August 5, 1996
The Presidents/EDs/MDs of all
Sub: Inspection of Brokers and common irregularities observed
This has reference to SEBI’s Circular No.SMD(B)/104/22775/93 dated October 29, 1993 on the captioned subject. SEBI has conducted inspections of brokers of various Stock Exchanges during March 1996 and have observed certain common irregularities/deficiencies as under:
1. Related to Contract Notes:
a. Not having pre-printed serial numbers.
b.Not issuing contracts in Form B while acting as principal.
c.Not affixing stamps.
d. Not having SEBI registration numbers.
e. Signed by unauthorised persons or not signed.
f. Not maintaining copies of contract notes.
g.Maintaining counterfoil of contract notes without adequate details.
h.Despatching contract notes after 24 hours.
2. Not obtaining client’s consent while acting as principal.
3. Dealing with unregistered sub-brokers.
4. a.Not having separate bank account for clients’ funds.
5. Non-maintenance or improper maintenance of Books of Accounts which are required to be maintained as per Rule 15 of SC (R) Rules, 1957 and Regulation 17 of SEBI (Brokers and Sub-Brokers) Regulations 1992:
7. Not reporting off-the-floor transactions (e.g.):
8. Belated payments & deliveries and delayed rectification of Bad Deliveries.
9. Violation of trading restrictions imposed by the Stock Exchange.
The above deficiencies should be brought to the notice of all the members through a circular with an advice that serious view will be taken if such deficiencies are observed during the course of future inspections of the brokers by SEBI or by Stock Exchange. The Stock Exchanges are also advised to carry out inspections of atleast 10% of the members every year and ensure that these common irregularities are not repeated.
M. D. PATEL