Deputy General Manager
Market Intermediaries Regulation
& Supervision Department-(D R-1)
MIRSD-DR 1/SRP/Cir- 43/28408 /04
December 15, 2004
The Executive Director/Managing Director
All Stock Exchanges
Dear Sir / Madam,
Subject: Change in Status and Constitution of the Sub-brokers, Surrender of Certificate of Registration of Sub-brokers and Change of Affiliation of Sub-brokers
This Circular intends to clarify the procedure to be adopted in case of any of the following events happening:
A. Change in status and constitution
1. Rule 5 of the SEBI (Stock-brokers and Sub-brokers) Rules, 1992 prescribes the conditions for grant of certificate of registration to a sub-broker. Rule 5 (c) of the said Rules prescribes that in case of any change in the status and constitution, the sub-broker shall obtain prior approval of the SEBI to continue to buy, sell or deal in securities in any stock exchange. The rule is applicable inter alia, in the following cases:
a) Conversion of the sub broker from one form to another (Proprietorship, Partnership Corporate and Reconstitution of Partnership.)
b) Merger / Amalgamation of sub broker entities
These two cases also require a fresh registration under the Regulations for the surviving / incoming sub broker.
2. The procedure to be followed in these two kinds of cases is as given below:
i) Fees, as may be due, as per Schedule III (II) of the SEBI (Stock Broker and Sub Broker) Regulations, 1992 as on the date of application for prior approval, shall be paid along with the application.
ii) The prior approval shall be valid for six months i.e., within 6 months of the date of prior approval, the outgoing sub-broker(s) shall apply for surrender of registration and the surviving / incoming sub-broker(s) shall apply for fresh registration to SEBI.
iii)Both these applications (for surrender and fresh registration) shall be submitted together to SEBI through the Exchange, along with the letter of de-recognition of the outgoing sub-broker(s) and the letter of recognition of the surviving / incoming sub-broker(s) issued by the Exchange.
iv)The outgoing and the surviving / incoming sub-broker(s) shall submit, along with the said applications, an undertaking that they would be jointly / severally liable for all liabilities / obligations (including monetary penalties) for violations, if any, of the provisions of the SEBI Act, 1992 and the SEBI (Stock Brokers and Sub-brokers) Rules and Regulations, 1992 that have taken place before the change in status and constitution.
v) Until the surviving / incoming sub broker is granted registration by SEBI, the outgoing sub-broker can continue to trade.
The procedure prescribed in section B below shall not apply for surrenders contemplated in this section.
B. Surrender of registration by sub-broker
3. An application for surrender of registration has to be made to SEBI by the sub-broker, along with the following:
(i) the letter of de-recognition issued by the Exchange;
(ii) a certificate from the affiliating broker that the sub broker has been disabled from trading;
(iii) copies of two advertisements issued by the affiliating broker informing the investors/ general public about the cancellation of his/their sub broker(s) and advising them not to deal with such sub broker(s). One advertisement shall be issued in a local newspaper where the sub broker’s Registered Office/ Head Office/ Corporate Office is situated and another in English daily/vernacular newspaper with wide circulation;
(iv) the original certificate of registration for cancellation. In case the surrender is made by the affiliating broker, the application for surrender shall be made by the broker along with evidence of service of notice of termination of agreement; and,
(v) an undertaking that it / he would be liable for all liabilities/obligations (including monetary penalties, if any) for violations if any, of the provisions of the SEBI Act and the SEBI (Stock-brokers and Sub-brokers) Rules and Regulations, 1992 that have taken place before the surrender.
4. Fees, as may be due, as per Schedule III (II) of the SEBI (Stock Broker and Sub Broker) Regulations, 1992 as on the date of de-recognition of the sub broker by the Exchange, shall be paid along with the application for surrender.
On receipt of the application for surrender and being found suitable in all respects, the procedure as prescribed in the SEBI(Stock Broker and Sub broker) Regulations, 1992 read with Regulation 15(i) the SEBI (Procedure for Holding Inquiry) Regulations, 2002, shall be followed.
The sub broker may, if he so desires, make a representation for dispensing with the procedure, along with the application for surrender in terms of fresh proviso to regulations 16(i) of the SEBI ((Procedure for Holding Inquiry and Imposing Penalty) Regulations, 2002.
If the surrender application is accepted by SEBI, registration would be cancelled by SEBI with effect from the date of de-recognition by the Exchange. Until SEBI cancels the registration and issues no due certificate, the deposit, if any, of the sub- broker shall not be released to the sub-broker by the Exchange.
C. Forwarding of application
5. On receipt of the application(s) for prior approval and / or for surrender and / or registration, as the case may be, of the sub-broker(s), the Exchange shall forward the same to SEBI within a month of receipt of the application by the Exchange only after it has approved the same and recognized and / derecognized the sub-broker(s) concerned, along with a confirmation (if not possible to confirm, details may be given) on the following:
a) no complaint/ arbitration /disciplinary proceeding /investigation /inquiry is pending against the sub-broker with the exchange,
b) as on date of application, the sub-broker, has paid fees as per Schedule III (II) of the Regulations, along with interest, if any, till the date on which the exchange has de-recognised the sub broker.
D. Change of constitution of the affiliating broker
6. The change in status and constitution of the affiliating broker would not constitute change in status and constitution of the sub-broker. However, if the change in status and constitution of the affiliating broker results in a fresh registration for the broker, the outgoing broker shall ensure that the all the sub-brokers affiliated to him either surrender their registrations or get their registrations affiliated against the new registration number of the incoming broker in accordance with the following:
a) If the registrations of the sub-brokers are to be surrendered, the surrender requests of the sub-brokers must be submitted to SEBI before or at the time of application for change in status and constitution of the broker and the procedure in section B of this circular shall be followed.
b) If brokers are to be affiliated with the incoming broker, the incoming broker must submit applications for change of affiliation from the outgoing broker to the incoming broker, along with its application for fresh registration. The sub-brokers shall enter into a fresh stock broker – sub-broker agreement with the incoming broker in terms of regulation 15(1)(c) of the said Regulations and a copy of the same shall be enclosed with the application for change of affiliation. The application for change of affiliation shall also be accompanied with the original certificate of registration of the sub-broker for carrying out the necessary changes. Though the affiliation of the sub-broker will change, it shall be liable for all its activities before the change of affiliation.
E. Change in name of sub-broker or affiliating broker
7. Change in name of the sub broker or in name of affiliating broker would not amount to change in status and constitution of the sub-broker and hence no approval is required for the same. If a sub-broker changes name, it shall be the responsibility of the affiliating broker to submit the registration certificate of such sub-broker to SEBI through the concerned exchange for recording change of name on the registration certificate. If the name of the affiliating broker changes, the broker shall submit the registration certificates of all its sub brokers to SEBI through the concerned exchange for carrying out appropriate changes on the certificate. All requests for recording such changes in the certificate of registration must be sent to SEBI within 7 days of change of name.
8. This circular supercedes SEBI circular SMD/Policy/Cir-10/98 dated March 04, 1998 regarding transfer of affiliation of sub brokers on corporatisation of individual brokers and circular SMD/DBA II/ CIR-31/2001 dated May 31, 2001 regarding issue of paper advertisement on cancellation of sub broker registration.
(S. R. Prasad)