker shall promptly inform his client about the execution or non-execution of an order, and make prompt payment in
respect of securities sold and arrange for prompt delivery of securities purchased by clients.
2. Issue of Contract Note: A stock-broker shall issue without delay to his client or client of the sub-broker, as the case may be a contract note for all transactions in the form specified by the stock exchange.
3. Breach of Trust: A stock-broker shall not disclose or discuss with any other person or make improper use of the details of personal investments and other information of a confidential nature of the client which he comes to know in his business relationship.
4. Business and Commission:
(a) A stock-broker shall not encourage sales or purchases of securities with the sole object of generating brokerage or commission.
(b) A stock-broker shall not furnish false or misleading quotations or give any other false or misleading advice or information to the clients with a view of inducing him to do business in particular securities and enabling himself to earn brokerage or commission thereby.
5. Business of Defaulting Clients: A stock-broker shall not deal or transact business knowingly, directly or indirectly or execute an order for a client who has failed to carry out his commitments in relation to securities with another stock-broker.
6. Fairness to Clients: A stock-broker, when dealing with a client, shall disclose whether he is acting as a principal or as an agent and shall ensure at the same time that no conflict of interest arises between him and the client. In the event of a conflict of interest, he shall inform the client accordingly and shall not seek to gain a direct or indirect personal advantage from the situation and shall not consider clients’ interest inferior to his own.
7. Investment Advice: A stock-broker shall not make a recommendation to any client who might be expected to rely thereon to acquire, dispose of, retain any securities unless he has reasonable grounds for believing that the recommendation is suitable for such a client upon the basis of the facts, if disclosed by such a client as to his own security holdings, financial situation and objectives of such investment. The stock-broker should seek such information from clients, wherever he feels it is appropriate to do so.
7A. Investment Advice in publicly accessible media:
(a) A stock broker or any of his employees shall not render, directly or indirectly, any investment advice about any security in the publicly accessible media, whether real – time or non real-time, unless a disclosure of his interest including the interest of his dependent family members and the employer including their long or short position in the said security has been made, while rendering such advice.
(b) In case, an employee of the stock broker is rendering such advice, he shall also disclose the interest of his dependent family members and the employer including their long or short position in the said security, while rendering such advice.
8. Competence of Stock Broker: A stock-broker should have adequately trained staff and arrangements to render fair, prompt and competent services to his clients.
III. Stock-brokers vis-a-vis other stock-brokers
1. Conduct of Dealings: A stock-broker shall co-operate with the other contracting party in comparing unmatched transactions. A stock-broker shall not knowingly and wilfully deliver documents which constitute bad delivery and shall co-operate with other contracting parties for prompt replacement of documents which are declared as bad delivery.
2. Protection of Clients Interests: A stock-broker shall extend fullest cooperation to other stock-brokers in protecting the interests of his clients regarding their rights to dividends, bonus shares, right shares and any other rights related to such securities.
3. Transactions with Stock-Brokers: A stock-broker shall carry out his transactions with other stock-brokers and shall comply with his obligations in completing the settlement of transactions with them.
4. Advertisement and Publicity: A stock-broker shall not advertise his business publicly unless permitted by the stock exchange.
5. Inducement of Clients: A stock-broker shall not resort to unfair means of inducing clients from other stock- brokers.
6. False or Misleading Returns: A stock-broker shall not neglect or fail or refuse to submit the required returns and not make any false or misleading statement on any returns required to be submitted to the Board and the stock exchange.
IV. 1. A stock broker, shall enter into an agreement as specified by the Board with his client.
2. A stock broker shall also enter into an agreement as specified by the Board with the client of the sub-broker.
Registration of Sub-Broker
An application by a sub-broker for the grant of a certificate is made in the prescribed format accompanied by a recommendation letter from a stockbroker of a recognised stock exchange with whom he is to be affiliated along with two references including one from his banker ( (Regulation 11A). The application form is submitted to the stock exchange of which the stockbroker with whom he is to be affiliated is a member.
The eligibility criteria for registration as a sub-broker are as follows:
(i) in the case of an individual:
(a) the applicant is not less than 21 years of age,
(b) the applicant has not been convicted of any offence involving fraud or dishonesty,
(c) the applicant has at least passed 12th standard equivalent examination from an institution recognised by the Government, and Provided that SEBI may relax the educational qualifications on merits having regard to the applicant’s experience.
(d) the applicant is a fit and proper person.
(ii) In the case of partnership firm or a body corporate the partners or directors, as the case may be, shall comply with the following requirements:
(a) the applicant is not less than 21 years of age,
(b) the applicant has not been convicted of any offence involving fraud or dishonesty, and
(c) the applicant has at least passed 12th standard equivalent examination from an institution recognised by the Government. Provided that SEBI may relax the educational qualifications on merits having regard to the applicant’s experience.
The stock exchange on receipt of an application, verifies the information contained therein and certifies that the applicant is eligible for registration. The stock exchange forwards the application form of such applicants who comply with all the requirements specified in the Regulations to SEBI as early as possible, but not later than thirty days from the date of its receipt. SEBI on being satisfied that the sub-broker is eligible, grants a certificate to the sub-broker and sends intimation to that effect to the stock exchange or stock exchanges as the case may be. SEBI grants a certificate of registration to the appellant subject to the terms and conditions. Where an application does not fulfil the requirements, SEBI may reject the application after giving a reasonable opportunity of being heard. The sub-broker shall –
(a) pay the fees as specified in Schedule III,
(b) abide by the Code of Conduct specified in Schedule II,
(c) enter into an agreement with the stock-broker for specifying the scope of his authority and responsibilities.
(d) comply with the rules, regulations and bye-laws of the stock exchange.
(e) not be affiliated to more than one stock broker of one stock exchange.
Code of conduct
The sub-broker at all times abides by the Code of Conduct as given hereunder:
I. General
1. Integrity: A sub-broker, shall maintain high standards of integrity, promptitude and fairness in the conduct of all investment business.
2. Exercise of Due Skill and Care: A sub-broker, shall act with due skill, care and diligence in the conduct of all investment business.
II. Duty to the Investor
1. Execution of Orders: A sub-broker, in his dealings with the clients and the general investing public, shall faithfully execute the orders for buying and selling of securities at the best available market price. A sub-broker shall promptly inform his client about the execution or non-execution of an order.
2. A sub-broker shall render necessary assistance to his client in obtaining the contract note from the stock-broker.
3. Breach of Trust: A sub-broker shall not disclose or discuss with any other person or make improper use of the details of personal investments and other information of a confidential nature of the client which he comes to know in his business relationship.
4. Business and Commission:
a) A sub-broker shall not encourage sales or purchases of securities with the sole object of generating brokerage or commission.
b) A sub-broker shall not furnish false or misleading quotations or give any other false or misleading advice or information to the clients with a view of inducing him to do business in particular securities and enabling himself to earn brokerage or commission thereby.
c) A sub-broker shall not charge from his clients a commission exceeding one and one-half of one percent of the value mentioned in the respective sale or purchase notes.
5. Business of Defaulting Clients: A sub-broker shall not deal or transact business knowingly, directly or indirectly or execute an order for a client who has failed to carry out his commitments in relation to securities and is in default with another broker or sub-broker.
6. Fairness to Clients: A sub-broker, when dealing with a client, shall disclose that he is acting as an agent ensuring at the same time, that no conflict of interest arises between him and the client. In the event of a conflict of interest, he shall inform the client accordingly and shall not seek to gain a direct or indirect personal advantage from the situation and shall not consider clients’ interest inferior to his own.
7. Investment Advice: A sub-broker shall not make a recommendation to any client who might be expected to rely thereon to acquire, dispose of, retain any securities unless he has reasonable grounds for believing that the recommendation is suitable for such a client upon the basis of the facts, if disclosed by such a client as to his own security holdings, financial situation and objectives of such investment. The sub-broker should seek such information from clients, wherever they feel it is appropriate to do so.
7A. Investment Advice in publicly accessible media)
A sub-broker or any of his employees shall not render, directly and indirectly any investment advice about any security in the publicly accessible media, whether real-time or non-real-time, unless a disclosure of his interest including his long or short position in the said security has been made, while rendering such advice.
b) In case, an employee of the sub-broker is rendering such advice, he shall also disclose the interest of his dependent family members and the employer including their long or short position in the said security, while rendering such advice.
8. Competence of Sub-broker: A sub-broker should have adequately trained staff and arrangements to render fair, prompt and competent services to his clients and continuous compliance with the regulatory system.
III. Sub-Brokers vis-Ã -vis Stock Brokers
1. Conduct of Dealings: A sub-broker shall co-operate with his broker in comparing unmatched transactions. A sub-broker shall not knowingly and wilfully deliver documents, which constitute bad delivery. A sub-broker shall co-operate with other contracting party for prompt replacement of documents, which are declared as bad delivery.
2. Protection of Clients Interests: A sub-broker shall extend fullest cooperation to his stock-broker in protecting the interests of their clients regarding their rights to dividends, right or bonus shares or any other rights relatable to such securities.
3. Transaction with Brokers: A sub-broker shall not fail to carry out his stock broking transactions with his broker nor shall he fail to meet his business liabilities or show negligence in completing the settlement of transactions with them.
4. Agreement between sub-broker, client of the sub-broker and main broker: A sub-broker shall enter into a tripartite agreement with his client and with the main stock broker specifying the scope of rights and obligations of the stock broker, sub-broker and such client of the sub-broker.
5. Advertisement and Publicity: A sub-broker shall not advertise his business publicly unless permitted by the stock exchange.
6. Inducement of Clients: A sub-broker shall not resort to unfair means of inducing clients from other brokers.
IV. Sub-brokers vis-a-vis Regulatory Authorities
1. General Conduct: A sub-broker shall not indulge in dishonourable, disgraceful or disorderly or improper conduct on the stock exchange nor shall he wilfully obstruct the business of the stock exchange. He shall comply with the rules, bye-laws and regulations of the stock exchange.
2. Failure to give Information: A sub-broker shall not neglect or fail or refuse to submit to SEBI or the stock exchange with which he is registered, such books, special returns, correspondence, documents, and papers or any part thereof as may be required.
3. False or Misleading Returns: A sub-broker shall not neglect or fail or refuse to submit the required returns and not make any false or misleading statement on any returns required to be submitted to SEBI or the stock exchanges.
4. Manipulation: A sub-broker shall not indulge in manipulative, fraudulent or deceptive transactions or schemes or spread rumours with a view to distorting market equilibrium or making personal gains.
5. Malpractices: A sub-broker shall not create false market either singly or in concert with others or indulge in any act detrimental to the public interest or which leads to interference with the fair and smooth functions of the market mechanism of the stock exchanges. A sub-broker shall not involve himself in excessive speculative business in the market beyond reasonable levels not commensurate with his financial soundness.