Securities and Exchange Board of India (SEBI)

To :

Presidents/Executive Directors
of all recognised Stock Exchanges in India

Ref . SE/
February 4, 1991

Dear Sir,

Disclosure of clients and transaction details

Recently some stock brokers have been declared as defaulters by certain Stock Exchanges. The important among the reasons for this event as reported in the press were the default on the part of clients and/or over trading by clients and or brokers. In this connection, we invite your attention to the directive issued by the Ministry of Finance vide their letter No. F.No.14/3/SE/85 dated November 14, 1985 (copy enclosed) regarding Review of the existing system of Bye-laws and Regulations of Stock Exchanges relating to trading in securities and particularly to paragraph numbers 1, 2, 3, 8 and 9 of the directive which are as follows :

1. No dealing with defaulting clients :

A Stockbroker should not deal with any outside party which has failed to honour its business commitments with any other stock broker of any Stock Exchange. For this purpose, the names of defaulting clients should be reported by the member to the Stock Exchange authorities immediately. The decision on “blacklisting” of defaulting clients will be made by the Governing Bodies of Stock Exchanges.

2. Disclosure of information by the stock brokers :

Every stock broker must report to the Stock Exchange, on daily basis, scripwise list of names of parties, who have purchased or sold shares of the market value of more than Rs. 1 lakh in cash or settlement basis.

3. Outside finance :

The stockbrokers should not be allowed to arrange for finance from outside by offering shares under purchase with blank transfers as security for speculative trading on their own account.

4. Disclosure of information on transactions by the stockbrokers :

With suitable amendments in the Bye-laws and Regulations of the Stock Exchanges, it should be made obligatory on the part of the stock brokers to make full disclosure of the information regarding the transactions effected by them as and when and to the extent required by the Stock Exchange authorities.

5. Powers of the Stock Exchanges and other facilities available to them :

(i) Stock Exchanges should also be vested with adequate authority to ask for reports on the activities of any authorised clerk or ‘Taravaniwalla’ or Jobber and to take disciplinary action against them, if required.

(ii) Stock Exchanges should be empowered by suitable amendments to the Bye-laws and Regulations to direct the members to maintain such books of accounts as may be required by them. Additionally, the Stock Exchanges should also be empowered to introduce compulsory audit.

(iii) Stock Exchanges should have well organised secretariat and research and statistical divisions to collect and interpret necessary data, to judge trends in trading, to monitor activities of the brokers, etc.

We request you to ensure the implementation of the instructions issued by the directive.

Yours faithfully,
(U C Dikshit)

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