SEBI Stock Brokers Regulations India- Part-1

SECURITIES AND EXCHANGE BOARD OF INDIA
(STOCK-BROKERS AND SUB-BROKERS) REGULATIONS, 1992
CONTENTS
CHAPTER I: PRELIMINARY
1. Short title and commencement
2. Definitions
CHAPTER II: REGISTRATION OF STOCK BROKERS
3. Application for registration of stock broker
4. Furnishing information, clarification, etc.
5. Consideration of application
5A. Applicability of Securities and Exchange Board of India (Criteria for Fit and Proper
Person)
6. Procedure for registration
6A. Conditions of registration
7. Stock Brokers to abide by Code of Conduct
8. Procedure where registration is not granted
9. Effect of refusal of certificate of registration
10. Payment of fees and the consequences of failure to pay fees
CHAPTER III: REGISTRATION OF SUB BROKER
11. Registration as sub-broker
11A. Application for registration of sub-broker
12. Procedure for registration
13. Procedure for registration is not granted
14. Effect of refusal
15. General obligations and inspection
15A. Director not to act as sub-broker
16. Application of Chapter IV, V & VI
CHAPTER IIIA: REGISTRATION OF TRADING AND CLEARING MEMBERS
16A. Application for registration of trading member or clearing member
16B. Furnishing of information, clarification etc
16C. Consideration of application
16D. Procedure for registration
16E. Procedure where registration is not granted
16F. Effect of refusal of certificate of registration
16G. Payment of fees and consequences of failure to pay fees
16H. Trading member / clearing member to abide by the Code of Conduct etc
16I. Chapter IV, V & VI applicable
CHAPTER IV: GENERAL OBLIGATIONS AND RESPONSIBILITIES
17. To maintain proper books of accounts, records etc.
18. Maintenance of books of accounts and records
18A. Appointment of compliance officer
18B. Stock broker not deal with un-registered sub-broker
CHAPTER V: PROCEDURE FOR INSPECTION
19. Board’s right to inspect
20. Procedure for inspection
21. Obligations of stock broker on inspection by the board
22. Submission of report to the Board
23. Action on inspection or investigation report
24. Appointment of auditor
CHAPTER VI: PROCEDURE FOR ACTION IN CASE OF DEFAULT
25A.Liability for contravention of the Act, rules or the regulations.
26. Liability for monetary penalty
27. Liability for action under the Enquiry Proceeding Regulations.
28. Liability for prosecution
SCHEDULE I: FORMS
FORM A: APPLICATION FORM FOR REGISTRATION AS STOCK BROKERS
WITH SECURITIES AND EXCHANGE BOARD OF INDIA
FORM AA: APPLICATION FORM FOR REGISTRATION AS A TRADING AND
/OR A CLEARING MEMBER [AND /OR A SELF – CLEARING
MEMBER] WITH THE SECURITIES AND EXCHANGE BOARD OF
INDIA
FORM B: APPLICATION FORM FOR REGISTRATION AS A SUB BROKER WITH
SECURITIES AND EXCHANGE BOARD OF INDIA
FORM C: RECOMMENDATION LETTER TO BE GIVEN BY THE MEMBER WITH
WHOM THE SUB BROKER IS AFFILIATED
FORM CA: RECOGNITION LETTER TO BE ISSUED BY STOCK EXCHANGE
FORM D: CERTIFICATE OF REGISTRATION
FORM DA: CERTIFICATE OF REGISTRATION
FORM E: CERTIFICATE OF REGISTRATION
SCHEDULE II: CODE OF CONDUCT WITH THE STOCK BROKERS
SCHEDULE III: FEES TO BE PAID BY THE STOCK BROKERS
SCHEDULE IIIA: PAYMENT OF FEES BY STOCK BROKERS
SCHEDULE IV: FEES TO BE PAID BY THE TRADING OR CLEARING
MEMBER [OR SELF CLEARING MEMBER] OF
DERIVATIVES EXCHANGE/ DERIVATIVES SEGMENT /
CLEARING CORPORATION /CLEARING HOUSE


SECURITIES AND EXCHANGE BOARD OF INDIA
(STOCK-BROKERS AND SUB-BROKERS) REGULATIONS, 1992
In exercise of the powers conferred by section 30 of the Securities and Exchange Board
of India Act, 1992 (15 of 1992), the Board hereby 1[******] makes the following
regulations, namely: -
CHAPTER I
PRELIMINARY
Short title and commencement.
1. (1) These regulations may be called the Securities and Exchange Board of India
(Stock Brokers and Sub-brokers) Regulations, 1992.
(2) These regulations shall come into force on the date of their publication in the
Official Gazette.2
Definitions.
2. In these regulations, unless the context otherwise requires:-
3[ “(a) “Act” means the Securities and Exchange Board of India Act, 1992
(15 of 1992);
(aa) “certificate” means a certificate of registration issued by the Board;
(ab) “change of status or constitution” in relation to a stock broker or a
sub-broker means any change in its status or constitution of whatsoever
nature and includes –
(i) in case of a body corporate –
(A) amalgamation, demerger, consolidation or any other kind
of corporate restructuring falling within the scope of
section 391 of the Companies Act, 1956 (1 of 1956) or the
corresponding provision of any other law for the time being
in force;
(B) change in its managing director, whole-time director or
director appointed in compliance with clause (v) of sub-rule
(4A) of rule 8 of the Securities Contracts (Regulation)
Rules, 1957; and
(C) any change in control over the body corporate;
1 Words ‘with the previous approval of the Central Government” omitted by the the SEBI (Stock Brokers
Sub-brokers) (Third Amendment) Regulations, 1998, w.e.f. 16-12-1998.
2 23–10-1992
3 Inserted by the SEBI (Stock Brokers Sub-brokers) (Second Amendment) Regulations, 2006, w.e.f. 7-9-
2006
(ii) any change between the following legal forms – individual,
partnership firm, Hindu undivided family, private company, public
company, unlimited company or statutory corporation and other
similar changes;
(iii) in case of a partnership firm any change in partners not amounting
to dissolution of the firm;
(ac) “change in control”, in relation to a stock broker or a sub-broker being
a body corporate, means:-
(i) if its shares are listed on any recognised stock exchange, change in
control within the meaning of regulation 12 of the Securities and
Exchange Board of India (Substantial Acquisition of Shares and
Takeovers) Regulations, 1997;
(ii) in any other case, change in the controlling interest in the body
corporate;
Explanation: For the purpose of sub-clause (ii), the expression
“controlling interest” means an interest, whether direct or indirect, to the
extent of at least fifty one percent. of voting rights in the body corporate;”]
4[5(ad)] `clearing corporation or clearing house’ means the clearing corporation or
clearing house of a recognised stock exchange to clear and settle trades in
securities.
6[(ae)] `clearing member’ means a member of a clearing corporation or clearing
house of the derivatives exchange or derivatives segment of an exchange, who
may clear and settle transactions in securities.]
7[******]
(b) "form" means a form specified in Schedule I;
(c) "inspecting authority" means one or more persons appointed by the Board to
exercise powers conferred under Chapter V of these regulations;
(d) "regulations" means Securities and Exchange Board of India (Stock-brokers and
Sub- brokers) Regulations, 1992;
(e) 8[***]
4 Inserted by the SEBI (Stock Brokers Sub-brokers) (Second Amendment) Regulations, 2000, w.e.f. 14-3-
2000.
5 Clause (a) renumbered as clause ((ad) by the SEBI (Stock Brokers Sub-brokers) (Second Amendment)
Regulations, 2006, w.e.f. 7-9-2006
6 Clause (aa) renumbered as clause (ae) ) by the SEBI (Stock Brokers Sub-brokers) (Second Amendment)
Regulations, 2006, w.e.f. 7-9-2006
7 Inserted by the SEBI (Stock Brokers Sub-brokers) (Second Amendment) Regulations, 2006, w.e.f. 7-9-
2006.
(f) "Securities Contracts (Regulation) Act" means the Securities Contracts
(Regulation) Act, 1956 (42 of 1956);
9[(fa) "self clearing member" means a member of a clearing corporation or clearing
house of the derivatives exchange or derivatives segment of a stock exchange who
may clear and settle transactions on its own account or on account of its clients
only, and shaal not clear ort settle transactions in securities for any other trading
member(s)]
(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.
10[“(ga) “stock exchange” means a stock exchange which is for the time being
recognised by the Central Government or by the Board under section 4 of the
Securities Contracts (Regulation) Act, 1956 (42 of 1956);
(gb) “stock broker” means a member of a stock exchange;
(gc) “sub-broker” means any person not being a member of stock exchange who
acts on behalf of a stock broker as an agent or otherwise for assisting the investors
in buying, selling or dealing in securities thorough such stock brokers;”]
11[12(gd) `trading member’ means a member of the derivatives exchange or
derivatives segment of a stock exchange and who settles the trade in the clearing
corporation or clearing house through a clearing member;]
(h) all other words and expressions occurring in these regulations shall bear the same
meaning as in the Act 13[****].
CHAPTER II
REGISTRATION OF STOCK BROKERS
Application for registration of stock broker.
8 Omitted by the SEBI (Stock Brokers Sub-brokers) (Second Amendment) Regulations, 2006, w.e.f. 7-9-
2006. Prior to omission, it was read as, “rules means securities and exchange Board of India(Stock Brokers
and Sub-brokers) Rules, 1992
9 Inserted by the SEBI (Stock Brokers Sub-brokers) (Amendment) Regulations, 2001, w.e.f. 15-11-2001.
10 Inserted by the SEBI (Stock Brokers Sub-brokers) (Second Amendment) Regulations, 2006, w.e.f. 7-9-
2006. [(ga) renumbered as (gd) and before this the clauses (ga) to (gd) inserted.]
11 Inserted by the SEBI (Stock Brokers Sub-brokers) (Amendment) Regulations, 2000, w.e.f. 14-3-2000.
12 Clause (ga) renumbered as clause (gd) by the SEBI (Stock Brokers Sub-brokers) (Second Amendment)
Regulations, 2006, w.e.f. 7-9-2006.
13 Words “and the rules” omitted by the SEBI (Stock Brokers Sub-brokers) (Second Amendment)
Regulations, 2006, w.e.f. 7-9-2006.
3. (1) An application by a stock-broker for grant of a certificate shall be made in Form A
through the stock exchange or stock exchanges, as the case may be, of which he is
admitted as a member.
(2) The stock exchange shall forward the application form to the Board as early as
possible but not later than thirty days from the date of its receipt.
(3) Notwithstanding anything contained in sub-regulation (1), any application made
by a stock- broker prior to coming into force of these regulations containing such
particulars or as near thereto as mentioned in the Form A shall be treated as an
application made in pursuance of sub-regulation (1) and dealt with accordingly:
Provided that the requirement of the payment of fees shall be the same as is
referred to in sub-regulation (1) of regulation 10.
Furnishing information, clarification, etc.
4. (1) The Board may require the applicant to furnish such further information or
clarifications, regarding the dealings in securities and matters connected thereto to
consider the application for grant of a certificate.
(2) The applicant or, its principal officer shall, if so required, appear before the Board
for personal representation.
Consideration application.
5. The Board shall take 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, equipments 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 stock-broker involving either
himself or any of his partners, directors or employees;
14["(e) is a fit and proper person"]
14 Inserted by the SEBI (Stock Brokers Sub-brokers) (Amendment) Regulations, 1998, w.e.f. 5-1-1998.
15[Applicability of Securities and Exchange Board of India (Criteria for Fit and
Proper Person) Regulations, 2004.
5A. The provisions of the Securities and Exchange Board of India (Criteria for Fit
and Proper Person) Regulations, 2004 shall, as far as may be, apply to all applicants
or the stock brokers, sub-brokers, trading members and clearing members under these
regulations.]
Procedure for registration.
6. The Board on being satisfied that the stock-broker is eligible, shall grant a certificate in
Form D to the stock-broker and send an intimation to that effect to the stock exchange
or stock exchanges as the case may be.
16[“Conditions of registration
6A. (1) Any registration granted by the Board under regulation 6 shall be subject to the
following conditions, namely –
(a) the stock broker holds the membership of any stock exchange;
(b) he shall abide by the rules, regulations and bye-laws of the stock exchange
which are applicable to him;
(c) where the stock broker proposes to change his status or constitution, he
shall obtain prior approval of the Board for continuing to act as such after
the change;
(d) he shall pay fees charged by the Board in the manner provided in these
regulations; and
(e) he shall take adequate steps for redressal of grievances of the investors
within one month of the date of receipt of the complaint and keep the
Board informed about the number, nature and other particulars of the
complaints received from such investors.
(2) Nothing contained in clause (c) of sub-regulation (1) shall affect the obligation
to obtain a fresh registration under section 12 of the Act in a case where it is
applicable.”]
Stock-Brokers to abide by Code of Conduct.
7. The stock-broker holding a certificate shall at all times abide by the Code of Conduct
as specified at Schedule II.
15 Inserted by the SEBI (Criteria for Fit and Proper Person ) Regulations, 2004 w.e.f. 10-03-2004
16 Inserted by the SEBI (Stock Brokers Sub-brokers) (Second Amendment) Regulations, 2006, w.e.f. 7-9-
2006.
Procedure where registration is not granted.
8. (1) Where an application for grant of a certificate under regulation 3, does not fulfill
the requirements mentioned in regulation 5, the Board may reject the application
after giving a reasonable opportunity of being heard.
(2) The refusal to grant the registration certificate shall be communicated by the Board
within thirty days of such refusal to the concerned stock exchange and to the
applicant stating therein the grounds on which the application has been rejected.
(3) An applicant may, being aggrieved by the decision of the Board under subregulation
(2) apply within a period of thirty days from the date of receipt of such
intimation, to the Board for reconsideration of its decision.
(4) The Board shall reconsider an application made under sub-regulation (3) and
communicate its decision as soon as possible in writing to the applicant and to the
concerned stock-exchange.
Effect of refusal of certificate of registration.
9. A stock-broker, whose application for grant of a certificate has been refused by the
Board, shall not, on and from the date of the receipt of the communication under the
sub-regulation (2) of regulation 8, buy, sell, or deal in securities as a stock-broker.
Payment of fees and the consequences of failure to pay fees.
10. (1) Every applicant eligible for grant of a certificate shall pay such fees and in such
manner as specified in 17[Schedule III or Schedule IIIA, as the case may be]
Provided that the Board 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.
(2) Where a stock-broker fails to pay the fees as provided in regulation 10, the Board
may suspend the registration certificate, whereupon the stock- broker shall cease
to buy, sell or deal in securities as a stock-broker
17 Inserted by the SEBI (Stock Brokers Sub-brokers) (Third Amendment) Regulations, 2006, w.e.f. 1-10-
2006.


CHAPTER III
REGISTRATION OF SUB - BROKERS
[18“Registration as sub-broker
11. (1) No sub-broker shall act as such unless he holds a certificate granted by the Board
under these regulations.
(2) 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 broker, being a
member of the same stock exchange.”]
Application for registration of sub-broker.
19[11A.] (1) An application by a sub- broker for the grant of a certificate shall be made in
Form B.
(2) The application for registration under sub-regulation (1) above, shall be
accompanied by a recommendation letter in ‘Form C’ from a stock-broker of a
recognised stock exchange with whom he is to be affiliated along with two
references including one from his banker.
(3) The application form shall be submitted to the stock exchange of which the
stock- broker with whom he is to be affiliated is a member.
(4) The stock exchange on receipt of an application under sub-regulation (3) shall
verify the information contained therein and shall also certify that the applicant
is eligible for registration as per criteria specified in sub-regulation (5).
(5) The eligibility criteria for registration as a sub-broker shall be as follows,
namely:
(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;
18 Regulation 11 renumbered as 11A and this new regulation 11 inserted by the SEBI (Stock Brokers Subbrokers)
(Second Amendment) Regulations, 2006, w.e.f. 7-9-2006.
19 Renumbered as 11A by the SEBI (Stock Brokers Sub-brokers) (Second Amendment) Regulations, 2006,
w.e.f. 7-9-2006.
Provided that the Board may relax the educational qualifications on
merits having regard to the applicant's experience.
20["(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 requirements contained in clauses (a)
to (c) of sub-regulation (i).
21[(iii) The applicant has the necessary infrastructure like adequate office space,
equipment and manpower to effectively discharge his activities.
(iv) The applicant shall be a person recognized by the Stock Exchange as a subbroker
affiliated to a member broker of the stock exchange.]
22[(6) The stock exchange shall forward the application in Form B of such
applicant along with the recommendation letter in Form C issued by the stock
broker with whom he is affiliated and also recognition letter in Form CA
issued by the stock exchange to the Board within 30 days from the date of the
receipt of the application.]
Procedure for registration.
12. (1) The Board on being satisfied that the sub-broker is eligible, shall grant a
certificate in Form E to the sub-broker and send an intimation to that effect to the
stock exchange or stock exchanges as the case may be.
(2) The Board may grant a certificate of registration to the appellant subject to the
terms and conditions 23[laid down in sub-regulation (1) of regulation 12A].
24[“Conditions of registration
12A. (1) Any registration granted by the Board under regulation 12 shall be subject to the
following conditions, namely –
(a) he shall abide by the rules, regulations and bye-laws of the stock exchange
which are applicable to him;
20 Inserted by the SEBI (Stock Brokers Sub-brokers) (Amendment) Regulations, 1998, w.e.f. 5-1-1998.
21 Inserted by the SEBI (Stock Brokers Sub-brokers) (Amendment) Regulations, 2003, w.e.f. 23-9-2003.
22 Substituted by the SEBI (Stock Brokers Sub-brokers) (Amendment) Regulations, 2003, w.e.f. 23-9-2003.
Prior to substitution, it was read as under, ‘The stock exchange shall forward the application who comply
with all the requirements specified in sub-regulations (1) to (5) to the Board as early as possible, but not
latter that thirty days from the date of its receipt.”
23 Substituted for “as stated in rule 5” by the SEBI (Stock Brokers Sub-brokers) (Second Amendment)
Regulations, 2006, w.e.f. 7-9-2006.
24 Inserted by the SEBI (Stock Brokers Sub-brokers) (Second Amendment) Regulations, 2006, w.e.f. 7-9-
2006.
(b) where the sub-broker proposes to change his status or constitution, he
shall obtain prior approval of the Board for continuing to act as such after
the change;
(c) he shall pay fees charged by the Board in the manner provided in these
regulations;
(d) he shall take adequate steps for redressal of grievances of the investors
within one month of the date of receipt of the complaint and keep the
Board informed about the number, nature and other particulars of the
complaints received from such investors; and
(e) he is authorized in writing by a stock-broker being a member of a stock
exchange for affiliating himself in buying, selling or dealing in securities.
(2) Nothing contained in clause (b) of sub-regulation (1) shall affect the obligation
to obtain a fresh registration under section 12 of the Act in cases where it is
applicable.”]
Procedure where registration is not granted.
13. (1) Where an application for grant of a certificate under regulation 25[11A], does not
fulfill the requirements mentioned in regulation 26[11], the Board may reject the
application after giving a reasonable opportunity of being heard.
(2) The refusal to grant the certificate shall be communicated by the Board within
thirty days of such refusal to the concerned stock exchange and to the applicant
stating therein the grounds on which the application has been rejected.
(3) An applicant being aggrieved by the decision of the Board under sub-regulation
(2) within a period of thirty days from the date of receipt of such intimation, apply
to the Board for reconsideration of its decision.
(4) The Board shall reconsider an application made under sub-regulation (3) and
communicate its decision as soon as possible in writing to the applicant and to the
concerned stock exchange.
Effect of refusal.
14. A person whose application for grant of a certificate has been refused by the Board
shall, on and from the date of the communication of refusal under regulation 13 cease
to carry on any activities as a sub-broker.
General Obligations and Inspection.
15. (1) The sub-broker shall –
25 Substituted for “11” by the SEBI (Stock Brokers Sub-brokers) (Second Amendment) Regulations, 2006,
w.e.f. 7-9-2006.
26 Substituted for “11” by the SEBI (Stock Brokers Sub-brokers) (Second Amendment) Regulations, 2006,
w.e.f. 7-9-2006.
(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.
27[(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]
(2) The sub-broker shall keep and maintain the books and documents specified in
regulation 17 except for the books and documents referred to in clauses (h), (i),
(j), 28[***], (l) and (m) of sub regulation (1) of regulation 17.
29[Director not to act as sub-broker
15A No director of a stock broker shall act as sub-broker to the same stock broker.]
Application of Chapter IV, V & VI
16. The provisions of Chapters IV, V and VI of these regulations shall apply to a subbroker
as they apply in case of a stock broker.
30[CHAPTER III A
REGISTRATION OF TRADING AND CLEARING MEMBERS
Application for registration of trading member or Clearing member.
16A (1) An application for grant of certificate of registration by a trading member of a
derivatives exchange or derivatives segment of a stock exchange shall be made in
Form AA of Schedule I, through the concerned derivatives exchange or derivative
segment of a stock exchange of which he is a member.
(2) An application for grant of certificate of registration by a clearing member 31[or
self clearing member] of the clearing corporation or clearing house of a
derivatives exchange or derivatives segment of a stock exchange, shall be made in
Form AA of Schedule I, through the concerned clearing corporation or clearing
house of which he is a member.
27 Inserted by the SEBI (Stock Brokers Sub-brokers) (Amendment) Regulations, 2003, w.e.f. 23-9-2003.
28 The words, ‘(k)’ omitted by the SEBI (Stock Brokers Sub-brokers) (Amendment) Regulations,
2003,w.e.f. 23-9-2003
29 Inserted by the SEBI (Stock Brokers Sub-brokers) (Amendment) Regulations, 2003, w.e.f. 23-9-2003.
30 Chapter III –A, consisting of regulations 16A to 16-I , inserted by the SEBI (Stock Brokers and Subbrokers)
(Amendment) Regulations, 2000, w.e.f. 14-3-2000.
31 Inserted by the SEBI (Stock Brokers and Sub-brokers) (Amendment) Regulations, 2001, w.e.f. 15-11-
2001.
Provided that a trading member who also seeks to act as a clearing member 32[or
self clearing member] shall make separate applications for each activity in Form
AA of Schedule I.
(3) The derivatives exchange or segment or clearing house or corporation as the case
may be shall forward the application to the Board as early as possible but not later
than thirty days from the date of its receipt.
Furnishing of Information, Clarification, etc.
16B (1) The Board may require the applicant or the concerned stock exchange or segment
or clearing house or corporation to furnish such other information or
clarifications, regarding the trading and settlement in derivatives and matters
connected thereto, to consider the application for grant of a certificate.
(2) The applicant or its principal officer shall, if so required, appear before the Board
for personal representation.
Consideration of Application.
16C (1) The Board shall take into account for considering the grant of a certificate all
matters relating to dealing and settlement in derivatives and in particular the
following, namely, whether the applicant –
(a) is eligible to be admitted as a trading member of a derivative exchange and / or
a clearing member of a derivatives exchange or derivatives segment of a stock
exchange or clearing corporation or house;
(b) has the necessary infrastructure like adequate office place, equipments and
manpower to effectively undertake his activities;
(c) is subjected to disciplinary proceedings under the rules, regulations and byelaws
of any stock exchange with respect to his business as a stock broker or
member of derivatives exchange or segment or member of clearing house or
corporation involving either himself or any of his partners, directors or
employees.
33[(d) has any financial liability which is due and payable to the Board under
these regulations]
32 Inserted by the SEBI (Stock Brokers and Sub-brokers) (Amendment) Regulations, 2001, w.e.f. 15-11-
2001.
33 Inserted by the SEBI (Stock Brokers and Sub-brokers) (Amendment) Regulations, 2002, w.e.f. 20-2-
2002.
(2) An applicant who desires to act as a trading member, in addition to complying
with the requirements of sub-regulation (1), shall have a net-worth as may be
specified by the derivative exchange or segment from time to time and the
approved user and sales personnel of the trading member have passed a
certification programme approved by the Board;
(3) An applicant who desires to act as a clearing member, in addition to complying
with the requirements of sub-regulation (1), shall have a minimum net worth of
Rs. 300 lacs and shall deposit at least a sum of Rs. 50 lacs or higher amount with
the clearing corporation or clearing house of the derivatives exchange or
derivatives segment in the form specified from time to time.
34[(4) An applicant who desires to act as a clearing member, in addition to complying
with the requirements of sub-regulation (1), shall have a minimum net worth of
Rs. 100 lacs and shall deposit at least a sum of Rs. 50 lacs or higher amount with
the clearing corporation or clearing house of the derivatives exchange or
derivatives segment in the form specified from time to time.]
Explanation: For the purpose of 35[sub-regulations (2), (3) and (4)] the expression
`net worth’ shall mean paid up capital and free reserves and other securities
approved by the Board from time to time (but does not include fixed assets, pledged
securities, value of member’s card, non-allowable securities (unlisted securities),
bad deliveries, doubtful debts and advances (debts or advances overdue for more
than three months or debts or advances given to the associate persons of the
member), prepaid expenses, losses, intangible assets and 30% value of marketable
securities).
Procedure for registration.
16D. The Board on being satisfied that the applicant is eligible, shall grant a certificate in
Form DA of Schedule I, to the applicant and send an intimation to that effect to the
derivatives segment of the stock exchange or derivatives exchange or clearing
corporation or clearing house, as the case may be.
Procedure where registration is not granted.
16E (1) Where an application for the grant of a certificate under regulation 16A does not
fulfill the requirements specified in 16C of the Regulations, the Board may reject the
application of the applicant after giving a reasonable opportunity of being heard.
34 Inserted by the SEBI (Stock Brokers and Sub-brokers) (Amendment) Regulations, 2001, w.e.f. 15-11-
2001.
35 Substituted for the words, “sub-regulations (2) and (3)’ by the SEBI (Stock Brokers and Sub-brokers)
(Amendment) Regulations, 2001, w.e.f. 15-11-2001.
(2) The refusal to grant the certificate of registration shall be communicated by the
Board within 30 days of such refusal to the concerned segment of the stock exchange,
or clearing house or corporation and to the applicant stating therein the grounds on
which the application has been rejected.
(3) An applicant may, if aggrieved by the decision of the Board under sub-regulation
(2) apply within a period of thirty days from the date of receipt of such
information to the Board for reconsideration of its decision.
(4) The Board shall reconsider an application made under sub-regulation (3) and
communicate its decision as soon as possible in writing to the applicant and to the
concerned segment of the stock exchange or clearing house or corporation.
Effect of refusal of certificate of registration.
16F. An applicant, whose application for the grant of a certificate of registration has been
refused by the Board, shall not, on and from the date of receipt of the communication
under sub-regulation (2) or sub-regulation (4) of regulation 16E, deal in or settle the
derivatives contracts as a member of the derivatives exchange or derivatives segment
or clearing corporation or clearing house.
Payment of fees and consequences of failure to pay fees.
16G (1) Every applicant eligible for grant of a certificate as a trading or clearing member
36[or self -clearing member] shall pay such fee and in such manner as specified in
Schedule IV.
(2) Where a trading or clearing member 37[or self clearing member] fails to pay the
fees as provided in sub-regulation (1), the Board may suspend or cancel the
registration certificate after giving an opportunity of being heard, whereupon the
trading and clearing member 38[or self clearing member] shall cease to deal in or
settle the derivatives contract as a member of the derivatives segment of the
exchange or derivatives exchange or clearing corporation or clearing house’.
36 Inserted by the SEBI (Stock Brokers and Sub-brokers) (Amendment) Regulations, 2001, w.e.f. 15-11-
2001.
37 Inserted by the SEBI (Stock Brokers and Sub-brokers) (Amendment) Regulations, 2001, w.e.f. 15-11-
2001.
38 Inserted by the SEBI (Stock Brokers and Sub-brokers) (Amendment) Regulations, 2001, w.e.f. 15-11-
2001.
Trading member / Clearing member [or self clearing member] to abide by the Code
of Conduct, etc.
16H (1) The code of conduct specified for the stock brokers as stipulated in Schedule II,
shall be applicable mutatis mutandis to the trading member, clearing member and
such members shall at all times abide by the same.
(2) The trading member and clearing member shall abide by the code of conduct as
specified in the rules, bye-laws and regulations of the derivatives exchange or
derivatives segment of the exchange.
(3) The trading members shall obtain details of the prospective clients in `Know Your
Client’ format as specified by the Board before executing an order on behalf of
such client.
(4) The trading member shall mandatorily furnish `Risk Disclosure Document’
disclosing the risk inherent in trading in derivatives to the prospective clients in
the form specified by the derivatives exchange or derivatives segment.
(5) The trading or clearing member shall deposit margin or any other deposit and
shall maintain position or exposure limit as specified by the Board or the
concerned exchange or segment or clearing corporation or clearing house from
time to time.
39[(6) The provisions of sub regulations (1) to (5) shall be applicable mutatis
mutandis to a self clearing member]
Chapter IV, V and VI applicable.
16-I (1) The provision of Chapter IV, V and VI shall be applicable mutatis mutandis to a
trading member and a clearing member 40[or self clearing member] and such
members shall abide by the provisions of the said Chapters.
(2) In the chapters referred to in sub-regulation (1), the word `stock broker’ shall
refer to trading member or clearing member 41[or self clearing member] and the
word ‘stock exchange’ shall refer to `derivatives exchange or derivatives
segment of an exchange or clearing corporation or clearing house.’
39 Inserted by the SEBI (Stock Brokers and Sub-brokers) (Amendment) Regulations, 2001, w.e.f. 15-11-
2001.
40 Inserted by the SEBI (Stock Brokers and Sub-brokers) (Amendment) Regulations, 2001, w.e.f. 15-11-
2001.
41 Inserted by the SEBI (Stock Brokers and Sub-brokers) (Amendment) Regulations, 2001, w.e.f. 15-11-
2001.
(3) The Board may issue such directions under section 11B of the Act to the trading
member or clearing member [or self clearing member] as may be deemed
appropriate and such member shall abide by such directions.
(4) In case of violation of any regulation, the trading or the clearing member [or self
clearing member] shall be liable to penalty as specified in regulation 26.]