SECURITIES AND EXCHANGE BOARD OF INDIA
SECONDARY MARKET DEPARTMENT
Mittal Court, A Wing, Gr. Floor,
224, Nariman Point, Mumbai 400 021
SMD/Policy/CIR- /98
January 16, 1998
To,
The President/Executive Directors/Managing Directors-
of all the Stock Exchanges
Dear Sir,
Sub: Members of Stock Exchanges acting as sub-brokers.
Stock Exchanges have brought to our notice that members of the stock exchange execute transactions of his clients through the members of other exchanges. They have expressed their difficulty arising out of these transactions since these transactions are purely of “off the floor” in nature and are not presently regulated and there is no check on the exposures of the members towards these transactions. It has also been mentioned that the Stock Exchanges had to declare some of the members who are acting as sub brokers as defaulters since they defaulted to the investors for the transactions done through the members of other Exchanges although the respective members did not default to the parent Exchange. The exchanges have sought SEBI’s intervention in this matter.
This matter was discussed by SEBI separately with the heads of some major Stock Exchanges. In this connection, it has been decided that the members of stock Exchanges executing transactions of his clients through the members of other Exchanges are to be treated as a “sub – broker”. In terms of Rule 3 of SEBI (Stock Brokers and Sub-Brokers) Rules, 1992 read with Section 12 of SEBI Act, no stock broker or sub-broker shall buy, sell, deal in securities unless he holds a certificate granted by the Board under the regulations. Thus, it is necessary for any person who acts as sub-broker to hold Certificate of Registration as a sub-broker granted by SEBI and accordingly the members of Stock Exchanges who also act as sub-brokers should hold a separate registration with SEBI as a sub-broker. However, presently some of the members of exchanges who are acting as sub-brokers through the members of other exchanges have not obtained separate registration from SEBI to act as sub-brokers.
In view of the above It is advised that the members of the stock exchanges who are acting as sub-brokers through the members of other exchanges should obtain Certificate of Registration from SEBI to act as a sub-broker under SEBI (Stock Brokers and Sub-Brokers) Rules & Regulations, 1992.
Further, in terms of clause B (2)(a) of the Code of Conduct of sub-brokers issued under Regulation 15 of SEBI (Stock Brokers and Sub-brokers)Rules and Regulations, 1992, sub-brokers are required to issue promptly to his clients purchase or sale notes for all the transactions entered into by him on behalf of his clients. Accordingly, the members who act on behalf of his principal broker as sub-brokers should issue purchase or sale notes for all the transactions entered into by him through his principal broker as an agent of the principal broker.
All the exchanges are advised to bring the above information to the notice of their members and ensure that the members do not transact business as sub-brokers through members of other exchanges without due registration as a sub-broker from SEBI.
Yours faithfully,
O.P.GAHROTRA
SR.EXECUTIVE DIRECTOR
