REFERENCER ON INTERNAL AUDIT OF STOCK BROKERS 1

INTRODUCTION Stock Broker plays an important role in helping both the seller and the buyer of the securities to enter into a transaction. The buyer and seller may be either a broker or a client. The transaction so entered cannot be annulled except in the case of fraud, willful misrepresentation or upon prima-facie evidence of a material mistake in the transaction, in the judgment of the authorities. The stock broker, while executing a order, may on behalf of his client buy or sell securities from his own account i.e. as a principal or an agent. For each transaction the stock broker has to issue necessary contract note indicating whether the transaction has been entered into by him as a principal or as an agent for another. While buying or selling securities as a principal, the stock broker has to obtain the consent of his client and the prices charged should be fair and justified by the conditions of the market. A stock broker, thus, being a vital link between the regulators, issuers and investors, any aberrations in the capital markets has presumably direct bearing on the stock brokers, his governance processes and practices which in turn affect the confidence of the markets and investors. It is, therefore, convincingly argued that the persons who operate in the market are required to maintain high standards of integrity, promptitude and fairness in the conduct of their business dealings. It is, therefore, necessary that stock brokers put in place processes to ensure good governance practice and also to have constant monitoring and surveillance on the acts of intermediaries. Who can undertake Internal Audit of Stock Brokers? SEBI authorized the Practising Company Secretaries, amongst other professionals to carry out complete internal audit of stock brokers/stock broker/trading members/clearing members on a half yearly basis. 1 Stock broker/trading members and clearing members in any of the segments are required to carry out internal audit in respect of their operations on any exchange and submit exchange wise and segment wise [Capital market (Cash), F & O, Currency Futures and Wholesale Debt Market (WDM)] report on half yearly basis. The first half year period would start from October 2008. Scope of Internal Audit The scope of this internal audit is wide enough and covers, inter alia, existence, scope and efficiency of the internal control system and compliance with the provisions of the SEBI Act, 1992, Securities Contracts (Regulation) Act 1956, SEBI (Stock Brokers and Sub-Brokers) Regulations, 1992, circulars issued by SEBI, agreements, KYC requirements, Bye Laws of the Exchanges, data security and insurance in respect of the operations of stock brokers/clearing members.

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Circular MRD/DMS/Cir-29/2008 dated October 21, 2008

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Objectives of internal audit The objective of internal audit of stock brokers is— (i) to ensure that the books of account, records (including telephone records and electronic records) and documents are being maintained in the manner required under SEBI Act, 1992, SCR Act, 1956 and SEBI (Stock brokers and Subbrokers) Regulations, 1992. to ascertain as to whether adequate internal control systems, procedures and safeguards have been established and are being followed by the intermediary to fulfill its obligations within the scope of the audit. to ascertain as to whether any circumstances exist which would render the intermediary unfit or ineligible to ascertain whether the provisions of the securities laws and the directions or circulars issued thereunder are being complied with to ascertain whether the provision of stock exchange bye-laws, notices, circulars, instructions or orders issued by stock exchanges are being complied with to inquire into the complaints received from investors, clients, other market participants or any other person on any matter having a bearing on the activities of the stock broker.

(ii)

(iii) (iv) (v) (vi)

How to prepare for Audit? It is advisable for an auditor to collect/study the following information, before taking up the audit of an entity: • • • • • • • • • • • Place where the books of accounts are maintained Details of membership of different exchanges and segments List of the terminals of the exchanges, their locations and authorized persons Details of the sub-brokers and remisers Details of branch office and in-charge/branch head Shareholding pattern and details of dominant promoters Names of the chairman, MD, whole time directors, CEO, COO, designated directors, and compliance officer Details of investor complaints received, resolved and pending during the inspection period. Latest Annual Reports. Previous audit reports and compliances / comments of previous inspections. Information from the website of stock broker for group details, products offered, geographical spread, other activities, stock broker's client funding and other details. Study the SEBI Act, SCRA Act, SCRR, SEBI (Stock broker and Sub-brokers) Regulations, circulars, stock exchange bye-laws, notices and directions relevant to stock broker audit from the website of SEBI and stock exchange. Formats for member client agreements, client registration forms, risk disclosure documents, contract note, STT annexure, register of securities, etc. Trading pattern of stock broker to understand the proportion of proprietary trading, retail clients trading, institutional clients trading and internal clients trading.
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Documents/Records to be checked (i) Financial statements: — Balance Sheet — Profit & Loss Account — Funds Flow Statement — Cash flow statement — General ledger, journal vouchers and trial balance — Bank books — Cash books — Bank statements — Branch reconciliations — Back office statements/reports — Transaction (Sauda) register and security register (ii) Regulatory documents: — SEBI Registration Certificate — List of sub- brokers — List of branches — Membership letters of the exchanges and the segments operated in (iii) Records — — — — — — List of clients KYC forms Member constituent agreements Risk disclosure documents Branch accounts Proprietary accounts

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Certain disclosures are also required to be made under these regulations. connected person. 1957. buying/selling/dealing in securities. An intermediary is covered under the definition of ‘deemed to be connected person’. (v) RULES AND REGULATIONS (i) (ii) (iii) SEBI (Insider Trading) Regulations. 1956 setting out the code of conduct for the corporate sector in relation to issue. It has also made certain code of conduct to be followed by members. 1992 establishing SEBI to protect investors and develop and regulate securities market. enables SEBI to investigate into cases of market manipulation and fraudulent and unfair trade practices. SEBI Act. and (iv) Prevention of Money Laundering Act. The definition of ‘insider’ covers the person who is ‘deemed to be connected’ and accordingly an intermediary is an insider who should not contravene the provisions of this regulation. deemed to be connected person. 1995. allotment and transfer of securities. and disclosures to be made in public issues. prohibits the insider trading and considers it an offence. SEBI can conduct investigation. 1992. maintain certain records and furnish certain information to the relevant authority. 1956. to regulate the affairs. providing for regulation of transactions in securities through control over stock exchanges. 1956. 2002 imposing obligation on intermediaries to verify identity of clients. Companies Act. 1996 providing for electronic maintenance and transfer of ownership of dematerialised securities. Securities Contracts (Regulation) Rules. This regulation defines various terms such as insider. suo moto or upon information received by it. 4 . price sensitive information etc. The regulations specifically prohibit market manipulation.2 REGULATORY FRAMEWORK GOVERNING STOCK BROKERS The following discussions will provide the overall regulatory framework. (iv) SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to securities market) Regulations. misleading statements to induce sale or purchase of securities. for carrying out the purposes of Securities Contracts (Regulation) Act. the stock brokers are subject to and an insight in to the various compliances required to be made by the stock brokers. SEBI (Stock Brokers & Sub-Brokers) Regulations. unfair trade practices relating to securities. LEGISLATIONS The main legislations governing the securities market are: (i) (ii) Securities Contracts (Regulation) Act. functioning of stock brokers. by an investigating officer in respect of conduct and affairs of any person dealing. (iii) Depositories Act. 1992.

(v) SEBI circulars and directives. in dealing with sub-brokers. A stock broker is thus subject to various securities laws and is under an obligation to adhere to various compliances. RULES AND REGULATIONS OF STOCK EXCHANGES (i) (ii) (iii) Regulations. the bye laws of stock exchanges basically deal with payment of fees. dealing with sub-brokers and other intermediaries. in issuing contract notes etc. in dealing with clients. (iv) Circulars. re-admission of defaulters. in respect of trading and/or clearing members. misconduct etc. the rules of stock exchanges basically cover aspects such as eligibility. arbitration. admission of trading/clearing members. code of advertisement. 5 . cover aspects such as requirements about maintenance of books and other documentary requirements. termination of membership. disciplinary proceedings. BYE LAWS. the stock exchanges issue directives to their trading/ clearing members through circulars from time to time. sharing brokerage. Bye-laws. various circulars are issued by SEBI from time to time for issuing directives to market participants. Rules.

Net worth certificate. 2008) (NSE/MEMB/7835. 19/05/2006) Annual Compliance Report Yearly (NSE/INSP/7494. 07/04/2004) Half yearly Within one month from the end of March & September Membership * Compiled and updated on the basis of the checklist prepared by Shri J Ravichandran. (NSE/CMTR/6128. 04/12/2006) Yearly Capital Market Trade Capital Market Trade Yearly By 31st July Half yearly Within 3 months from the end of half year Membership Auditor' compliance certificate & Net worth certificate by members providing margin trading facility (NSE/MEMB/4973. 10/11/2006) Net worth certificate (NSE/MEMB/8166. Director. Details of directors/ proprietor. (NSE/CMTR/01642. 16/05/2006) By 31st July Within 3 months from the end of the financial year April-March By 31st July Membership Inspection SSL certificate for IBT Services (NSE/CMTR/7636. Finance & Accounts. Details of stock exchanges in which member corporate is listed. 11/12/2006). Annual submissions are mandatory both in physical form as well as by way of upload in electronic format through ENIT using digital signature (NSE/COMP/10774 dated May 30. (NSE/CMTR/8195. Shareholding/sharing pattern. National Stock Exchange of India Ltd. Undertaking by relatives/ corporate shareholders supporting dominant shareholders/ partners.3 COMPLIANCE CHECKLIST FOR NSE TRADING MEMBERS* Submission of Requirements Annual submissions including Audited financial statements. 12/05/2000) System Audit Report (NSE/CMTR/7634. Dominant/original shareholders/partners. 07/04/2004). (NSE/MEMB/4972. 06/09/2006) Periodicity Yearly Time of Submission Department Within 6 months from the end of accounting year of the member Membership Yearly Proof of Insurance cover (NSE/MEMB/7504. 6 . 28/06/2006). 10/05/2005). Membership in other stock exchanges. 28/06/2006). (NSE/CMTR/8089. Legal & Secretarial.

30 pm. 19/12/2005). 16/09/2005). NSE/MEMB/4973. 19/12/2005). 07/04/2004). I upload 6. (NSE/ MEMB/5917.30 am On T day by 4. (NSE/CMPT/6656. 09/05/2005) Upload of RC file (Reallocation of custodial trades) (NSE/CMPT/6653. 07/04/2004). 13/07/2005). (NSE/ CMTR/5420.00 am On T day by 4. 11/05/2000). III upload 9.30 am NSCCLSecurities NSCCLSecurities NSCCLSecurities NSCCLSecurities NSCCLSecurities Daily Daily Daily Daily 7 . I upload 6.45 pm NSCCLSecurities Daily NSCCLSecurities Daily On T+1 day by 9. 13/09/2006) Single bulk deal immediately upon execution of the order. (NSE/CMTR/8454.30 am On T+2 day by 9. (NSE/CMPT/6653.Monthly disclosure of client funding (NSE/CMTR/6963. Trade Capital Market Trade Capital Market Trade Capital Market Trade Daily Daily Daily On T day. Upload of OTR file (Obligation Transfer Request – allocation of INST trades) (NSE/CMPT/1640. (NSE/CMTR/4808 16/02/2004) (NSE/CMTR/7864. 30/12/1998). (NSE/CMTR/6373. 21/09/2006). 16/09/2005) Upload of CLD file (Client Code Modification) (NSE/CMPT/02822. 09/09/2004).45 pm On T+2 day up to 10. 31/08/2001). (NSE/CMPT/6119. 11/03/2005). (NSE/CMTR/6962.00 pm. 10/03/2005). (NSE/CMPT/5817. 11/11/2004) Upload of CEP file (Early Pay IN – Client-wise allocation) (NSE/CMPT/6481. On T+1 day. 13/09/2006) Upload of daily margin trading file (Disclosure of exposure to margin trading facility) (NSE/MEMB/4972. (NSE/CMPT/5591. 16/09/2005) Upload of CP file (CP Code Modification) (NSE/CMPT/0750. 13/03/2003) Monthly Within seven days from the end of the month By Monday of the following week Before 6:00 pm on the trade day Within one hour of closure of trading hours Before 9:00 pm on the trade day Capital Market Trade Weekly Daily Capital Market. 31/01/2007) Internet trading statistics Reporting bulk/block deal details (in case of any mismatch in the indicative report of the Exchange). (NSE/CMPT/6653. II upload 9.30 am On T day. 09/02/2005). II upload 6. (NSE/ CMTR/5914. (NSE/CMTR/7864. (NSE/CMTR/4974. 01/07/2005). On T+1 day. 19/09/2005) Upload of CC file (Custodial Participant Contractions) (NSE/CMPT/6323. 09/02/2005). NSE/CMPT/5817. 05/08/2005) Upload of CPD file (Client Direct Payout) (NSE/CMPT/4006. (NSE/ CMTR/7898. 07/04/2004).30 pm.

05/09/2006) Reporting of WDM trades not executed on Neat system Reporting cancellation / modification / reschedule of WDM trades Reporting settlement of WDM trades Change in status and constitution of the member (NSE/MEMB/4299. 14/10/2005). NSE/MEMB/7992. (NSE/CMPT/7825. 16/04/2004) Reporting settlement of trade for trade transactions (Market type – Z series—BT) Upload of Client Margin Report for F & O segment (NSE/CMPT/4206.28/01/2003). 14/06/2002) Advertisements (Rule (5) (h) of Chapter IV of the Rules of the Exchange) Commencing Margin Trading Facility in CM Segment (NSE/MEMB/4973. 29/08/2002).Pay in of Securities (NSE/CMPT/4991. (NSE/CMTR/6386. (NSE/MEMB/7992. 10/10/2006) Application for using CTCL facility (NSE/CMT/1641. 25/07/2003) Appointment of Authorized Person in F & O segment (NSE/MEMB/6882.30 am Upon settlement of the trades Within two days from trade date Upon issue of contract notes By the scheduled settlement date Upon settlement of trades Prior Approval required Prior Approval required NSCCLSecurities NSCCLSecurities NSCCLSecurities NSCCL-Risk Daily Daily Daily One time / need based submissions One time / need based submissions One time / need based submissions One time / need based submissions One time / need based submissions One time / need based submissions One time / need based submissions WDM WDM WDM Membership Membership Intimation to Exchange Advertisement to be submitted & written permission to be obtained before publication Prior Approval required Prior Approval required Prior Approval required Membership Membership Membership Membership Capital Market Trade One time / need based submissions Before activations of any new CTCL terminal / Immediately upon deactivation / shifting of existing terminal Prior Approval required Membership Application Based for providing trading Internet facility One time / need based 8 Capital Market Trade . 17/06/2003). 16/04/2004) Pay in of Funds (NSE/CMPT/4991. (NSE/CMTR/6552.24/08/2005) (NSE/FAOP/7798.30 am On T+2 day by 10. (NSE/CMTR/3896. (NSE/MEMB/6769. 12/05/2000). 15/07/2005). (NSE/MEMB/6882. (NSE/MEMB/3655. 21/11/2005). 21/11/2005) Appointment and change of Compliance Officer (NSE/MEMB/3441. 04/10/2002). 07/04/2004) Application for Approval of User (NSE/MEMB/3576. 25/08/2006) Upload of CTCL terminal details (Activation /Deactivation/Shifting of CTCL terminals) (NSE/MEMB/7913. 10/10/2006) Daily Daily Daily Daily On T+2 day by 10. 25/09/2006).

before accepting or placing orders on their behalf. NSE/INSP/2004/31 (download ref. 25/08/2006).1. following has been maintained NSE/INSP/2004/28 (download ref. have been entered into with all the active constituents. registers and records as the Exchange required under the regulations and showing exchange-wise segregation of transactions are being maintained and preserved for the prescribed period in respect of the Head office and branches Regulation 6. 10/11/2006) Activation / Deactivation of Proprietary trading facility (NSE/CMTR/7650. (NSE/FAOP/7652. 1NSE/INSP/5387) dated 27th August 2004 M em b e r C on s t i t u e n t Agreements. No. (NSE/INVG/8152. 1 Rule/Bye Law / Regulation/ circular Particulars of the Exchange Books of Accounts. 22/01/2004) Upload of unique client code file (NSE/INVG/7117. (NSE/CMTR/8089. (a) date of receipt / delivery of security no. Records and Documents Regulation 6 of the Regulations of All Books of accounts.(NSE/CMTR/6552. 24/08/2005). 2 3 4 Exchange's circular no. (NSE/MEMB/7913.3. giving inter alia the Exchange's circular no. Whether mandatory and voluntary NSE/INSP/7657 dated July 5. (NSE/CMTR/7797. (NSE/FAOP/4758. 11/02/2008) (NSE/INSP/10367. 28/02/2008) Extension of NEAT trading terminals submissions One time / need based submissions One time / need based submissions One time / need based submissions Prior Approval required Prior Approval required Capital Market Trade / F & O Operations Capital Market Trade/ F &O operations Investigation Prior to commencement of trading for a client One time / need based submissions Prior Approval required Membership ANNUAL COMPLIANCE REPORT FOR CAPITAL MARKET SEGMENT COMPLIANCE CHECKLIST FOR NSE TRADING MEMBERS Sr. 30/11/2006) (NSE/INVG/8310. client wise and Regulations of the Exchange and security wise. 04/07/2006) Application for dealing with broker or sub-broker of same / another Exchange (NSE/CMTR/4757. no. 22/01/2004). 2006 documents/ clause are segregated in the client registration docket 9 . 29/12/2006) (NSE/INSP/10239. NSE/INSP/4986) dated 16th (b) quantity received / delivered April 2004 (c) party from whom received / to whom delivered (d) purpose of receipt / delivery Regulation. 25/09/2006). 31/01/2006). 04/07/2006). containing all provisions specified by the Exchange.3A (e) of the Register of Securities.1 of the Regulations of the Exchange and Exchange's circular no. 4.

5% Exchange's circular no.e. the Funds of the constituents have always been kept in a separate account and operation of such account has been as per provisions of Regulation 6. 2006. internet trading no.5 of Regulations of the Exchange 3 Regulation 6. 2006 Exchange's circulars no. dated 8th October 2003 and no.5 the No transfer / withdrawal from clients' account is made except under the circumstances enumerated in Regulation 6. clients completed in all respects with necessary NSE/MEMB/0245) 2nd May supporting documents have been obtained 1 9 9 7 a n d n o . in the contract note.2. circular respect of all active clients NSE/INVG/2006/7673 dated July 13.5 Exchange's circular no. NSE/INVG/2006/7944 dated September 28.1.1.2 of the Brokerage has always been charged at rate not Regulations of the Exchange and exceeding the rate prescribed i. to show and distinguish.3 of Regulations of the Exchange 2 3 Regu lation 3. the Brokerage has been charged separately and indicated separately.6. 10 .14 of Capital Market Whether trading member has obtained PAN in trading regulations. NSE/CMT/001 dated 28th October 1994. client funds and own funds in connection with our business as Trading Member of the Exchange have been maintained.6. All constituents have been issued a copy of the NSE/CMO/0060/2003 (download Risk Disclosure Document as specified by the reference no.5 of Regulations of the Exchange the Books of accounts.3 (e) of Regulations of the Exchange Regulation 3. 55 dated Client registration forms in respect of all active (download reference no.5 (c) of Regulations of the Exchange Dealings With Clients 1 Regulation 4.1. 1NSE/INSP/5387) dated 27th August 2004 Banking Operations Regulation 6. NSE/INSP/2004/31 (download reference no. NSE/CMT/1532) dated 16th March 2000 with clients for 6 Exchange's circulars no.1. circular no.1.5 the Funds/ securities of constituents have not been improperly used by us or any person associated with us. NSE/INSP/2004/31 (download reference no.5. 1NSE/INSP/5387) dated 27th August 2004 Regulation 3. 7 8 1 2 Regulation 6. 2006 and circular NSE/INVG/2006/8056 dated October 27. NSE/CMTR/4468) Exchange. Agreements entered NSE/CMO/0009/2000 (download ref. as are necessary.

Pay-in of funds and securities due from clients NSE/INSP/2003/21 (download are received from the respective clients only reference no.15 of Regulations of the Exchange the Full payment of funds / full delivery of securities has been made to all constituents within one working day of receiving the relevant pay out from the Exchange Statement of accounts for funds / securities (with error reporting clause) has been sent to all the clients.1 .1.4 Regulation 4. NSE/MEMB/2284) dated January 31.1.5 (f) of Regulations of the Exchange the Separate beneficiary account exclusively to be opened for holding the securities of the constituents the Securities of the constituents have always been kept in a separate constituent beneficiary demat account and operation of such account has been as per provisions of Regulation 6.5 (d) of the Regulations of the Exchange and Exchange's circular no.5(f) done through unregistered 11 12 13 Dealing with Intermediaries 1 Exchange’s circulars no. 1997 and no. NSE/INSP/2003/21 (download reference no.5 (f) of Regulations of the Exchange Regulation 6. Payout of funds and securities due to the clients NSE/INSP/2003/21 (download are made to the respective clients only reference no. with periodicity not exceeding three months 5 6 Regulation 6. NSEIL/LEGAL/6806 dated 24th October 2005 Exchange's circular no. 185 (download reference no. th e Mapping of the client codes used at the time of order entry in the trading system with unique code codes is maintained as prescribed by the Exchange UIN under MAPIN database has been used as unique client code in respect of all specified intermediaries and their related persons and corporate clients No cash dealings are undertaken 8 9 Exchange's circular no. (Download reference no. NSE/INVG/2004/010. NSE/INVG/2002/3690 dated 18th October 2002 7 R egu la t ion 6. NSE/INSP/4377) dated 1st September 2003) Regulation 6.1. NSE/INSP/4377) dated 1st September 2003) 10 Exchange's circular no.4. No dealings are NSE/MEMB/0275 dated 12th June intermediaries. 2001 11 .4 of Regulations of the Exchange Unique client codes have been allotted to all clients and the correct client codes have been entered in the system while placing orders on behalf of clients which have been correctly mapped to the back office accounts. Client details as required have been maintained and have been provided to the Exchange / Clearing Corporation as required. NSE/INSP/4377) dated 1st September 2003) Exchange's circular no. NSE/INVG/2004/ 5271) dated 20th July 2004 and NSE/MEM/5338 dated 17th August 2004 Exchange's circular no.1.

2 3 Regulation 6. Bye Laws and Regulations of the Exchange.NSE/MEM/6378)dated 14tgh July 2006 Rule 5(e) of Chapter IV of Rules of Brokerage has not been shared with and/or the Exchange business has not been transacted with any of the suspended or expelled or defaulting Trading Members Exchange’s circulars no. no. including suspended/expelled/defaulter trading members.NSE/CMT/005 dated 12th December 1994 and no. of the Exchange / NSCCL Rule 5 of Chapter IV of the Rules of No business has been done with or for the the Exchange trading members who are prohibited to transact. Exchange’s circular no.1. defaulting constituents and employees of other trading members Contract Notes Regulation 3.2 and 3.NSE/CMO/003/2001 (download reference no. NSE/CMT/001 dated 28th October 1994. 2001 Contract Notes are authenticated by digital signatures only after obtaining digital signature certificate from a Certifying Authority under the IT Act.NSE/CMT/2279) dated 30th January. Exchange’s circulars no.485 (download reference no. 2000 and more of confirmation by the client is specified in the agreement between the member and the client. Clause 33 (a) of Chapter IX of Brokerage has been shared only with registered Byelaws of the Exchange and sub brokers.5.1.NSE/INSP/6623) dated 9th September 2005 4 12 .3 of the Regulations of the Exchange and Exchange’s circulars no.NSEIL/LEGAL/7036 dated 5th January 2006 and NSE/INSP/7330 dated 30/03/2006 Contract notes have been issued to all constituents within 24 hours of execution of contract in the prescribed format.5. SCRR.NSE/MEM/4082) dated 10th April 2003 and no. 1956. 3 4 Clause 33 (a) of Chapter IX of Brokerage has not been shared with another Byelaws of the Exchange Trading Member of the Exchange or an employee of another Trading Member or a person with whom Trading Members are forbidden to do business under the Rules.NSE/MEM/275 dated 12/06/1997 and NSEIL/INSP/3685 dated17/10/2002 At least 10%of the active sub-brokers/10% of the active branches are inspected every year and each active sub-broker/branch is inspected at least once in every five years.1957.5. 3. SEBI Act. bearing signature of the authorized signature.17 of the Regulations Copies / duplicates of Contract Notes issued by of the Exchange the Trading Member are maintained.333 (download reference no. Rules. with all relevant details filled in. Regulations etc.2. bearing a running serial number which is initiated at the beginning of each financial year 5 6 1. Exchange’s circular no. Whether client has specifically consented to NSE/INSP/2005/41 (download receive the electronic contract note (ECN) reference no. to ensure that the sub-brokers/branches function and conduct themselves in accordance with SCRA. Byelaws.

Simultaneously publish the ECN on its website NSE/INSP/2005/41 (download and provide secured access to the respective reference no. Not involved in financing clients direct!}7 or NSE/INSP/2005/42 (download indirectly except in accordance with the reference no. NSE/INVG/2004/ 5216) dated 30th June 2004 Trades on own account have been executed under PRO code only All Institutional trades have been routed through STP system and the prescribed identification codes for transactions routed through STP system have been used 11 12 Risk Management System 1 NSE/CMPT/5868 dated February 24. subsequently transferred to a constituent and 2001 vice versa Exchange's circular no.5 Exchange’s circular Log report for Proof of delivery of ECN and no. NSE/INSP/6623) dated client 9th September 2005 Exchange’s circular no. NSE/INSP/6623) dated 9th September 2005 Exchange’s circular no. Whether margins is an important element of such a risk management system. Whether risk management system is well documented and was made accessible to the clients and the Stock Exchanges. NSE/CMT/1230) dated 8th October 1999 NSCCL circular NSCC/CM/C&S/207 dated August. 56 We have not engaged in any fund based activities. 2005 1 2 Membership Requirements Exchange's circular no. (download reference no. NSE/ MEMB/261) dated 27th May '97 Exchange's circular no. NSE/INVG/2003/4601 dated 28th November 2003 Exchange's circular no.NSE/INSP/2005/41 (download rejected or bounced mails to be maintained reference no. Trades executed for own account have not been NSCC/CM/C&S/207 dated 31 August. Physical copy of contract note to be sent where NSE/INSP/2005/41 (download ECN could not be delivered reference no. 2005 Whether a system of risk management to protect from client default is in place. No off market deals have been executed NSE/CMO/22/99 (download reference no. NSE/INVG/2004/009 (download reference no. 2 NSE/CMPT/5868 dated February 24. NSE/INSP/6938) provisions of Margin Trading facility dated 9th December 2005 13 . 2001 no. NSE/INSP/6623) dated 9th September 2005 Exchange’s circular no. Trades executed for a constituent have not been 31st subsequently transferred to another constituent 6 7 8 9 10 NSCCL circular no.

282 (download reference no. the same 2 14 . no.12 of Regulations of the Exchange 1 Exchange's circular no. NSE/ respective approved users / approved MEM/1591 dated 20th April 2000 persons only.1.t. NSE/MEM/3574) dated 29th August 2002. approval of the Exchange.1. 68 (download reference no.11 of the another trading member/sub broker either for Regulations of the Exchange proprietary trading or for trading on behalf of clients without the prior approval of the Exchange in writing Regulation 2. 163 Trading terminals are operated by the (download reference no.12 of Regulations of the Exchange Regulation 2. no. corporate / firm has been undertaken without NSE/MEM/4299) dated 25th July prior approval of the Exchange. Exchange's circulars no. 2003 Rule (5)(h) of Chapter IV of the No advertisements have been released for Rules of the Exchange business purposes without prior approval of the Exchange. no.12 of Regulations of the Exchange the We have not dealt with more than one broker / sub-broker of another Exchange for the Our dealing with a broker / sub-broker of another Exchange for proprietary trading has been done after intimating the name of such broker / sub-broker to the Exchange the Dealings on behalf of constituents with a broker of another Exchange has been done only after necessary registration as a sub-broker Office Management 5 6 7 8 9 Regulation 2. 292 (download reference no. Bye Law 7 of Chapter VII of the Bye We have not acted through or on behalf of laws and Regulation 2. NSE/MEM/5664) dated 15th December 2004 and all related circulars issued w. NSE/MEM/00310 dated 23rd J u l y 1 9 9 7 a n d t h e Membership Undertaking No change in share holding / profit sharing pattern of the corporate / firm has been undertaken without prior approval of the Exchange.3 Exchange's circular no.1. NSE/MEM/3635) dated 25th September 2002.r. NSE/ terminals have not been installed without the MEM/1591 dated 20th April 2000.1. 163 Neat terminals have not been extended / CTCL (download reference no. 355 No change in directors / partners of the (download reference no. 4 Exchange's circular no. 435 (download reference no.

NSE/MEM/5664) dated 15th December 2004 and all related circulars issued w. NSE/MEM/3574) dated 29th August 2002. 282 (download reference no. Exchange's circular no.15 of Regulations of the Exchange Regulation 2. NSE/MEM/1591) dated 20th April 2000 and no.1. no. no. 10 11 the Trading system of the Exchange has not been accessed through any other trading member or any other user id not allotted to us the We have not aided nor facilitated to access the trading system from a location other than our approved location. without the approval of the Exchange t h e No activity connected to or pertaining to our operations as Trading Member of the Exchange has been carried on in any office or premises without intimating to the Exchange the full address of such office or premises with details of the activity proposed to be carried on therein and the person in whose supervision and control it is to be so carried on.2. 435 (download reference no. NSE/ Own trading. 501(download reference no. 163 (download reference no. NSE/MEM/3635) dated 25th September 2002.16 of Regulations of the Exchange Whether all the NEAT/ CTCL approved users/ approved persons are NCFM certified as required by the Exchange No former trading member or a user of such trading member has been appointed as a user by us without the approval of the Exchange. NSE/MEM/7992 dated 10/10/2006 Regulation 2. NSE/MEM/6706) dated 28/09/2005. trades not earmarked executed through for executing PRO 5 6 7 Exchange's circular no Client NSE/CMTR/4460 dated 03/10/ 2003 terminal trades 8 9 Exchange's circular no. 15 12 13 R eg u l a t i o n 4. 309 (download reference no. NSE/MEM/3740 dated. 2 0 t h A p r i l 2000 Exchange's circular no NSE/CMTR/4460 dated 3rd October 2003 The required information in respect of all the CTCL terminals (including view only / admin / test / etc ) have been uploaded to the Exchange 4 Notice board as prescribed by the I Exchange has been displayed at a prominent place in the main office and branch offices and the registered subbrokers' offices. 292 (download reference no. the same Exchange circulars no.t.8 (d) of the Regulations of the Exchange Regulation 2. NSE/ M E M / 1 5 9 1 ) d a t ed . no. Copy of registration certificate issued by SEBI is displayed at the main office Own trading is carried out at permitted locations only.2. 163 (download reference no. Trades on own account have been executed under PRO code only.1 of Regulations of the Exchange .3 Exchange's circulars no.2. if any has been disclosed to the INVG/2003/4590 dated 25/11/2003 clients Exchange's circular no. 163 (download reference no.r. 13/11/2002. NSE/ MEM/1591 dated 20th April 2000.

395 Total indebtedness for the purpose of margin (download reference no. 395 Declaration from clients. 1 2 3 4 Exchange's circular no. NSE /MEM/4973) dated 07/04/ 2004 Exchange's circular no. own funds and / or borrowings from scheduled NSE/MEM/4972) dated 7th April commercial banks and NBFC's regulated by RBI 2004 Exchange's circular no. NSE /MEM/4972) dated 07/04/2004 Margin trading facility has been provided to the clients only after obtaining prior permission of the Exchange Agreements. containing all provision specified by the Exchange. 395 Margin trading facility has been provided using (download reference no. 395 Separate demat account for every client for (download reference no.14 15 Exchanges circular no Data feed made available by the Exchange is NSE/CMT/4525 dated 31/10/2003 used essentially for building tools for analysis. 396 (Download reference no. 395 Separate record of details (including the sources (download reference no. NSE/ trading facility availed from any broker in any MEM/4972) dated 07/04/2004 exchange / rejection of the client's request for margin trading with any broker / etc. giving details of margin (download reference no. NSE/CMTR/4974) dated 7th April 2004 Exchange's circular no. 395 (download reference no. NSE/INSP/6334) dated 06/07/2005 Margin Trading Exchange's circular no. have been entered into with all the constituent availing margin trading facility. trading does not exceed 5 times of our net NSE/MEM/4972) dated 7th April worth. risk management and decision support for our own trading activities and it has not been used for any commercial purposes. The feed has not been used to provide input for any software outside our premises and not been made available to anv other entitv even as view terminals. 395 Unique Identification Number under MAPIN (download reference no. has been obtained Exchange's circulars no. NSE/CMO/0103/2004 (download reference no. database has been obtained in respect of NSE/MEM/4972) dated 7th A p r i l clients availing margin trading facility 2004 and no. Exchange's circular no. Met with compliances with respect to dealings NSE/INSP/2005/39 (download by branches. calculated as prescribed by SEBI 2004 5 6 7 8 16 . reference no. ) of funds used for the purpose of margin trading NSE/MEM/4972) dated 7th April has been maintained 2004 Exchanges circular no. holding client wise securities purchased under NSE/MEM/4972) dated 7th April margin trading facility has been maintained and 2004 the clients are able to observe the movement of securities from his / her demat account through internet Exchange's circular no. intermediaries etc.

t h e Records of all relevant particulars of persons who are approved as users by the Exchange have been maintained. 395 Maximum allowable exposure for margin trading (download reference no. NSE/ INSP/4225) dated 26th June 2003 Exchange's NSE/CMPT/2241 January 2001 circular dated No t r a de in sec ur it ie s o ut s id e th e established trading system of the recognized stock exchanges by taking share prices disseminated on-line by the Exchange as reference prices has been done no Trades done for non institutional clients have 16th not been reported as NCIT trades the After the closing of any constituents account all records which relate to the terms and conditions with respect to the opening and maintenance of such account. 395 Funds belonging to any client has not been used (download reference no. n o . NSE/CMTR/5914) dated 10th March 2005 Others Exchange's circular no NSE/ Compliance officer has been appointed MEM/3441 dated 14th June 2002 Exchange's circular no NSE/INSP/2003/18 (download reference no. 17 13 1 2 3 4 Regulation 6.1. NSE/MEM/5917) dated 11th March 2005 Adequate initial margin and maintenance margin in cash or cash equivalents has been collected from the clients availing margin trading facility. time does not exceed 10% of the lendable NSE/MEM/4972) dated 7th April resource. to provide margin trading facility to another NSE/MEM/4972) dated 7th April client even if authorized by the client 2004 Exchange's circulars no. does not exceed the borrowed funds plus 50% of NSE/MEM/4972) dated 7th April our net worth.12 of Regulations of the Exchange 5 R eg u l a t i o n 6. NSE/CMTR/5420) dated 9th September 2004 and no. date of entering into agreement with the constituents. 2004 Exchange's circulars no. date of termination and representatives of such constituents who signed in each case are being maintained for a period of not less than six years. 395 Exposure to any single client at any point of (download reference no.9 Exchange's circular no. 395 (download reference no. 2004 Exchange's circular no.8 of Regulations of the Exchange . NSE/CMO/0183/2005 (download reference no. 4 5 9 (download reference no. 10 11 12 Exchange's circular no. NSE/CMO/0131/2004 (download reference no. date of modification thereof.1. NSE/MEM/4972) dated 7th A p r i l 2 0 0 4 a r i d n o . 395 Margin trading facility has been provided to the (download reference no. clients only in securities specified from time to NSE/MEM/4972) dated 7th time A p r i l 2 0 0 4 .

NSE/INVG/2006/ 7102) dated 25th January 2006 and no. have been maintained t h e Management of discretionary accounts for and on behalf of constituents has been done as per provisions of SEBI (Portfolio Managers) Rules and Regulations. Principal officer has been appointed NSE/INVG/2006/09 (download reference no. the particulars thereof.2.6 Regulation 4. etc.1.2 of Regulations of the Exchange 8 Regulation 6. Bye Laws and Regulations of the Exchange. has been undertaken. action taken by us and if the matter is referred to arbitration to the Exchange.15 of Regulations of the Exchange 9 R eg u l a t i o n 4.4. NSE/INVG/2006/33 dated 24th March 2006 13 18 . Underwriting commitments as per the no. date. NSE/INVG/2006/ under the. 2002 7102) dated 25th January 2006 and no. the Record of all written complaints of constituents showing the name and reference number of constituent. particulars of the complaint. provisions of Securities and Exchange Board 15th of India (underwriting) Rules and Regulations. to assist in detecting and preventing violations of and achieving compliance with Rules. Adopted written procedures to implement the NSE/INVG/2006/09 (download anti money laundering provisions as envisaged reference no. 1993 in this regard no.l(c) of Regulations of the Exchange the All persons who are transacting on our behalf have been specifically authorized in writing to do so and such power of attorney has been made available to the Exchange before such person transacts any business on the Exchange t h e Internal review of our business. NSE/CMO/002/2000 (download reference no NSE/CMT/1424) dated 31st January 2000 12 Exchange's circulars no. are adhered to We have provided Internet trading facility t o t h e c l i e n t s a f t e r o b t a i n i n g p r i o r approval of the Exchange and complied with all other applicable provisions including periodic uploads to the exchange related to internet trading 7 R eg u l a t i o n 4.2.Anti Money Laundering Act.3 of Regulations of the Exchange 10 Exchange's NSE/CM/6768 NSE/CMT/055 February 1996 circulars and dated 11 Exchange's circular no. NSE/INVG/2006/33 dated 24th March 2006 Exchange's circulars no.

The client information periodically reviewed NSE/INVG/2006/31 (download and updated on an ongoing basis in view of the reference. containing all provisions specified by the Exchange.14 Exchange's circular no. Th e client NSE/INVG/2006/31 (download reviewed to reference. giving inter alia the following has Regulations 1992 and the been maintained a) date of receipt / delivery Exchange's circular no.3. NSE/MEMB/8352 dated January 09. Whether mandatory and voluntary documents/ NSE/INSP/7657 dated July 5. NSE/INVG/2006/ accuracy. 7236) dated 3rd March 2006 Exchange's circular no. Records and Documents Regulation 6 All Books of accounts. NSE/INSP/4986) delivered d) purpose of receipt / delivery dated 16th April 2004 Regulation 4. clause are segregated in the client registration 2006 docket Exchange's circular no. registers and records as required under the regulations and showing. Agreements entered NSE/F&O/005/2000 (download internet trading reference no NSE/ F&O / 1877) dated 24th August 2000 Regulation 4. No.3. 1 Rule/Bye Law / Regulation/ circular Particulars of the Exchange Books of Accounts. before accepting or placing orders on their behalf. NSE/INVG/2006/ current trading activity of the client. client wise and security brokers and sub-brokers) wise. have been entered into with all the active constituents. 3 4 Exchange's circular no. of security b) quantity received / delivered c) NSE/INSP/2004/28 (download party from whom received / to whom reference no. no.2 of Regulations of the Exchange with clients for 5 6 t h e Client registration forms in respect of all active clients completed in all respects with necessary supporting documents have been obtained 19 . 7236) dated 3rd March 2006 NSE/MEMB/C/20070565 download ref no. 2007 database ensure its is periodic ally completeness and 15 16 Whether an exclusive email ID to to enable the investors to register their complaints is designated ANNUAL COMPLIANCE REPORT FOR FUTURES AND OPTIONS SEGMENT Sr. exchange-wise segregation of transactions are being maintained and preserved for the prescribed period in respect of the Head office and branches 2 Regulation 17(1) of SEBI (Stock Register of Securities.1 of Regulations of the Exchange t h e Member Constituent Agreements. no.

6.6. Brokerage on option contracts is charged 30th only on premium (traded price) the Full payment of funds has been made to all constituents within 1 working day of receiving the relevant pay out from the Exchange Statement of accounts for settlements and margins funds and securities (with error reporting clause) has been sent to all the clients.1 of Regulations of the Exchange the Books of accounts. 2 3 Circular no NSE/F&O/1688 Brokerage has always been charged at rate not dated 08/06/2000 a n d exceeding the rate prescribed i.6.1.5% NSE/F&O/2596 dated 05/06/2001 Exchange's circular NSE/FAOP/5978 dated March 2005 Regulation 4. 2006 Regulation 4.5 the No transfer / withdrawal from clients' account is made except under the c i r c u m s t a n c e s e n u m e r a t e d i n Regulation 6. the Funds of the constituents have always been kept in a separate account and operation of such account has been as per provisions of Regulation 6.2 of Regulations of the Exchange t h e Approved board resolutions permitting trading in derivatives from non-individual constituents have been obtained 8 Exchange's circular no. NSCC/F&O/C&S/132 dated 8th October 2002 and circular no.NSEIL/LEGAL/7410 dated 04/21/2006 20 .1.1 of Regulations of the Exchange 3 Regulation 6. 2.3.3 of Regulations of the Exchange t h e All constituents in the F&O segment of the Exchange have been issued a copy of the Risk Disclosure Document as specified by the Exchange Banking Operations 9 1 Regulation 6.2 2 Regulation 6. 2005 and circular NSE/INVG/2006/8056 dated October 27.6.7 Regulation 4.e. with periodicity not exceeding three months 4 5 6 Exchange's circular no. as are necessary.4.2 of Regulations of the Exchange Dealings With Clients 1 Regulation 4. client funds and own funds in connection with our business as Trading Member of the Exchange have been maintained.15 of Regulations of the Exchange no. t h e Brokerage has been charged separately a n d i n d ic a t ed s ep a r a t e ly . Whether trading member has obtained PAN NSE/INVG/2005/6690 dated in respect of all active clients September 23.1.3 (e) of Regulations of the Exchange Regulation 3. to show and distinguish.3.1.1. i n t h e contract note.5.6.1 of Regulations of the Exchange the Funds/ securities of constituents have not been improperly used by us or any person associated with us.

1.1.1. (b) and (c) Dealings with Intermediaries 1 Clause 12 (l) of SEBI Act.2 (v) (a). Client details as required have been maintained and have been provided to the Exchange / Clearing Corporation as required t h e Mapping of the client codes used at the time of order entry in the trading system with unique code codes is maintained as prescribed by the Exchange 8 Regulation 6. their related persons and NSE/MEM/5338 dated 17th corporate clients August 2004 Exchange's circular NSE/INVG/2005/6690 23rd September 2005 Exchange's circular NSE/INSP/4377 dated September 2003 Exchange's circular NSE/INSP/4377 dated September 2003 Exchange's circular NSE/INSP/4377 dated September 2003 Regulation 6.6.2 (v) of Regulations of the Exchange no Copy of PAN card has been obtained from all dated the clients and verified with the original no No cash dealings are undertaken 1st no Pay-in of funds due from clients is received 1st from the respective clients only no Payout of funds due to the clients is made to 1st the respective clients only the C on s t it u e n t b e n e f ic i a r y a c c o u n t opened for holding the securities of the constituents exclusively 10 11 12 13 14 15 Regulation 6.2 (v) (a).7 Exchange's circular NSE/INVG/2002/3690 18th October 2002 no Unique client codes have been allotted to all dated clients and the correct client codes have been entered in the system while placing orders on behalf of clients which have been correctly mapped to the back office accounts.1. (b) and Securities of the constituents have always (c) of the Regulations of the been kept in a separate constituent Exchange beneficiary demat account and operation of such account has been as per provisions of Regulation 6. intermediaries.6.6.5 of Regulations of the Exchange 9 Exchange's circulars no UIN under MAPIN database has been used as NSE/INVG/2004/5271 dated unique client code in respect of all specified 20th July 2004 and no. 1992 No dealings are done through any un registered intermediary 21 .

333 (download reference no.2 Bye Law 33(a) of Chapter IX of the Bye laws of the Exchange and Exchange's circulars no. 485 (download reference no.NSE/INSP/329 dated 30/03/2006 Contract notes have been issued to all c o n s t i t u e n t s w i t h in 2 4 h o u r s o f execution of contract in the prescribed format. 333 (download reference no.18 of Regulations of the Exchange the Copies/ duplicates of Contract Notes issued by the Trading Member are maintained. NSE/MEM/4082) dated 10th April 2002 and no.NSEIL/LEGAL/7037 dated 05/01/2006 and no. NSE/CMO/003/2001 (download reference no. Contract Notes are authenticated by digital signatures only after obtaining digital signature certificate from a Certifying Authority under the IT Act. including suspended/expelled/ defaulter trading membersdefaulting constituents and employees of other trading members Contract Notes 5 1 Regulation 3. 485 (download reference no. NSE/MEM/6378) dated 14th July 2005 4 Rule 5(e) of Chapter IV of Rules of Brokerage has not been shared with a n d / o r the Exchange b u s i n e s s h a s n o t b e e n transacted with any of the suspended or expelled or defaulting Trading Members Rule 5 of chapter IV of the Rules of No business has been done with or for t h e the Exchange t r a d i n g m e m b e r s w h o a r e prohibited to transact. 2000 and mode of confirmation by the client is specified in the agreement between the member and the client Exchange's circular no.6 of the Regulations of the Exchange and Exchange’s circular no. bearing signature of the authorized signatory bearing a running serial number which is initiated at the beginning of each financial year 2 3 Regulation 6.1. Bye Laws and Regulations of the Exchange. 3 Bye Law 33(a) of Chapter IX of the Brokerage has been shared only with Authorized Bye laws of the Exchange and Persons Exchange's circulars no. with all relevant details filled in. NSE/MEM/6378) dated 14th July 2005 Brokerage has not been shared with another Trading Member of the Exchange or an employee of another Trading Member or a person with whom Trading Members are forbidden to do business under the Rules. NSE/MEM/4082) dated 10th April 2002 and no. NSE/CMT/2279) dated 30th January 2001 22 .

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Exchange’s circular no. Whether client has specifically consented to NSE/INSP/2005/41 (download receive the electronic contract note (ECN) reference no. NSE/INSP/6623) dated 9th September 2005 Exchange’s circular no. Log report for Proof of delivery of ECN and NSE/INSP/2005/41 (download rejected or bounced mails to be maintained. reference no. NSE/INSP/6623) dated 9th September 2005 Exchange’s circular no. Physical copy of contract note to be sent NSE/INSP/2005/41 (download whether ECN could not be delivered reference no. NSE/INSP/6623) dated 9th September 2005 Exchange’s circular no. Simultaneously publish the ECN on its website NSE/INSP/2005/41 (download and provide secured access to the respective reference no. NSE/INSP/6623) client. dated 9th September 2005 Regulation 3.6.1 of the Regulations No off market deals have been executed of the Exchange Regulation 3.6.1 of the Regulations Trades executed for a constituent have not of the Exchange been subsequently transferred to another constituent Regulation 3.6.1 of the Regulations Trade executed for own account have not been of the Exchange subsequently transferred to a constituent and vice versa Exchange’s circular NSE/INVG/2003/4601 dated November 2003 no. Trades on own account have been executed 28th under PRO code only Margins

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NSCCL circular NSCC/F&O/C&S/97 dated February 2002

no. Margins due and collected from the 1st constituents have been reported to NSCCL correctly

Membership Requirements 1 Exchange’s circular no. (download reference NSE/MEMB/261) dated 27th 1997 56 We have not no. activities May engaged in any fund based

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Exchange’s circular no.68 (download reference no. rd NSE/MEM/00310 dated 23 July 1997) and the Membership Undertaking Exchange’s circular no. (download reference NSE/MEM/4299) dated 25th 2008

No change in share holding / profit sharing pattern of the corporate / firm has been undertaken without prior approval of the Exchange.

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355 No change in directors / partners of the no. corporate / firm has been undertaken without July prior approval of the Exchange.

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Rule (5)(h) of Chapter IV of the No advertisements have been released for Rules of the Exchange business purposes without prior approval of the Exchange. Bye Law 7 of Chapter VII of the Bye We have not acted through or on behalf of laws and Regulation 2.1.16 of the another trading member for trading on the R egu la t ion s of th e Exchange Exchange either for proprietary trading or for trading on behalf of clients without the prior approval of the Exchange in writing Regulation 2.1.16 of Regulations of the Exchange Regulation 2.1.16 of Regulations of the Exchange the We have not dealt with more than one trading member of another Exchange for proprietary trading the Our dealing with a trading member of another Exchange for proprietary trading has been done after intimating t h e n a m e o f s u c h b r o k e r t o t h e Exchange the We have not dealt with one or more trading member of another exchange on behalf of constituents Office Management

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Regulation 2.1.16 of Regulations of the Exchange

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Exchanges .circular no. 163 Trading terminals are operated by the (download reference no. NSE/ respective approved users / approved persons MEM/1591 dated 20th April 2000 only Exchange's circulars no. 163 Neat terminals have not been extended / CTCL (download reference no. NSE/ terminals have not been installed without the MEM/1591 dated 20th April approval of the Exchange. 2000; no. 282 ( d o w n lo a d reference no. NSE/MEM/3574) dated 29th August 2002; no. 292 (download reference no. NSE/MEM/3635) dated 25th September 2002; no. 435 (download reference no. NSE/MEM/5664) dated 15th December 2004 Exchange's circulars no. 163 The required information in respect of all the (download reference no. NSE/ CTCL terminals (including view only / admin / MEM/1591 dated 20th April test / etc ) have been uploaded to the Exchange 2000; no. 282 ( d o w n lo a d reference no. NSE/MEM/3574) dated 29th August 2002; no. 292 (download reference no. NSE/MEM/3635) dated 25th September 2002; no. 435 (download reference no. NSE/MEM/5664) dated 15th December 2004

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Exchange's circulars no. 163 Notice board as prescribed by the (download reference no. Exchange has been displayed at a NSE/MEM/1591 dated 20th prominent place in the main office and branch April 2000 and no. 5 0 1 offices (download reference no. NSE/MEM/6706) dated 28th September 2005 Exchange's circular no. 163 Copy of registration certificate issued by SEBI is (download reference no. displayed at the main office NSE/MEM/1591 dated 20th April 2000 Exchange's circular N SE / F &O / 4 4 64 dat e d October 2003 Exchange's circular N SE / F &O / 4 4 64 dat e d October 2003 Exchange's. circular NSE/INVG/2003/4590 25th November 2003 no Own trading is carried out at permitted locations 3 rd only. Trades on own account have been executed under PRO code only. no Client trades not executed through terminal 3 rd earmarked for executing PRO trades no Own trading, if any has been disclosed to the dated clients the All NEAT / CTCL users are NCFM certified the No former trading member or a user of such trading member has been appointed as a user by us without the approval of the Exchange. the Trading system of the Exchange has not been accessed through any other trading member or any other user id not allotted to us the We have not aided nor facilitated to access the trading system from a location other than our approved location, without the approval of the Exchange t h e No activity connected to or pertaining to our operations as Trading Member of the Exchange has been carried on in any office or premises without intimating to the Exchange the full address of such office or premises with details of the activity proposed to be carried on therein and the person in whose supervision and control it is to be so carried on.

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Regulation 2.2.10 (e) of Regulations of the Exchange Regulation 2.2.10 (d) of Regulations of the Exchange

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Regulation 2.2.17 of Regulations of the Exchange

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Regulation 2.2.18 of Regulations of the Exchange

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Regulation 4.1.1 of Regulations of the Exchange

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NSJE/INSP/6334) dated 6th July. Bye Laws and Regulations of the Exchange.1.9 of the Records of all relevant particulars of persons Regulations of the Exchange who are approved as users by the Exchange have been maintained.1. Met with compliances with respect to dealings by NSE/INSP/2005/39 (download branches. to assist in Regulations of the Exchange detecting and preventing violations of and achieving compliance with Rules. Regulation 4. of the All persons who are transacting on our behalf Regulations of the Exchange have been specifically authorized in writing to do so and such power of attorney has been made available to the Exchange before such person transacts any business on the Exchange Regulation 4.13 of the Regulations of the Exchange After the closing of any constituents account all records which relate to the terms and conditions with respect to the opening and maintenance of such a c c o u n t .. risk management and decision support for our own trading activities and it has not. 15 Exchange's circular no. 5 6 7 26 . reference no.been used for any commercial purposes.2.1 of the An internal record of the names of all the Regulations of the Exchange people who are designated as supervisory personnel and the date from which such designation is or was effective have been maintained. date of termination and representatives of such constituents who signed in each case are being maintained for a period of not less than six years.2. authorized persons etc. dated 14th NSE/ Compliance officer has been appointed June 2 Exchange's circular no. date of modification thereof.2. The feed has not been used to provide input for any software outside our premises and not been made available to any other entity even as view terminals.2 of the Internal review of our business.1. d a t e o f entering into agreement with the constituents. 2005 Others 1 Exchange's MEM/3441 2002 circular no. has been undertaken. NSE/ No trade in securities outside the established INSP/4225 dated 26th June 2003 trading system of the recognized stock exchanges by taking share prices disseminated on-line by the Exchange as reference prices has been done Regulation 6.14 Exchange's NSE/FO/4526 October 2003 circular dated n o Data feed made available by the Exchange 3 1 s t is used essentially for building tools for analysis. Regulation 4. 3 4 Regulation 6.

NSE/INVG/2006/ 7236) dated 3rd March 2006 We have provided Internet trading facility to the clients after obtaining prior approval of the Exchange and complied with all other applicable provisions including periodic uploads to the exchange related to internet trading.8 9 Regulation 6. NSE/INVG/2006/ 7102) dated 25th January 2006 and no.1. 2007 designated Annual Compliance Report for Wholesale Debt Market Segment Sr. NSE/INVG/2006/09 (download reference no. 1993 in this regard. Records and Documents 1 Regulation 8 of the Regulations of the Exchange All Books of accounts and records as required under the regulations and showing exchange wise segregation of transactions are being maintained in respect of the Head office and branches 27 .16 of the Record of all written complaints of constituents Regulations of the Exchange showing the name and reference number of constituent.4. NSE/INVG/2006/31 (download reference.3 of the Management of discretionary accounts for and Regulations of the Exchange on behalf of constituents has been done as per provisions of SEBI (Portfolio Managers) Rules and Regulations. No. date. etc. NSE/MEMB/8352 dated investors to register their complaints is January 09. The client database is periodically reviewed to ensure its completeness and accuracy. no. have been maintained. Rule/ Bye Law/Regulation/ circular of the Exchange Particulars Books of Accounts. particulars of the complaint. NSE/INVG/2006/ 7236) dated 3rd March 2006 Exchange's circular no. Regulation 4. no. NSE/F&O/005/2000 (download reference no NSE/F&O/1877) dated 24 t h August 2000 Exchange's circulars no. NSE/INVG/2006/31 (download reference. 14 15 NSE/MEMB/C/20070565 download Whether an exclusive e-mail ID to enable the ref no. action taken by us and if the matter is referred to arbitration to the Exchange. NSE/INVG/2006/33 dated 24th March 2006 Exchange's circular no. Principal officer has been appointed 10 11 12 Adopted written procedures to implement the anti money laundering provisions as envisaged under the Anti Money Laundering Act. 2002 13 The client information periodically reviewed and updated on an ongoing basis in view of the current trading activity of the client. the particulars thereof. NSE/INVG/2006/09 (download reference no. NSE/INVG/2006/ 7102) dated 25th January 2006 and no. Exchange’s circular no. NSE/INVG/2006/33 dated 24th March 2006 Exchange's circulars no.

Brokerage has been charged separately and indicated separately in the contract note.1 of the Regulations of All the orders entered on the NEAT are always the Exchange at prices/rates exclusive of brokerage Dealing with Intermediaries 1 Bye Law 33(a) Chapter IX of the Bye Brokerage has not been shared with another Laws of the Exchange Trading Member of the Exchange or an employee of another Trading Member or a person with whom Trading Members are forbidden to do business under the Rules.2. containing all provisions specified by the Exchange.3. have been entered into with all the active constituents.4. have been provided to the constituents at no extra cost. 2006 R e g u l a t i o n 4 . Regulation 3. on execution of a trade. 4 o f the Regulations of the Exchange 4 5 Regulation 3.2 Regulation 4.1 of the Regulations of Confirmed order instructions have been the Exchange obtained from the constituents before placing the order on the system. 3 Exchange's circular no. before accepting or placing orders on their behalf. Dealing with Clients 6 7 8 1 2 3 Regulation 3. Bye Laws and Regulations of the Exchange 28 .1 and 4. circulars. relevant manuals.6 of the Regulations of Order modification/ cancellation the Exchange instructions been obtained in writing from the constituents.3. NSE/INSP/7657 dated July 5. of the Exchange.4. to the extent it governs the relationship between Trading Members and constituents.3 of the Regulations of the Exchange Brokerage has always been charged at rate note exceeding the rate prescribed. Regulation 4.2 of the regulations of the Exchange Regulation 3.6. any additions or amendments thereto.2 of the Regulations of Order Confirmation/ modification/ cancellation the Exchange slips or copies there of have been provided to constituents.6. Client registration forms in respect of all active clients completed in all respects with necessary supporting documents have been obtained Whether mandatory and voluntary documents/ clause are segregated in the client registration docket Extracts of relevant provisions governing the rights and obligations of constituents. notifications.13 of the Regulations All constituents have been provided with a trade of the Exchange confirmation slip as generated on the Trading system. Regulation 4.6.2 Regulations of the Exchange of the Member Constituent Agreements.2. Regulation 3. etc. or of any regulatory authority. 3 .

1997 Exchange's circular no. in the prescribed format.5. All Off Market deals have been reported correctly 18th to the Exchange no. We have not engaged in any fund based NSE/MEMB/261 d a t e d 2 7 t h M a y activities. 2 3 Bye Law 7 of Chapter VII of the Bye We have not acted through or on behalf of laws and Regulation 2. 108 We have not dealt with more than one (download reference no.2 Rule 5(e) of Chapter IV of Rules of the Exchange Brokerage has not been shared with and/or business has not been transacted with any of the suspended or expelled or defaulting Trading Members Contract Notes 1 Regulation 4.8 (d) of the No former trading member or a user of such Regulations of the Exchange trading member has been appointed as a user by us without the approval of the Exchange.4. NSE/ WDM/4772) dated 28th January 2004 Our dealing with a trading member of another Exchange for proprietary trading has been done after intimating the name of such broker to the Exchange 4 5 6 Exchange's circular no.2. 1 29 .2 of the Regulations of the Exchange and Exchange’s circular reference no. NSE/ member of another exchange on behalf of WDM/4772) dated 28th January constituents 2004 Office Management Regulation 2. 108 We have not dealt with one or more trading (download reference no. Settlement of all the trades have been reported 1 s t to the Exchange 3 Exchange's circular NSE/WDM/GEN/ 0 0 2 2 d a t e d November 1994 Membership Requirements 1 Exchange's circular no. 108 (download reference no. NSE/ trading member of another Exchange for WDM/4772) dated 28th January proprietary trading 2004 Exchange's circular no.1. NSE/ MEM/310) dated 23rd July 1997 and the Membership Undertaking No change in share holding / profit sharing pattern of the corporate / firm has been undertaken without prior approval of the Exchange. with relevant details filled in.13.1 and 3. 68 (download reference no. NSE/WDM/GEN/0012 dated 8th August 1994 Exchange's NSE/WDM/GEN/ June 1994 circular 0004 dated Contract notes have been issued to constituents within 24 hours of execution contract. 3. bearing signature the authorised signatory and bearing running serial number all of all of a 2 no.5.11 of the another trading member of the Exchange the Regulations of the Exchange prior approval of the Exchange in writing Exchange's circular no.

2. date of entering into agreement with the constituents. 4 5 6 30 .5.7 of the Regulations of Records of all relevant particulars of persons who the Exchange are approved as users by the Exchange have been maintained.14 of the Regulations Trading system of the Exchange has not of the Exchange been accessed through any other trading member or any user id not allotted to us Regulation 2. date of modification thereof. Regulation 8. Others no Compliance officer has been appointed June the No short sale of a security admitted to the dealings on the Exchange has been effected either on own account or client's account.1. Regulation 8.15 of the Regulations We have not aided nor facilitated to access of the Exchange the trading system from a location other than our approved location. without the approval of the Exchange Regulation 4.6 of the Regulations of Proper ledger balances to enable verification the Exchange of capital adequacy as required by NSE are maintained.1 of Regulations of the Exchange the No activity connected to or pertaining to our operations as Trading Member of the Exchange has been carried on in any office or premises without intimating to the Exchange the full address of such office or premises with details of the activity proposed to be carried on therein and the person in whose supervision and control it is to be so carried on.2 Regulation 2. date of termination and representatives of such constituents who signed in each case are being maintained for a period of not less than six years.11 of the Regulations of After the closing of any constituent's account the Exchange all records which relate to the terms and conditions with respect to the opening and maintenance of such account. Regulation 4.2.4 (b) of Regulations of the Exchange 3 Regulation 8. 1 Exchange's NSE/MEM/3441 2002 circular dated 14th 2 Regulation 4.2.1(b) of Regulations of the Exchange the An internal record of the names of all the people who are designated as supervisory personnel and the date from which such designation is or was effective have been maintained. 3 4 5 Rule (5)(h) of Chapter IV of the Rules No advertisements have been released for of the Exchange business purposes without prior approval of the Exchange and in contravention of the advertisement code prescribed by the Exchange.

14 of the Regulations of Record of all written complaints of the Exchange constituents showing the name and reference number of constituent.2.-1993 in this regard 10 11 NSE/MEMB/C/2007 0565 An exclusive email ID to enable the investors to download ref. NSE/INVG/2006/7102) dated 25 t h January 2006 and no. etc. 8 9 Regulation 8. NSE/INVG/2006/09 (download ref. particulars of the complaint. action taken by the us and if the matter is referred to arbitration to the Exchange. NSE/INVG/2006/7102 under the Anti Money dated 25/01/2006 and no. Bye Laws and Regulations of the Exchange.2. to assist in detecting an d p r ev ent ing v iolat ions of a n d a ch iev ing compliance with Rules. has been undertaken. no.7 Regulation 4.no. the particulars thereof.l(c) of the Regulations All persons who are transacting on our behalf of the Exchange have been specifically authorized in writing to do so and such power of attorney has been made available to the Exchange before such person transacts any business on the Exchange Regulation 4.4. date.2 of Regulations of the Exchange the Internal review of our business.3 of Regulations of the Exchange the Management of discretionary accounts for and on behalf of constituents has been done as per provisions of SEBI (Portfolio Managers) Rules and Regulations.NSE/MEMB/8352 register their complaints is designated.NSE/INVG/2006/33 dated 24/03/2006 12 13 31 . Principal offer has been appointed. have been maintained Regulation 4. NSE/INVG/2006/33 dated 24 T H March 2006 Exchanger’s circular no. Adopted written procedures to implement the NSE/INVG/2006/09 (download anti money laundering provisions as envisaged ref. dated 09/01/2007 Exchange circular no. no.

Sania Surve Direct No. Mr.: 2659 8196 Board Lines: 2659 8100 – 8114 Extn. We hope the same will serve as a guiding document and help in enhancing compliance level in your organisation. Sebastin Asst.4 NSE COMPLIANCE HANDBOOK NATIONAL STOCK EXCHANGE OF INDIA LIMITED INSPECTION DEPARTMENT CIRCULAR Download Ref. Exchange is releasing handbook on compliance. NSE/INSP/2008/73 To All Members Sub : Compliance Hand book With a view to facilitate easy reference on various compliance issues. For any clarifications. Hansen Cardoza. No: NSE/INSP/11532 Circular No. Parameshwaran or Ms. Vice-President Inspection Department 32 . trading members may contact any of the following officials: Mr. Any suggestions on improvement on the handbook are welcome. – 5123 / 5124 / 5128 For National Stock Exchange of India Limited Dated: 23rd October 2008 A.

III. XIII. XIV. X. XI.COMPLIANCE HANDBOOK Preamble Compliance requirements pertaining to members of the Exchange are given in byelaws. Financial details of the constituent. Bank and Depository Account details. Contents Client Registration Order Management System and Internal Controls Contract note Electronic Contract note (ECN) Charging of Brokerage Quarterly statement of accounts Banking and demat account operations Dealing with clients’ funds and securities Margin Requirements Internet Trading Other dealings with clients Dealing with intermediaries Location and Operation of Terminals Display of Notice Board / SEBI registration certificate Control over branches and sub brokers Issue of advertisement Maintenance of Records Continued membership requirements Due diligence in employee activities Compliance with Prevention of Money Laundering Act (PMLA). II. In KYC ensure that . All additional and voluntary clauses should be taken in voluntary documents separated from the mandatory part. 2002 Compliance calendar I. constitute the mandatory part of the registration documents. 33 . Member constituent agreement (MCA) and Risk Disclosure document (RDD) as per the SEBI prescribed formats. IV. an attempt has been made to collate them in a single handbook. regulations and circulars of the Exchange and the Clearing Corporation. Board Resolution from corporate clients permitting trading in derivative products are attached. VII. Know your client (KYC) form. Proof of identity and address. Investment/ Trading experience. Financial documents (for Non Individual Constituents) and Signature of client are provided . XXI. References.Client Registration Client registration documents are to be executed with any new client before commencing transactions with the client Client registration documents are to be segregated into mandatory and nonmandatory parts. V. I.complete details of Client information / Status. XVII. Table of contents No. XII. VIII. XVI. IX.Photograph. VI. XVIII. XV. In order to facilitate quick reference to such requirements. XX. branch offices and offices of sub broker(s)/authorized person(s). This compliance handbook is presented as a guiding document for carrying out internal compliance checks by members in their head office. XIX.

separate exchange-wise agreement is executed .In respect of clients registered in other exchange(s) also (if a member is attached to different exchanges). tripartite agreement is to be executed In RDD ensure that . .Client acknowledges the risk disclosure document and is aware that certain basic risks are involved in trading in equity and derivative products. Provide copies of all the executed documents to the clients Periodically update the clients’ financial and other details. annexure containing details of all the trades to be provided Copies of contract notes and proof of Delivery / Despatch to be maintained - 34 .agreement contains clauses prescribed by SEBI / NSE from time to time .agreement is printed on a non-judicial stamp paper of appropriate value and is dated .The segments in which a client wants to transact are selected and marked by the client clearly In MCA ensure that .agreement is signed by both the member and the client and is witnessed . With running serial number (reset to one at the beginning of the Financial Year) Dealing office details and PAN of the Trading Member to be printed Trade price and brokerage to be mentioned separately For contract notes issued with weighted average price for multiple trades resulting from single order. to be set up Risk mitigation measures to be documented and made accessible to clients Documentation of internal controls on areas like order modification / cancellation. Unique Client Code and PAN of the Constituent to be printed. To be issued on pre-printed stationary and signed by an Authorised Signatory mentioning name. Order Management System and Internal Controls Procedures to be put in place for receipt of orders. II. client code changes and post-trade activities Ensure monitoring mechanism for client’s debits / obligations and appropriate collection procedures III. recording the same and placing the orders in the trading system of the Exchange Client-wise and security-wise limits on exposure. Contract note Trading Member has to ensure that contract notes are issued in the prescribed format within 24 hours of execution of trades on the Exchange. open position.in respect of clients introduced by sub-broker. verify the same with the web site of Income tax Department and upload details of the client before placing orders for the client Allot a unique client code to each client and maintain a file mapping the client codes and the PAN’s.Client should be made aware that contracts cannot be rescinded on the ground of lack of awareness or any other ground Conduct in person verification of individual and HUF clients Collect PAN card copy of client. etc.

non-tamperable and in compliance with provisions of IT Act.IV.5% of premium amount or Rs. The statements should have an account of all receipts and deliveries / payments during the relevant period and not simply. of funds and securities should not be effected in client bank account and constituent beneficiary account VIII. In case of non-delivery of ECNs. An error reporting clause giving 30 days time is to be incorporated VII. brokerage is to be charged on option premium amount and shall not exceed 2.per lot whichever is higher VI. 100/.5% of the transaction amount. trading member can charge brokerage up to 25 paise per share if the market value of the scrip is less than Rs 10/-. Delivery of ECNs to be made by sending e-mail to the mail id provided by client Log reports for sent mails and rejected / bounced mails to be maintained Client to consent that non-receipt of bounced back mail by trading member amounts to delivery of contract notes ECNs are required to be simultaneously published on the web-site of trading member and clients are given secured access to the same by way of client specific logon and password. 2000. encrypted. However. Dealing with clients’ funds and securities Ensure that funds / securities are received from respective clients’ accounts only Ensure that pay-out of funds / securities is made to respective clients within one working day of pay-out by Exchange Clients’ funds / securities are not used for any purpose other than meeting the respective client’s margin / pay in obligations Authorisation should be obtained from clients for deposit of their collaterals with exchange / clearing corporation towards margin 35 . V. the details of holdings as at the end of the period Maintain proof of dispatch / delivery for the same. In case of option contract. in Capital Market segment. contract note should be sent in physical form. Electronic Contract note (ECN) ECNs can be issued only if specifically consented by client ECNs to be digitally signed. Banking and demat account operations Maintenance of separate client bank account and constituent beneficiary account for keeping clients’ funds and securities respectively Segregate own and clients’ funds / securities in separate accounts Funds / securities of clients not to be deposited in own accounts No payments towards expenses / levies can be made from client bank account Receipts from / transfer to third parties. Quarterly statement of accounts Send statement of accounts for funds and securities to all the clients in such periodicity not exceeding three months (calendar quarter) within a month of the expiry of the said period. Charging of Brokerage Brokerage rate is subject to a maximum of 2.

Unencumbered funds received only from the respective clients on an upfront basis can be included. Internet Trading Ensure reliability. utilised and required / balance in respect of each client is to be sent on a daily basis to the respective clients in both the segments. 36 . Any Debit balances in the F&O client ledger should first be set off by apportioning the free balances / value of securities and the only balance amount if any should be considered towards margins collected from clients. periodic change and other aspects) Internet clients shall trade through internet trading system and only in case of connectivity problems. Any free balance of the same clients in other segments after considering the debit balances and margins (if any) applicable in the respective segments can be considered towards margins for the F&O segment. Margins taken in the form of securities in the approved list should be valued as per the closing rate on the previous trading day and not the trading day.Clients’ securities should not be pledged to bank / financier for raising funds Funds are received from / paid to clients by way of crossed cheques / demand drafts or by way of direct credit into the bank account through EFT or any other modes allowed by RBI only Ensure that no cash dealings are made with clients IX. security and confidentiality of internet trading system Client specific user id and password to be used for execution of trades by the respective client Password policy to be adhered (secrecy. - - Information related to margin applicable. their orders can be entered through back up system (like call and trade facility) after proper identification of the client Ensure that clients do not deal on behalf of others Trading Members providing internet based trading facility are required to submit SSL certificate. Ensure to put in place risk management system regarding the amount of margin collection and the mode of collection from other clients in Capital Market segment Ensure to collect initial margin in the approved mode from clients in F & O segment on an upfront basis Trading member is required to report margin actually collected from clients. for year ending June every year. to NSCCL on a daily basis. Margin Requirements Ensure to collect initial margin and maintenance margin in the approved mode (funds / bank fixed deposits / bank guarantee / approved securities with appropriate hair cut) from the clients. This information should show break up details in terms of funds. with an appropriate hair-cut. bank deposits and securities. X. bank guarantee. In the computation of margin collection from the clients for the purpose of reporting to the Exchange.

In F&O segment. Provide exclusive e-mail id for registering investor complaints and display the id on your website and other materials. dealings with approved authorized persons may be done only if they are also registered as sub brokers in the Capital Market segment of the Exchange XIII. Ensure that trading terminal is not operated by a person other than an approved user / approved person Ensure that all terminal operators in F & O segment are NCFM / BDCE qualified and that at least one of every 5 Capital Market terminal operators in a location is NCFM qualified Ensure that no NEAT terminals are extended to another location without the approval of the Exchange Upload details of all CTCL terminals to the Exchange prior to their activation. location. unless required by the clients otherwise as to receive the STT statement on a daily basis. etc. of all the branches where CTCL or Internet Based 37 . Ensure that secrecy of terminal-wise logon and password is maintained Trading Members are required to undertake system audit on annual basis. registered sub broker in CM segment and authorised person in F&O segment Inspect at least 10% of branches and sub-brokers every year and ensure that each branches and sub-broker are inspected at least once in every five years. Location and Operation of Terminals Ensure that trading terminals are not located at any place other than the main / branch office and the offices of registered sub brokers / authorised persons of the member. Dealing with intermediaries Deal directly with clients. user. XII. Any change in the details viz. Ensure that you deal with only one broker of another stock exchange for own transactions with prior intimation to the Exchange Ensure that dealings on behalf of constituents. pamphlets and advertisement campaigns Maintain confidentiality of all client related information ‘Statement of Securities Transaction tax’ to be issued on an annual (financial year) basis within one month from the close of the financial year. terminal id. also needs to be uploaded prior to such change. for period ending 30th June. through a broker of another stock exchange are done only after necessary registration as a sub-broker.XI. Ensure that you do not act through or on behalf of another trading member / sub-broker of the Exchange either for proprietary trading or for trading on behalf of clients without prior approval of the Exchange. Other dealings with clients Issue contract notes for all trades in respect of the constituents introduced by sub-brokers also Have direct dealings with clients introduced by a sub-broker and ensure that the sub-broker does not issue any bills / notes to the clients nor deal with the clients’ funds and securities in any manner Reconcile dividend account periodically and ensure that dividend received on behalf of clients is credited to the respective clients within 30 days of receipt Inform all the constituents if you are engaged in own trading.

misuse of clients’ accounts. etc. Register of complaints Records in respect of brokerage collected separately from constituents Register of transactions Register or Ledger Account of Securities. Margin register.Trading facility is provided and submit one consolidated report thereof to the Exchange within one month from end of the period Ensure to place orders on own account using ‘PRO’ code only and through trading terminals authorised for such purpose XIV. Control over branches and sub brokers Ensure due diligence and credentials of entities proposed to be appointed as sub brokers/authorized persons. to address various risk areas. client wise and security wise 38 . a copy of the advertisement has to be submitted to the Exchange at least seven days in advance and written permission of the Exchange is to be obtained before the advertisement is published Ensure to abide by the code of advertisement given by the Exchange XVII. including the following Statements of funds and securities obligations received from NSCCL Client ledger. fraudulent activities. Take feedback from the clients of sub brokers and branches on their dealings with the sub brokers and branch officials Inspect at least 10% of branches and sub brokers every year and ensure that each branch and sub broker is inspected at least once in every five years. notice boards/plates at prominently visible locations. authorised persons do not indulge in unauthorised trading activities. Ensure proper procedures while opening and closing branches Ensure that clients are informed in advance in case of closure of branch Ensure that branches. Ensure proper procedure for accounting of demand drafts and pay orders received from clients in the respective clients’ accounts. in a font and colour which enables easy reading of the subject matter and containing prescribed details. Display of Notice Board / SEBI registration certificate Trading Members shall display. Maintenance of Records Maintain separate books of accounts and records for trades executed on each recognised stock exchange (in case of membership in different exchanges) Maintain records and registers relating to business for a period of five years either in hard form or non tamperable soft form. sub-brokers. XVI. Monitor the activities of sub brokers/relationship managers/officials in-charge of branches to avoid unregistered intermediation. Issue of advertisement Before releasing any advertisement for business promotion. painted / printed in a permanent manner. Display copy of SEBI registration certificate in the above said offices. XV. Obtain and analyse periodic reports and information from all branches/sub brokers. in all their offices / offices of their registered sub brokers where trading terminals are located.

NSE/INSP/2008/72 dated 18th September 2008.nseindia. for the sake of complete information. 2002 Appointment of and change in Principal Officer to be intimated to the Financial Intelligence Unit. Disclaimer:This Compliance hand book contains an illustrative but not an exhaustive list of compliance requirements which members are required to adhere to. Byelaws. Trading Member shall specifically authorise in writing persons. While every effort has been made to include all the relevant compliance requirements. members may refer to the relevant Rules. Continued membership requirements Trading Member should obtain prior permission of Exchange and SEBI before effecting any change in shareholding / sharing pattern or change in directors / partners. It is also available in our website www. India (FIU) Written procedure for compliance with PMLA to be adopted.com >members>compliance for members>compliance calendar. who may be authorised to transact on behalf of the member and do such acts which the member delegates to such persons XX. Compliance with Prevention of Money Laundering Act (PMLA). Regulations or Circulars in addition to this hand book. Due diligence in employee activities Trading Member shall establish and enforce procedures to supervise its business and the activities of its employees that are reasonably designed to achieve compliance with all the relevant regulatory requirements. to the FIU Organise suitable training programmes for employees and ensure awareness XXI. Any change in name of the trading member must be intimated to the Exchange forthwith along with the necessary records.XVIII. 39 . Adopt customer acceptance policies and procedures sensitive to the risk of money laundering or terrorist financing transactions Strictly adhere to customer due diligence requirements from establishment of new account to transaction monitoring and report suspicious transactions. Details of Compliance Officer and any changes thereof to be intimated to the Exchange XIX. for the purpose of effecting the change in the SEBI registration certificate Net worth of a trading member shall always be maintained above the prescribed minimum of Rs 1 crore in case of corporates and Rs 75 lakhs in case of non-corporates. Compliance Calendar A consolidated checklist of reports / statements / certificates / data / submissions to be made by members to the Exchange / NSCCL is available in our consolidated circular no. if any.

5 SEBI CIRCULARS DEPUTY GENERAL MANAGER MARKET INTERMEDIARIES REGULATION & SUPERVISION DEPARTMENT DIVISION OF POLICY AND SUPERVISION . Securities Contracts (Regulation) Act 1956. Bye Laws of the Exchanges. and 3.III Tel: 26449261. Fax: 26449021 Email: manojk@sebi. The first such audit period should be from October 1. 1992 to protect the interest of investors in securities and to promote the development of. MANOJ KUMAR 40 . 1992. 1992.F. 2008 The Managing Director / Executive Director of all Stock Exchanges Dear Sir. communicate to SEBI. rules and regulations for the implementation of the above decision immediately. circulars issued by SEBI. make necessary amendments to the relevant bye-laws. 2. Stock Exchange Division.gov. and to regulate. compliance with the provisions of the SEBI Act. The Stock Exchanges are advised to: 1. bring the provisions of this circular to the notice of the member brokers/clearing members of the Exchange and also to disseminate the same on the website. Department of Economics Affairs.in MIRSD/ DPSIII/ Cir-26/ 08 August 22. the status of the implementation of the provisions of this circular in the Monthly Development Report. scope and efficiency of the internal control system. Sub: Internal Audit for stock brokers/clearing members In continuation with the Circular No. The exchanges shall ensure compliance of the above mandatory requirements by all the stock brokers/clearing members. 1984 of Government of India. Ministry of Finance. you are advised to direct your stock brokers/clearing members to carry out complete internal audit on a half yearly basis by independent qualified Chartered Accountants. agreements. the securities market. data security and insurance in respect of the operations of stock brokers/clearing members. interalia. This circular is being issued in exercise of the powers conferred by Section 11 (1) of Securities and Exchange Board of India Act. 2009. the existence. Yours faithfully. KYC requirements. SEBI (Stock Brokers and Sub-Brokers) Regulations. The scope of such audit shall cover. 2008 to March 31.1/5/SE/83 dated May 31.

Yours faithfully. Sub: Internal Audit for stock brokers/trading members/clearing members In partial modification of SEBI circular No. 2008 The Managing Director / Executive Director of all Stock Exchanges Dear Sir. it has now been decided that stock brokers/trading members/clearing members shall carry out complete internal audit on a half yearly basis by chartered accountants. This circular is being issued in exercise of the powers conferred by Section 11 (1) of Securities and Exchange Board of India Act.gov. and to regulate. make necessary amendments to the relevant bye-laws. The Stock Exchanges are advised to: 1. 2. Fax : 26449021 Email : manojk@sebi. communicate to SEBI. MIRSD/ DPSIII/ Cir-26/ 08 dated August 22.in MRD/DMS/Cir-29/2008 October 21. company secretaries or cost and management accountants who are in practice and who do not have any conflict of interest. 2008 on the above subject.DEPUTY GENERAL MANAGER MARKET REGULATION DEPARTMENT DIVISION OF MARKET SUPERVISION Tel : 26449261. and 3. the status of the implementation of the provisions of this circular in the Monthly Development Report It may be noted that the other provisions of the said circular remain unchanged. rules and regulations for the implementation of the above decision immediately. bring the provisions of this circular to the notice of the member brokers /clearing members of the Exchange and also to disseminate the same on the website. 1992 to protect the interest of investors in securities and to promote the development of. MANOJ KUMAR 41 . the securities market.

the first internal audit period would be from October 1. format of audit report. 2009. Gen. 2009 Internal Audit of stock brokers/ trading members/clearing members General To. Parul Kothari Mr. K. 20081022-30 dated October 22. 2008 and Notice no. 2008 wherein all the stock brokers/trading members/clearing members were directed to carry out complete internal audit on a half yearly basis by chartered accountants. All stock brokers/trading members/clearing members are advised to ensure compliance with the above requirements. The Members This is further to Exchange Notice no. In case of any queries / clarification. of Surveillance & Supervision (Inspection Cell) on 24th floor of the Exchange. Further. company secretaries or cost and management accountants who are in practice and who do not have any conflict of interest. 8898 8095 8196 8880 P. Neha Malviya Ms. March 25. the applicability. audit certificate and the time limit for submission of audit report are finalised and given as Annexure 1. on the basis of SEBI letter no. Manager Surveillance & Supervision . scope/guidelines of audit. It was also informed that. Mitesh Thakkar Intercom No. Members are advised to submit the Audit Reports to Dept. MIRSD/DPS-I/PG/158174/09 dated March 23. Ramesh General Manager Surveillance & Supervision 42 Yogesh Bambardekar Asst.6 BSE CIRCULAR Notice no : Notice date : Subject : Segment Name : 20090325-22 Wednesday. the members may contact the under mentioned officials on Tel:022-22721233/34 Name of the Officials Ms. 2 and 3. 2008 to March 31. Anita Gorhe Ms. 20080825-2 dated August 25. 2009.

Scope/Purpose of Audit The purpose of audit should be (a) to ensure that the books of account. Securities Contracts (Regulation) Act. 1992. 1992. records and documents have been maintained in the manner required under Securities Exchange Board of India Act. data security and insurance in respect of operations of trading member/clearing member. Securities Contracts (Regulation) Rules. SEBI (Stock brokers and Subbrokers) Regulations. Who can conduct internal audit Internal audit is required to be carried out by any Chartered Accountant.1 INTERNAL AUDIT FOR STOCK BROKERS/TRADING MEMBERS/ CLEARING MEMBERS Applicability Trading Members (Stock Brokers) and Clearing members are required to appoint an internal auditor for carrying out complete internal audit in all segments of the Exchange in which they are enabled for trading/clearing (wherein atleast a one/single trade have been executed or cleared by them) and submit a report to the Exchange on half yearly basis. Bye laws of the Exchange including agreements. circulars. Company Secretary or Cost and Management Accountant who is in practice and who does not have any conflict of interest. whether the provision of Bye-laws. (c) to ascertain whether any circumstances exist which would render the intermediary unfit or ineligible for dealing in securities market. Securities Contracts (Regulation) Rules. notices. 1957. The audit report may be combined across segments and activity (trading/clearing) for respective Exchanges. circulars issued by SEBI & Exchange. (b) to ascertain whether adequate internal control systems. 1992. 2008. instructions or orders issued by stock exchanges have been complied with (f) to inquire suo motu into such matters as may be deemed fit by the auditor in the interest of investors or the securities market Submission of internal audit report Internal auditor would submit the audit report to the Proprietor/ Partners/ Board of respective trading/clearing member who would place the report before its Board of Directors/proprietor/partners and shall forward the same along with para-wise/point wise comments to respective stock exchanges within 3 months from the end of the relevant half year audit period. .Annexure . 1992. 1957. 1956. Bye laws of the Exchanges and with respect to data security and insurance in respect of operations of trading member/clearing member. 1956. 43 . Securities Contracts (Regulation) Act. circulars issued by SEBI & Exchange. The first half year period would start from October 01. SEBI (Stock brokers and Sub-brokers) Regulations. procedures and safeguards have been established and are being followed by the intermediary to fulfill its obligations under Securities and Exchange Board of India Act. (d) to ascertain whether the provisions of the securities laws and the directions and/or circulars issued there under by SEBI/Exchange have been complied with (e) to ascertain.

MCA/TPA and RDD Systems and procedures put in place by member for verification of PAN before opening account Procedure followed by the member for informing UCC to the clients & uploading to the Exchange Mechanism to ensure financial details of clients Procedure adopted for in person verification of clients Procedure adopted by relationship managers. the quality of the reporting is not satisfactory or the audit is not carried out in accordance with the aforesaid guidelines.2 Areas to be covered in internal audit and areas on which comments needs to be incorporated in the report are given below 1. and RDD – checks and balances in place Verification of formats of KYC. Where. MCA/TPA and RDD and attachments including proof of identity and address. Annexure . in the opinion of the Exchange. name and signature of the official who has done in-person verification and the member’s stamp incorporated in the client registration form? Whether copies of all the documents executed by client are given to the respective clients? Whether change in address. for procuring new clients Delivery of copies of client registration documents to the clients Storage of client registration documents and retrieval mechanism Procedure adopted for obtaining clients’ consent for electronic contract notes Periodic review of client related information and updation of the same in system Verification of RDD/KYC/MCA/TPA of different types of clients Acquaintance procedure for new clients 44 Whether KYC. MCA/TPA. PAN and proof of address are taken with KYC form? Whether any contravening clauses are included in MCA/TPA? Whether in person verification of clients is done by the employees of the trading member only? Whether date of verification.Non-compliance relating to internal audit by the members Non-submission of internal audit report as per the aforesaid guidelines shall be treated as non-compliance and suitable disciplinary action may be initiated against the concerned member/s. the Exchange reserves the right to advise the concerned member/s to change the auditors and/or submit revised reports. as prescribed by SEBI/BSE Verification that Contradictory clauses are not mentioned in KYC. RDD are executed in the prescribed formats & the same is executed before execution of trades for the client? Whether UCC is allotted to the client & the same is uploaded to the Exchange with PAN Whether all fields in KYC including client’s financial details are filled in properly? Whether proper proof of identity. if any. bank . MCA/TPA. Client registration and documentation Execution of KYC.

bank guarantees and approved securities with appropriate haircut? Review of process adopted for monitoring / recovery of long outstanding debit balances Procedure adopted for calculation & reporting client funding Procedure for monitoring institutional trades not routed through custodians Procedure adopted for providing Direct 45 . client-wise / scrip-wise / terminalwise volumes / exposures are generated to monitor any manipulation or unwarranted activity? In case of dormant accounts. dated August 26. 2008 Exchange Notice No. 2004 SEBI circular no. 2004 & Regulation-7 D SEBI circular no. 2008 2. 2008 Exchange Notice no. fixed deposit receipts.account or demat account is carried out on receipt of written request along with documentary proof from the respective client? Whether client details including financial details are reviewed periodically and updated? SEBI circular no.20040827-11 dated August 27. 2007 MIRSD/DPS-III / 130466 / 2008 dated July 02. SEBI/MIRSD/DPS-1/Cir-31/2004.35/2004 dated October 26.20080707-3 dated July 07. SMDRP/Policy/Cir-39/2001 dated July 18. 2004 Exchange Notice No.05/2007 dated April 27. 20060704-6 dated July 04. are there any checks in place to ensure that in case the account is reactivated whether it is operated by the respective client only? Whether initial and other margins are collected from respective clients in the prescribed form of funds.20080801-2 dated August 01. 2008 Exchange Notice no. 20080624-8 dated June 24. 2001 SEBI circular no. 2006 Exchange Notice No. MRD/DoP/Cir. MRD/DoP/SE/Cir. Order management and risk management systems Procedure adopted for receipt of orders from clients Mechanism for order management and execution Procedure adopted for setting Limits at client level / Terminal level/Dealer level Policy on Margin collection mechanism and the modes of margin money Procedure adopted for reporting of client margin collection to Clearing House Whether checks are in place to ensure that no unauthorized orders are executed from any of the terminals? Whether control reports like orders executed away from market price.

Market Access (DMA) facility Whether the member has a proper system for reporting the correct client margin collection. to the exchange within prescribed time limit? What are the sources of funds in case client funding is observed? Whether all the institutional trades are routed through custodians by following Straight Through Processing (STP) ? What are the reasons for institutional trades not being routed through custodians? Whether any specific pattern is observed for the same? Whether member has obtained prior approval from the exchange before providing terminal to the clients under DMA facility? Whether member has complied with regulatory requirements related to. DMA? 46 . mention the instances wherein wrong reporting of margin collected from clients/trading members was observed. In case of any irregularity observed. if any. in Derivatives segment? Verify whether the margin reported by the member to the Exchange in Derivatives segment is actually collected and available in the books of accounts of the member. Whether Risk Management System (RMS) includes policy on margin collection from clients/trading member and the RMS is documented? Whether proper systems are in place to ensure timely collection for pay-in from the respective client as per settlement schedule? Whether proper monitoring mechanism is in place to review long outstanding debit balances in clients’ accounts and recovery of the same? Whether member has reported details of client funding.

1993 SMD (B)/104/22775/93 dated October 29. Exchange Notice No. Client margin details and Statement of accounts Procedure adopted for issuance of contract notes Verification of format of contract notes issued Verification of copy of contract note with Proof of dispatch/register of dispatch/logs maintained Adherence to electronic contract note norms. 2005 Exchange Notice no. dealing office details and brokerage are contained in contract note? In case contract notes and margin details are sent in electronic form. Electronic Contract Notes(ECN)? Whether complete statement of accounts for funds and securities are issued on a quarterly basis to clients.SEBI circular no. MRD/DoP/SE/Cir-07/2005 dated February 23. whether log is maintained? Whether trail of bounced mails is maintained and physical delivery is ensured in case of bounce mails? Whether member has complied with regulatory requirements related to. Exchange notice no.17/2005 dated September 02. 1993 SMD/MDP/CIR/043/96 dated August 5. 20080417-24 dated April 17. 2008. if applicable Procedure adopted for sending statement of accounts Contents & periodicity of statement of accounts of funds and securities Procedure adopted for sending margin details to clients Procedure for maintaining acknowledgement / proof of delivery of contract notes/statement of accounts/margin details to the clients Whether contract notes are sent within 24 hours of execution of trades and margin details are sent daily to respective clients and proof of delivery / dispatch is maintained? Whether all prescribed details including name and signature of authorised signatory. 1996 MRD/DoP/SE/Cir-20/2005 dated September 08. 2005 3. 2005 47 . 2005 SEBI circular no. Contract notes. 20051216-8 dated December 16. 20040420-12 dated April 20. 2004. MRD/DoP/SE/Cir. with error reporting clause? Whether proof of sending the same is maintained? Clause B(2) of Code of conduct for Stock Brokers specified under Regulation 7 SMD-1/23341 dated November 18.

2008 4. 20080211.20080527-6 dated May 27. observed during the audit period are to be given (mentioning any specific branch involved). if any. 2005 Exchange Notice No.SEBI/DNPD/143542 /Cir-43/08 dated November 06. 20050909-13 dated September 09. 20060627-18 dated June 27. 2008 Exchange Notice No. Underlying for any overdraft/loan 48 . give complete details of such instances Whether bank book and register of securities are in alignment with bank statements and transaction statements Verification of internal controls adopted by the member while accepting banker’s cheque / demand draft from clients Procedure for ensuring that receipts and payment of funds/securities are from/to respective client only Periodic Reconciliation of books of accounts Verification of following books of accounts/records Register of Securities Bank Statements Depository accounts maintained by member Client ledgers Cash Book Bank Book Details of records of client securities pledged.19 dated February 11. if any. Whether funds raised by pledging client securities were utilised for respective client only? List of instances to be provided in case of nonutilisation of proceeds for respective client? Whether client’s funds / securities are transferred to respective clients accounts within one working day of after the pay-out of the settlement? Whether any instance of misutilisation of clients’ funds or securities is observed? If yes. Dealing with clients’ funds and securities Verification of details of cash receipts from / payments to clients. details of such instances observed are to be given. 2006 Exchange Notice No. Bye-laws & Regulations of the Exchange Exchange Notice No. 2008 Bye-Law 247A of the Rules. Whether cash dealings with clients are done by branches / sub brokers? Whether banker’s cheque / demand draft are accompanied with written request from the respective client? Whether pay-in or pay-out is received from or delivered to respective clients only? Whether any instances were observed wherein pay-in / pay out was received from / made to account other than the respective client account? Whether systems are in place to ensure compliance in this regard by the member? Whether collaterals of clients were pledged with banks / other entities for raising funds? If yes.

SEBI/MRD/SE/Cir. SMD/SED/CIR/93/23321 dated November 18. Also. provided by banks and depositories? Whether dividend and other corporate benefits received on behalf of clients is paid/credited/passed on to the respective clients account ? SEBI circular no.33/2003/27/08 dated August 27. Bye-Law 247A of the Rules. 2008 Exchange Notice No. Bye-laws & Regulations of the Exchange 6. Whether member maintains separate bank accounts for clients funds & own funds. MRD/DoP/SE/Cir-11/2008 dated April 17. at the audit place. mention the instances in detail. Whether periodic audit of systems Verification of certification of the approved users. whether maintains separate beneficiary accounts for clients’ securities & own securities? Whether clients funds and securities are segregated from own funds and securities? Are there any instances of use of client beneficiary account or client bank account for unauthorised purposes? In case of any irregularity observed. Terminal operations and systems Procedure and policy adopted by member before allotment of trading terminals Verification of terminals and its users. branch office or the office of sub broker? Whether any unauthorized terminal is observed to be allotted? If yes. SEBI circular no. give complete details. 2003 5. 49 .20030903-5 dated September 03. Banking and Demat account operations Procedure for segregation of own and clients’ funds and securities (in separate accounts) Internal controls for use of client bank and client beneficiary accounts only for authorized purposes.account. Whether terminals are provided by the member in his head office. SEBI circular no. 1993. 1992. 2003 Code of conduct for Stock Brokers specified under Regulation 7 of SEBI (Stock Brokers and Sub brokers) Regulations.

2001 SEBI/MRD/SE/15958/2003 August 22.Due diligence adopted for password security Procedure in place for audit of systems and software Periodic updating of version and back up mechanism System adopted for data storage. SMDRP/Policy/Cir-49/2001 dated October 22. Management of branches / sub brokers and internal control System and Policy followed for opening / closing of branch Procedure adopted to inform the same to clients Periodicity and procedure adopted for inspection of branches / sub brokers Reporting mechanism and mode of informing the inspection observations to branches / sub brokers Follow up action plan Policy of fixing of roles and responsibilities of 50 Whether survey is conducted by the member for opening / closing of branches? In case of closure. security and access Verification of logs from server and software is conducted by certified systems auditor? Whether terminals are operated by approved persons/approved users with valid BCSM certification? Whether correct User name. 2003 Exchange Notice No. Whether there is monitoring mechanism to identify sudden increase / decrease in client level turnover from any specific branch? Whether periodic inspection of branch / sub broker is conducted and reports are maintained? What is . whether advance notice of the same is sent to clients? Proof of the same. 2007 7. terminal location are reported to the Exchange? Whether internal controls are in place to ensure that the certification of approved users has not expired? Whether prior permission is obtained by member for providing IML? Whether member has complied with applicable provision of IML? Whether updated version of software is used? Whether back up facilities are in place and followed? Whether broker has got his system audit done & submitted the system audit report to the Exchange within prescribed time limit? SEBI circular no. login id.20070517-26 dated May 17.

1996 SEBI circular no. SMD/SED/RCG/270/96 dated January 19. branches and subbrokers office Process laid out so as to prevent unregistered intermediation Documentation of Internal controls Comments on Internal controls in place and the follow-up mechanism? Whether unregistered intermediation is observed? Whether the member has shared commission/brokerage with entities with whom trading members are forbidden to do business / another trading member / employee in the employment of another trading member? Whether internal controls exists and are sufficient to cover the risks at the members end? Whether Stock broker indemnity policy with standard cover/clauses has been taken? Verification of Stock broker indemnity insurance policy Sharing of commission/brokerage Section 12 of SEBI Act SEBI circular no. 1998 SEBI circular no. SMD/Policy/CIR-3/98 dated January 16. Sub-Brok/Cir/02/2001 dated January 15. 1992 SEBI circular no. Investor grievance handling Mechanism to monitor complaints lodged with branches/sub-brokers Maintenance of complaints register Redressal mechanism for complaints registered against the member Comment on complaints pending for long period Verification of investor grievance register and email id What is the system to report complaints received by branches / sub brokers to the head office? Whether complaints are received from specific branch/sub-broker? Whether complaints register includes complete details of investor complaints? What is the procedure adopted to resolve complaints? 51 .97 dated March 31. 2008 Exchange Notice No. 2008. Exchange Notice No.20080612-3 dated June 12.officials in head office. SMD/POLICY/CIRCULAR/3. 1997.20080716 – 10 dated July 16. 2001 Regulation 18B of SEBI (Stock Brokers and Sub-Brokers) Regulations. 8.

with the required details and for the stipulated period as per regulatory requirement? Whether exchange wise separate books of accounts are maintained? Whether member has dealt with any suspended /defaulter /expelled member and/or prohibited entity? Whether prior approval has been obtained by member for change in shareholding/directors/constitution? Whether prior approval has been obtained in case the member has dealt with another member of the Exchange? Whether member has intimated the Exchange in case of they have dealt with member of another stock exchange? Whether advertisements are issued after prior permission of the Exchange? Whether member maintains and updates client master in its back office? 52 Verification of books of accounts and other records Internal controls on the process for taking approval of the Exchange Analysis of financial reports . 2006 Clause 1(d) of Regulation 12A Exchange Notice No.Internal control for verification of complaints received through the designated email –id Whether specific action plan is framed by the member in respect of long pending complaints? Whether designated email id for investor grievances is created and informed to the investors ? What is the periodicity of monitoring investor complaints? Whether complaints of substantial amount is escalated to the top management ? SEBI circular no. registers and records are maintained Exchange wise. with the required details and for the stipulated period as per regulatory requirement Whether prescribed books of accounts. MRD/DoP/Dep/SE/Cir-22/06 dated December 18. 2007 9. Maintenance of Books of Accounts Prescribed books of accounts.20070131-11 dated January 31. registers and records are maintained Exchange wise.

Whether financial reports of the member has been analysed? Comments on the same. MIRSD/MSS/Cir. Rule 15 of Securities Contract Regulation Rules 1957 Regulation 17(1) & 18 of SEBI (Stock Broker Sub-broker) Regulation 1992 Rule 4 (c) of SEBI (Stock Brokers and Sub Brokers) Rules. 2001 SEBI circular no. 2004 10. 1992 Clause C(4) & C (5) of Regulation 7 SEBI Circular No. SEBI/MRD/SE/Cir-15/2005 dated August 4.43/28408/04 dated December 15. " Medium Risk". 2004 SEBI circular no. Systems & Procedures pertaining to Prevention of Money Laundering Act (PMLA). if any is intimated to FIU-India? Whether member has adopted and implemented written guidelines prescribed under PMLA. MIRSD-DR 1/SRP/Cir. nature of business activity. trading turnover and the manner of making payments so that the clients can be classified in to "High Risk". 2002? 53 Walk through of the process Process of generation and monitoring alerts System in place that allows continuous monitoring of transactions Process for identifying STR (Suspicious Transaction Report) and reporting the same to FIU-India filed Processes for verification of alerts with KYC details . SMDRP/Policy/Cir-49/2001 dated October 22. SEBI/MIRSD/Cir-06/2004 dated January 13. 20040117-8 dated January 17. 2002 Customer acceptance policy and customer due diligence measures What is the process adopted by member to verify the identity of the customer and/or the person on whose behalf a transaction is being conducted ? Whether any account was opened in fictitious name/benami account ? What checks and balances are in place to ensure that the identity of the client does not match with any person having criminal background or is not banned in any other manner? What are the factors of Risk perception having regard to client's location. 2003 SEBI circular no." Low Risk" category? Whether details of appointment of Principal Officer and change in Principal officer. 2005 Exchange Notice No. address. 2004 SEBI circular no.30/ 13289/03 dated July 09.

20081222-21 dated December 22. 2009 Exchange Notice no.20060321-15 dated March 21. 2006 SEBI circular no. Transfer of trades Transfer of trades in the back office Whether any trades were transferred from one client code to another client code or from client code to pro or vice-versa in the back office of the member? Whether any pattern was observed in case. transfer trades carried out at member’s back office Verification of trade files downloaded by the Exchange with sauda register/back-office file of member (based on which contract notes are generated) Internal controls for transfer of trades SEBI circular no. 2009 11.20040402-31 dated April 02. in case he is providing margin trading facility to his clients? Whether member has complied with regulatory requirements related to margin trading? SEBI circular no. SEBI/MRD/SE/Cir. SEBI/MRD/SE/SU/Cir-15/04 dated March 19. ISD/SR/AK/AML/150847/2009 dated January 15. 2003 Exchange Notice No. Margin Trading Verification of agreements Records of funding Whether member has obtained specific approval from the exchange.20090122-9 dated January 22. 2004 Exchange Notice No. 2008 Exchange Notice No.20030329-1 dated March 29. 2002 whether record of transactions. 2004 54 . ISD/AML/CIR-1/2008 dated December 19. ISD/CIR/RR/AML/1/06 dated January 18.32/2003/27/08 dated August 27. 2003 12. 2006 SEBI circular no. 2008 SEBI letter no. ISD/CIR/RR/AML/2/06 dated March 20. 2006 Exchange Notice No. its nature and its value are maintained? SEBI circular no.Whether member has adequate system to generate alerts for suspicious transactions? As per provisions of Prevention of Money Laundering Act.

2000 15. 20031125-7 dated November 25. Internet Trading Process of approval from Exchange Verification of internet agreements Whether member has obtained specific approval from the exchange. whether member has disclosed this information to his clients? If member is doing pro trading from multiple locations. whether member has obtained prior approval from the Exchange in this regard? Process for approval of Exchange SEBI circular no. Proprietary Trading Verification of ids enabled for pro If member is doing pro trading. 20030909-1 dated September 09. SEBI/MRD/SE/Cir-32/2003/27/08 dated August 27. SMDRP/POLICY/CIR-06/2000 dated January 31. 2003 14. 47315 /2000 dated April 17. 2003 Exchange Notice No. 2003 Exchange Notice No. in case he is providing internet trading facility to his clients? Whether member has complied with regulatory requirements related to internet trading ? Whether broker has got his system audit done & submitted the system audit report to the Exchange within prescribed time limit ? Procedure followed for user id and password Internal controls for internet trading SEBI Circular no. 2003 SEBI letter no. SEBI/MRD/SE/Cir-42/2003 dated November 19.13. Operations of Professional Clearing member/ Members clearing trades of other trading members Verification of execution of trading -clearing member (TM-CM) agreements/Custodial Participant agreements Verification of issuance of statement of accounts to trading members/custodial participants Whether TM-CM agreements are executed in prescribed formats with trading member? Whether Clearing member custodial participant agreements are executed in prescribed formats ? 55 . 2000 Exchange Notice No.

what is the basis of interest with complete details like percentage of interest. 2007 SEBI circular no.31 /2008 dated October 31. 20080128-3 January 28. 20071224-10 dated December 24. periodicity of interest charged 16. 2008 Exchange notice no. MRD/DoP/SE/Dep/Cir-14 /2007 dated the December 20. MRD/DoP/SE/Cir. 2008 Exchange notice no. 20080417-23 dated April 17.Whether statement of accounts has been sent to trading member/custodial participants/? Whether clearing members had collected appropriate and adequate margins in prescribed forms from respective trading members? Whether Margin collection reported to Exchange is in accordance with margins actually collected from trading member ? Whether exposure allowed to trading members were based on requisite margins available with the clearing member? Whether interest is charged to the trading member? If yes. 2007 Exchange notice no. 2008 Exchange notice no. 20080130-38 dated January 30. 2008 56 . 2008 Exchange notice no. Securities Lending & Borrowing Scheme Process of approval from Exchange Whether member has obtained specific approval from the exchange? Whether member has complied with regulatory requirements related to SLBS ? Verification of SLBS agreement SEBI circular no. 20081223-15 dated December 23.

Comments by auditor on the status of compliance in respect of deviations reported in the last audit report. 8. This has been prepared based on the regulatory requirement (as per relevant acts. 3. agreements. If auditors observations are in the nature of a deviation or a recommendation. Segments (Cash Segment/Derivatives Segment / Debt Segment /Currency Derivatives/Securities Lending & Borrowing segment) Activity (Trading/Clearing/Trading and Clearing) SEBI registration number 57 . Regulations and circulars of SEBI. 6. comments by the auditor on whether the member has complied with the observations made in the Exchange/SEBI inspection report are to be included in the audit report. The report shall also include the following. 5. / MCX-Stock Exchange /other Stock Exchange. Membership number allotted by the affiliated professional body should be quoted at the bottom of the report as provided in the format. for the half year ended_____________________. (name of the trading/clearing member) bearing SEBI registration number ______________________) a member of the National Stock Exchange of India Limited / Bombay Stock Exchange Ltd. SEBI (Stock Brokers and Sub-brokers) Regulations 1992. Rules. The points mentioned are only indicative in nature and not exhaustive. In case the member has been inspected in the relevant half year by the Exchange / SEBI. Bye laws of Exchange. Observations in the report should be quantified giving instance wise details. Auditor shall specifically declare about direct / indirect interest in or relationship with the member or its share holders / directors / partners / proprietors / management. data security and insurance have been covered in the audit. SEBI Act 1992. the member’s response should be sought and recorded in the report. 1. for the following segments to fulfill the internal audit requirement as prescribed by SEBI vide circulars dated August 22. Improvements brought about in the operations between the last audit and the current audit. 2008. details of segment and activity (trading or clearing) for which such violations are observed. A statement by the auditor that the provisions of SCRA 1956. if any and also confirm that they do not perceive any conflict of interest in such relationship / interest while conducting internal audit of the said member. If any major significant deviations and deviations of recurring nature are observed. _______________. 4. regulations and circulars) which keep on developing from time to time. records and documents maintained by M/s. 2. 7.3 CERTIFICATE FOR INTERNAL AUDIT We have examined the relevant books of accounts. 2008 & October 21. circulars of Clearing House.Points to be noted The guidelines prescribed hereunder do not limit the scope of the internal audit. Bye laws. Annexure . The auditors should peruse them and update the scope of the audit. the same should be reported separately in the covering page of the audit report. rules.

which covers the entire scope of the audit. is true and correct. records & documents. In our opinion and to the best of our information and according to the explanations given to us by the proprietor/partner(s)/director(s)/compliance officer. 1992 and various circulars of SEBI. / CP. To the best of our knowledge and belief and according to the information and explanations given to us. In our opinion proper books of accounts. No. Regulations. Rules. Securities Contracts (Regulation) Act 1956. __________________ Company Secretary / Cost and Management Accountant / Chartered Accountant (Seal & Signature) (Name of the Proprietor / Partner) Membership no. We declare that we do not have any direct / indirect interest in or relationship with the member or its directors / partners / proprietors / management and also confirm that we do not perceive any conflict of interest in such relationship / interest while conducting internal audit of the member.The purpose of this audit is to examine that the processes. SEBI (Stock Brokers and Sub-Brokers) Regulations. 1992. We have obtained all the information and explanations. Securities Contracts (Regulation) Rules 1957. which to the best of our knowledge and belief were necessary for the purpose of this internal audit. records and documents. Based on the scrutiny of relevant books of accounts. procedures followed and the operations carried out by the Trading Member/Clearing Member are as per the applicable Acts. the Report provided by us as per the Annexure and subject to our observations. Regulations of BSE / NSE / MCX-SE and various circulars issued by the Stock Exchange and Clearing Corporation/Clearing House. so far as it appears from examination of the books. no material fraud / non-compliance /violation by the member is observed during the course of this audit. Bye-laws and Circulars prescribed by SEBI and the Stock Exchange. we certify that the member has complied with the relevant provisions of SEBI Act. Place:Date:- 58 . as per the regulatory requirement have been maintained by the member. The member has complied with the Rules. Bye-laws. We have conducted the audit within the framework provided by SEBI/Stock Exchange for the purpose of this internal audit.

NSE/INSP/11537) 23rd October.Inspection Dept Encl: As above 59 . All members are requested to ensure compliance with the above. 2009. company secretaries or cost and management accountants who are in practice and who do not have any conflict of interest. NSE/INSP/11172) dated August 22. Vice-President. format of audit report and the time limit for submission of audit report have been finalized and enclosed herewith as Annexure I. NSE/INSP/2009/76 To. Sania Surve Board Lines 2659 8100 – 8114 Extn. All Trading Members and Clearing Members Sub: Internal Audit of stock brokers / trading members / clearing members This is further to our circular NSE/INSP/2008/70 (download reference no. : NSE/INSP/12174 Circular No. 2008 wherein all trading members / clearing members were directed to carry out complete internal audit on a half yearly basis by independent qualified Chartered Accountants or Company Secretaries or Cost and Management Accountants. the applicability. II and III. In view of the above all trading members / clearing members are required to ensure to complete internal audit on a half yearly basis by chartered accountants. : 5128 Direct No 26598196 Dated : 25th March 2009 For National Stock Exchange of India Ltd. C N Upadhyay Asst. 2008 to March 31. : 5123 Extn. Further based on SEBI’s letter no. Parameshwaran Ms. 2009. 2008 and NSE/INSP/2008/74 (download reference no. Hansen Cardoza Mr. scope / guidelines of audit. For any clarifications. MIRSD/DPS-I/PG/158174/09 dated March 23.7 NSE CIRCULAR NATIONAL STOCK EXCHANGE OF INDIA LIMITED INSPECTION DEPARTMENT CIRCULAR DOWNLOAD REF. : 5124 Extn.NO. members may contact any of the following officials: Name Mr. It was also informed that the first internal audit period would be from October 1.

Annexure I INTERNAL AUDIT FOR STOCK BROKERS I. (d) to ascertain whether the provisions of the securities laws and the directions and/or circulars issued there under by SEBI/Exchanges are being complied with (e) to ascertain. Bye laws of the Exchanges. circulars issued by SEBI. Who can conduct internal audit Internal audit is required to be carried out by any Chartered Accountant. III. records and documents are being maintained in the manner required under Securities Exchange Board of India Act. Submission of internal audit report Internal auditor would submit the audit report to the Proprietor/Partners/Board of respective trading/clearing member who would place the report before its Board of 60 . data security and insurance in respect of operations of trading member/clearing members. 1992. 1992. Bye laws of the Exchanges. data security and insurance in respect of operations of trading member/clearing members (b) to ascertain whether adequate internal control systems. instructions or orders issued by stock exchanges are being complied with (f) to inquire suo motu into such matters as may be deemed fit by the auditor in the interest of investors or the securities market IV. circulars. 1957. notices. Applicability Trading members (Stock brokers) and Clearing members are required to appoint an internal auditor for carrying out internal audit of their operations in all segments of the Exchange in which they are enabled for trading /clearing (wherein atleast a one/single trade have been executed or cleared by them) and submit exchange wise report on half yearly basis. . (c) to ascertain whether any circumstances exist which would render the intermediary unfit or ineligible for dealing in securities market. 1992. The first half year period would start from October 01. Company Secretary or Cost and Management Accountant who is in practice and who do not have any conflict of interest. Securities Contracts (Regulation) Rules. Securities Contracts (Regulation) Rules. SEBI (Stock brokers and Sub-brokers) Regulations. agreements. 1957. 1992. 1956. Securities Contracts (Regulation) Act. SEBI (Stock brokers and Subbrokers) Regulations. Securities Contracts (Regulation) Act. 2008. Bye-laws. circulars issued by SEBI. procedures and safeguards have been established and are being followed by the intermediary to fulfill its obligations under Securities and Exchange Board of India Act. Scope/Purpose of Audit The purpose of audit should be (a) to ensure that the books of account. 1956. II. whether the provision of stock exchange. agreements.

Where.TPA and RDD Systems and procedures put in place by member for verification of PAN before opening account Procedure followed by the member for informing UCC to the clients & uploading to the Exchange Mechanism to ensure financial details of clients Procedure adopted for in person verification of clients Procedure adopted by relationship managers. if any. name and signature of the official who has done inperson verification and the member’s stamp incorporated in the client registration form? Whether copies of all the documents executed by client are given to the respective clients? . PAN and proof of address are taken with KYC form? Whether any contravening clauses are included in MCA/TPA? Whether in person verification of clients is done by the employees of the trading member only? Whether date of verification. in the opinion of the Exchange. the Exchange reserves the right to advise the concerned members to change the auditors and/or submit revised reports. as prescribed by NSE/ SEBI Verification that Contradictory clauses are not mentioned in KYC. RDD are executed in the prescribed formats and the same is executed before execution of trades for the client ? Whether UCC is allotted to the client & the same is uploaded to the Exchange with PAN? Whether all fields in KYC including client’s financial details are filled in properly? Whether proper proof of identity. for procuring new clients Delivery of copies of client registration documents to the clients Storage of client registration documents and retrieval mechanism Procedure adopted for obtaining clients’ consent for electronic contract notes Periodic review of client related 61 Whether KYC. MCA. MCA/TPA. Non-compliance relating to internal audit by the members Non-submission of internal audit report as per the aforesaid guidelines shall be treated as non-compliance and appropriate action may be initiated against the concerned members.Directors/proprietor/partners and shall forward the same along with para-wise comments to respective stock exchange within 3 months of the end of half year period. V. MCA/TPA and RDD and attachments including proof of identity and address. The audit report may be combined across segments and activity (trading/clearing) for respective Exchange. Annexure II Areas to be covered in internal audit and areas on which comments needs to be incorporated in the report are given below 1. Member Constituent Agreement(MCA)/Tripartite Agreement(TPA) and Risk Disclosure Document (RDD) – checks and balances in place Verification of formats of KYC. Client registration and documentation Execution of Know Your Client(KYC). the quality of the reporting is not satisfactory or the audit is not carried out in accordance with the aforesaid guidelines.

bank account or demat account is carried out on receipt of written request along with documentary proof from the respective client? Whether client details including financial details are reviewed periodically and updated? Exchange regulatory references Circulars. bank guarantees and approved securities with appropriate haircut ? Whether the member has a proper system for reporting the correct client margin collection to NSCCL. 2001.35/2004 dated October 26. 2007 SMDRP/Policy/Cir-39/2001 dated July 18. Download no. Order management and risk management systems Procedure adopted for receipt of orders from clients Mechanism for order management and execution Procedure adopted for setting Limits at client level / Terminal level/Dealer level Policy on Margin collection mechanism and the modes of margin money Procedure adopted for reporting of client margin collection to clearing corporation Review of process adopted for monitoring/recovery of long outstanding debit balances Procedure adopted for calculation and reporting client funding Procedure for monitoring institutional trades not routed through custodians Procedure adopted for providing Direct Market Access (DMA) facility Whether checks are in place to ensure that no unauthorized orders are executed from any of the terminals? Whether control reports like orders executed away from market price. NSE/INVG/7236 dated 3-Mar-06 SEBI references Ø Ø Ø Ø Ø SEBI/MIRSD/DPS-1/Cir-31/2004. NSE/INSP/11324 dated 18Sep-08.Download no. in Derivatives segment? Verify whether the margin reported by the member to the Exchange in Derivates segment is actually collected 62 . clientwise / scrip-wise / terminal-wise volumes / exposures are generated to monitor any manipulation or unwarranted activity? In case of dormant accounts.information and updation of the same in system Verification of RDD/KYC/MCA/TPA of different types of clients Acquaintance procedure for new clients Whether change in address. 2008 MRD/DoP/Cir. fixed deposit receipts. MRD/DoP/SE/Cir. 2004 2. 2004 & Regulation 7 D MIRSD/DPS III / 130466 / 2008 dated July 02. dated August 26. are there any checks in place to ensure that incase the account is reactivated whether it is operated by the respective client only? Whether initial and other margins are collected from respective clients in the prescribed form of funds.05/2007 dated April 27.

Download no. Download no. NSE/CMPT/6610 dated 06-Sep05. NSE/CMPT/11276 dated 10-Sep-08 63 . Download no. if any. NSE/INSP/11324 dated 18-Sep-08. Download no. Download no. DMA? Exchange's regulatory references Circulars. NSE/CMTR/6732 dated 04-Oct-05. mention the instances wherein wrong reporting of margin collected from clients/trading members was observed. Download NSE/CMTR/10537 dated 3-Apr-08. NSE/CMTR/6963 dated 19-Dec-05.and available in the books of accounts of the member. NSE/CMPT/6653 dated 16-Sep-05. to the exchange within prescribed time limit? What are the sources of funds in case client funding is observed? Whether all institutional trades are routed through custodians by following Straight Through Processing ? What are the reasons for institutional trades not being routed through custodians? Whether any specific pattern is observed for the same? Whether member has obtained prior approval from the exchange before providing terminal to the clients under DMA facility? Whether member has complied with regulatory requirements related to. Download no. Whether Risk Management System (RMS) includes policy on margin collection from clients/trading member and the RMS is documented? Whether proper systems are in place to ensure timely collection for pay-in from the respective client as per settlement schedule? Whether proper monitoring mechanism is in place to review long outstanding debit balances in clients’ account and recovery of the same? Whether member has reported details of client funding. In case of any irregularity observed. NSE/MEMB/261 dated 27-May-97.Download no. NSE/INVG/7236 dated 3Mar-06.

Contract notes. Client margin details and Statement of accounts Procedure adopted for issuance of contract notes Verification of format of contract notes issued Verification of copy of contract note with Proof of dispatch/register of desptach/logs maintained Adherence to electronic contract note norms. 1993 Ø SMD (B)/104/22775/93 dated October 29. 1993 Ø SMD/MDP/CIR/043/96 dated August 5. 2005 Ø SEBI/DNPD/143542 /Cir-43/08 dated November 06. 2008 64 . 2005 3. NSE/INSP/11324 dated 18Sep-08 SEBI references Ø Clause B(2) of Code of conduct for Stock Brokers specified under Regulation 7 Ø SMD-1/23341 dated November 18. if applicable Procedure adopted for sending statement of accounts Contents & periodicity of statement of accounts of funds and securities Procedure adopted for sending margin details to clients Procedure for maintaining acknowledgement/proof of delivery of contract notes/statement of accounts/margin details to the clients Whether contract note are sent within 24 hours of execution of trades and margin details are sent daily to respective clients and proof of delivery / dispatch is maintained? Whether all prescribed details including name and signature of authorised signatory. Electronic contract notes (ECN)? Whether complete statement of accounts for funds and securities are issued on a quarterly basis to clients. whether log is maintained? Whether trail of bounced mails is maintained and physical delivery is ensured in case of bounce mails? Whether member has complied with regulatory requirements related to. dealing office details and brokerage are contained in contract note? In case contract notes and margin details are sent in electronic form. 1996 Ø MRD/DoP/SE/Cir-20/2005 dated September 08.SEBI references Ø MRD/DoP/SE/Cir-07/2005 dated February 23.17/2005 dated September 02. with error reporting clause? Whether proof of sending the same is maintained? Exchange's regulatory references Circular Download no. 2005 Ø MRD/DoP/SE/Cir.

observed during the audit period are to be given (mentioning any specific branch involved). Verification of internal controls adopted by the member while accepting banker’s cheque / demand draft from clients Procedure for ensuring that receipts and payment of funds/securities are from/to respective client only Periodic Reconciliation of books of accounts Verification of following books of accounts/records .Depository accounts maintained by member . details of such instances observed are to be given.4.Bank Statements . if any.Bank Book .Cash Book .Client ledgers . Dealing with clients’ funds and securities Verification of details of cash receipts from / payments to clients. if any.Underlying for any overdraft/loan account. Whether funds raised by pledging client securities were utilised for respective client only? List of instances to be provided in case of non-utilisation of proceeds for respective client? Whether bank book and register of securities are in alignment with bank statements and transaction statements provided by banks and depositories? Whether dividend and other corporate benefits received on behalf of clients is paid/credited/passed on to the respective clients account ? Exchange's regulatory Circular Download no. .Details of records of client securities pledged. Whether cash dealings with clients are done by branches / sub brokers? Whether banker’s cheque / demand draft are accompanied with written request from the respective client? Whether pay-in or pay-out is received from or delivered to respective clients only? Whether client’s funds / securities are transferred to respective clients within one working day of payout from Exchange ? Whether any instance of misutilisation of clients’ funds or securities is observed ? If yes. 65 . NSE/INSP/11324 dated 18-Sep-08 and CM and F&O regulations. give complete details of such instances Whether any instances were observed wherein pay-in / pay out was received from / made to account other than the respective client account? Whether there are any systems in place to ensure compliance in this regard by the member? Whether collaterals of clients were pledged with banks / other entities for raising funds? If yes.Register of Securities .

Whether periodic audit of systems and software is conducted by certified system auditor? Whether terminals are operated by approved persons/approved users with valid NCFM certification? Whether correct User name. Banking and Demat account operations Procedure for segregation of own and clients’ funds and securities (in separate accounts) Internal controls for use of client bank and client beneficiary accounts only for authorized purposes. 2003 Ø SMD/POLICY/Cir -06 /03 dated February 12. Due diligence adopted for password security Procedure in place for audit of systems and software Periodic updating of version and back up mechanism System adopted for data storage. 1992. Terminal operations and systems Procedure and policy adopted by member before allotment of trading terminals Verification of terminals and its users. security and access Verification of logs from server Whether terminals are provided by the member in its head office.33/2003/27/08 dated August 27. Verification of client’s bank account and constituent beneficiary accounts Whether member maintains separate bank account for client funds and own funds. Also whether member maintains separate beneficiary account for clients securities and own securities? Whether clients funds and securities are segregated from own funds and securities? Are there any instances of use of constituent beneficiary account or client bank account for other than authorized purposes ? In case of any irregularity observed. login id. 1993. SEBI/MRD/SE/Cir.11/2008 dated April 17. mention the instances in detail.SEBI references Ø SEBI Circular No. 6. Exchange's regulatory references Circular Download no. Verification of certification of the approved users. 2003 Ø Code of conduct for Stock Brokers specified under Regulation 7 of SEBI (Stock Brokers and Sub brokers) Regulations. 2008 5. give complete details. SMD-1/23341 dated November 18. at the audit place. NSE/INSP/11324 dated 18Sep-08 and CM and F&O regulations. terminal location are reported to the Exchange? 66 . Ø MRD/DoP/SE/Cir. SEBI reference Ø SEBI Circular No. branch office or the office of sub broker? Whether any unauthorized terminal is observed to be allotted? If yes.

whether advance notice of the same is sent to clients? Proof of the same. NSE/CMTR/6552 dated 24-Aug-05. branches and sub-brokers office Process laid out so as to prevent 67 Whether survey is conducted by the member for opening / closing of branches? In case of closure. 2001 Ø SEBI/MRD/SE/15958/2003August 22. download no.Whether internal controls are in place to ensure that the certification of approved users has not expired? Whether prior permission is obtained by member for providing CTCL? Whether member has complied with applicable provision of CTCL? Whether updated version of software is used? Whether back up facilities are in place and followed? Whether broker has got his system audit done & submitted the system audit report to the Exchange within prescribed time limit? Whether sufficient security is in place? system for data Exchange's regulatory references –Download no. NSE/MEMB/3574 dated 29-Aug-02. download no. NSE/CMTR/8089 dated 10-Nov—06 SEBI references Ø SMDRP/Policy/Cir-49/2001 dated October 22. NSE/CMTR/7634 dated 28-Jun-06. Whether there is monitoring mechanism to identify sudden increase / decrease in client level turnover from any specific branch? Whether periodic inspection of branch / . download no NSE/MEM/3740 dated 13-Nov-02 and NSE/MEM/7992 dated 10-Oct-06. 2003 7. NSE/CMTR/6128 dated 10May-05. NSE/FAOP/6553 dated 24-Aug-05. download no. Management of branches / sub brokers and internal control System and Policy followed for opening / closing of branch Procedure adopted to inform the same to clients Periodicity and procedure adopted for inspection of branches / sub brokers Reporting mechanism and mode of informing the inspection observations to branches / sub brokers Follow up action plan Policy of fixing of roles and responsibilities of officials in head office. download no. NSE/MEMB/3635 dated 25-Sep-02. download no.

1998 Ø Circular No. 2001 Ø Regulation 18 B of SEBI (Stock Brokers and Sub-Brokers) Rules.unregistered intermediation Documentation of Internal controls and Comments on Internal controls in place Verification of Stock broker indemnity insurance policy Sharing of commission/brokerage sub broker is conducted and reports are maintained? What is the follow-up mechanism? Whether unregistered intermediation is observed? Whether the member has shared commission/brokerage with entities with whom trading members are forbidden to do business / another trading member / employee in the employment of another trading member? Whether internal controls exists and are sufficient to cover the risks at the members end? Whether Stock broker indemnity policy with standard cover/clauses has been taken ? Exchange's regulatory references – Circular no. SMD/Policy/CIR-3/98 dated January 16. 1997.97 dated March 31. Sub-Brok/Cir/02/2001 dated January 15. NSE/INSP/11324 dated 18-Sep-08 and CM and FO Rules and Byelaws of the Exchange SEBI references Ø Section 12 of SEBI Act Ø SEBI Circular No. 8. Investor grievance handling Mechanism to monitor complaints lodged with branches/Sub brokers Maintenance of complaints register Redressal mechanism for complaints registered against the member Comment on complaints pending for long period Verification of investor grievance register and email id Internal control for verification of complaints received through the designated email –id What is the system to report complaints received by branches / sub brokers to the head office? Whether complaints are received from specific branch/sub broker? Whether complaints register includes complete details of investor complaints? What is the procedure adopted to resolve complaints? Whether specific action plan is framed by the member in respect of long pending complaints? Whether designated email id for investor grievance is created and informed to the investors ? 68 . 1992 Ø SMD/POLICY/CIRCULAR/3.

2006 9. with the required details and for the stipulated period as per regulatory requirement Whether prescribed books of accounts. Maintenance of Books of Accounts Prescribed books of accounts. with the required details and for the stipulated period as per regulatory requirement? Whether register of securities maintained client wise-scrip wise? is Whether exchange wise separate books of accounts are maintained? Whether member has dealt with suspended//defaulter/expelled members and entities prohibited from accessing market ? Whether prior approval has been obtained by member for change in shareholding/directors/constitution? Whether prior approval has been obtained in case the member has dealt with another member of the Exchange? Whether member has intimated the Exchange in case of they have dealt with member of another stock exchange? Whether advertisements are issued after prior permission of the Exchange? Whether member maintains and update client master in its back office? Whether financial reports of the member has been analysed? Comments on the same.Circular NSE/MEMB/8352 dated 9-Jan-07. 69 Verification of books of accounts and other records Ledger Scrutiny Internal controls on the process for taking approval of the Exchange Analysis of financial reports . registers and records are maintained Exchange wise. Circular no.What is the periodicity of monitoring investor complaints ? Whether complaints of substantial amount is escalated to the top management ? Exchange's regulatory references . registers and records are maintained Exchange wise. NSE/INSP/5387 dated 30-Aug-04 SEBI references Ø Clause 1(d) of Regulation 12A Ø MRD/DoP/Dep/SE/Cir-22/06 dated December 18.

SMDRP/Policy/Cir-49/2001 dated October 22. is intimated to FIU-India? Whether member has adopted and implemented written guidelines prescribed under PMLA. 2002 ? Whether member has adequate system to generate alerts for suspicious transactions? As per provisions of Prevention of Money Laundering Act. address. 2002 whether record of 70 . 1992 Ø SEBI/MRD/SE/Cir-15/2005 dated August 4. 2002 Customer acceptance policy and customer What is the process adopted by member due diligence measures to verify the identity the customer and/or the person on whose behalf a Walk through of the process Process of generation and monitoring transaction is being conducted ? alerts System in place that allows continuous Whether any account was opened in fictitious name/benami account ? monitoring of transactions Process for identifying STR (Suspicious Transaction Report) and reporting the What checks and balances are in place to ensure that the identity of the client same to FIU-India does not match with any person having criminal background or is not banned in any other manner? Processes for verification of alerts with KYC details What are the factors of Risk perception having regards to client's location. nature of business activity. if any. 2005 Ø SEBI/MIRSD/Cir-06/2004 dated January 13. 2003 Ø Clause C(4) & C (5) of Regulation 7 Ø Circular No. Systems & Procedures pertaining to Prevention of Money Laundering Act. PMLA. 2004 Ø Rule 4 (c) of SEBI (Stock Brokers and Sub Brokers) Rules.43/28408 /04 dated December 15." Low Risk" category? Whether details of appointment of Principal Officer and change in Principal officer. 1992 Ø MIRSD-DR 1/SRP/Cir. " Medium Risk". NSE/INSP/11324 dated 18Sep-08 and CM and F&O regulations. trading turnover and the manner of making payments so that the clients can be classified in to "High Risk". 2001 10.30/ 13289/03 dated July 09. SEBI references Ø Rule 15 of Securities Contract Regulation ( Rule )1957 Ø Regulation 17(1) of SEBI (Stock Brokers and Sub brokers ) Regulations.Exchange's regulatory references download circular no. 2004 Ø MIRSD/MSS/Cir.

whether member has disclosed this information to his clients? If member is doing pro trading from multiple locations. it's nature and it's value are maintained? Exchange's regulatory references Circular download no. 2003 Ø SEBI/MRD/SE/Cir.32/2003/27/08 dated August 27.transactions. whether member has obtained prior approval from the Exchange in this regard? Exchange's regulatory references Circular NSE/CMTR/4540 Dated 6-Nov-03 and Exchange Circular NSE/CMTR/4460 Dated 3-Oct-03 SEBI references Ø SEBI/MRD/SE/Cir. NSE/INVG/7102 dated 25Jan-06 and NSE/INVG/7307 dated 24-Mar-06 and NSE/INVG/11798 dated 22-Dec-08 and NSE/INVG/11928 dated 22-Jan-09) SEBI references Ø ISD/AML/CIR-1/2008 dated December 19. 2003 12. 2004 13.case transfer of trades carried out at office file of member (based on which member’s back office? contract notes are generated) Internal controls for transfer of trades Exchange's regulatory references – CM and F&O regulations SEBI references Ø SEBI/MRD/SE/Cir.42 /2003 dated November 19. in case he is providing margin trading facility to his clients? Whether member has complied with regulatory requirements related to margin trading? Exchange's regulatory references Circular download NSE/MEM/4972 Dated 7-Apr-04 SEBI references Ø SEBI/MRD/SE/SU/Cir-15/04 dated March 19. 2008 11.32/2003/27/08 dated August 27. 2003 71 . Proprietary Trading Verification of ids enabled for pro Process for approval of Exchange If member is doing pro trading. Margin Trading Verification of agreements Records of funding Whether member has obtained specific approval from the exchange. Transfer of trades Procedure and system adopted transfer of trades in the back office for Whether any trades were transferred from one client code to another client code or from client code to pro or viceversa in the back office of the member? Verification of trade files downloaded by Whether any pattern was observed in the Exchange with sauda register/back.

2000 15. what is the basis of interest with complete details like percentage of interest.14. in case he is providing internet trading facility to his clients? Whether member has complied with regulatory requirements related to internet trading? Whether broker has got his system audit done & submitted the system audit report to the Exchange within prescribed time limit? Exchange's regulatory references Circular download no.Circular no. Operations of Professional Clearing other trading members Verification of execution of trading clearing member (TM-CM) agreements/Custodial Participant agreements Verification of issuance of statement of accounts to trading members/custodial participants member/ Members clearing trades of Whether TM-CM agreements are executed in prescribed formats with trading member? Whether Clearing member custodial participant agreements are executed in prescribed formats ? Whether statement of accounts has been sent to trading member/custodial participants/? Whether clearing members had collected appropriate and adequate margins in prescribed forms from respective trading members? Whether Margin collection reported to Exchange is in accordance with margins actually collected from trading member ? Whether exposure allowed to trading members were based on requisite margins available with the clearing member? Whether interest is charged to the trading member? If yes. NSE/CMPT/11276 dated 10-Sep-08 72 . NSE/CMTR/1532 dated 16Mar-00 SEBI references Ø SMDRP/POLICY/Cir-06/2000 dated January 31. Internet Trading Process of approval from Exchange Verification of internet agreements Procedure followed for user id and password Internal controls for internet trading Whether member has obtained specific approval from the exchange. periodicity of interest charged Exchange's regulatory references .

details of segment and activity (trading or clearing) for which such violations are observed. Membership number allotted by the affiliated professional body should be quoted at the bottom of the report as provided in the format. 8. Observations in the report should be quantified giving instance wise details. 6. A statement by the auditor that the provisions of SCRA 1956.Circular no NSE/CMPT/10146 dated 28-Jan-08. agreements. The auditors should peruse them and update the scope of the audit. 2008 Points to be noted The guidelines prescribed hereunder do not limit the scope of the internal audit.16. If any major significant deviations and deviations of recurring nature are observed. The report shall also include the following. does not limit the scope of the internal audit. 3. 4. Bye laws of Exchange/Clearing Corporation. Regulations. Improvements brought about in the operations between the last audit and the current audit. 73 . the member’s response should be sought and recorded in the report. SEBI (Stock Brokers and Sub-brokers) Regulations 1992. If auditors observations are in the nature of a deviation or a recommendation. In case the member has been inspected in the relevant half year by the Exchange / SEBI. NSE/CMPT/10146 dated 30-Jan-08 SEBI references Ø MRD/DoP/SE/Cir. rules. NSE/CMPT/10593 dated 17-Apr-08 and NSE/CMPT/11757 dated 12-Dec-08. the same should be reported separately in the covering page of the audit report.31 /2008 dated October 31. It however. regulations and circulars) which keep on developing from time to time. This has been prepared based on the regulatory requirement (as per relevant acts. Rules. SEBI Act 1992. comments by the auditor on whether the member has complied with the observations made in Exchange / SEBI inspection report are to be included in the audit report. SCRR 1957. date security and insurance have been covered in the audit. The points mentioned are only indicative in nature and not exhaustive. circulars of SEBI. 7. 2. 5. Securities Lending & Borrowing Scheme Process of approval from Exchange Verification of SLBS agreement Whether member has obtained specific approval from the exchange? Whether member has complied with regulatory requirements related to SLBS ? Exchange's regulatory references . Bye laws. 1. Comments by auditor on the status of compliance in respect of deviations reported in the last audit report. Auditor shall specifically declare about direct / indirect interest in or relationship with the member or its share holders / directors / partners / proprietors / management if any and also confirm that they do not perceive any conflict of interest in such relationship / interest while conducting internal audit of the said member.

In our opinion proper books of accounts. for the following segments to fulfill the internal audit requirement as prescribed by SEBI vide Circulars dated 22 August 2008 & 21 October 2008. 1992 and various circulars of SEBI. Rules. SEBI (Stock Brokers and Sub-Brokers) Regulations. the Report 74 . In our opinion and to the best of our information and according to the explanations given to us by the proprietor/partner (s)/director (s)/ compliance officer. Regulations of NSE / BSE / MCX-SE and various circulars issued by the Stock Exchange and Clearing Corporation/Clearing House. no material fraud / non-compliance /violation by the Member is observed during the course of this Audit. (name of the trading/clearing member) bearing SEBI registration number ______________________) a member of the National Stock Exchange of India Limited / Bombay Stock Exchange Ltd / MCX-Stock Exchange /other Stock Exchange. procedures followed and the operations carried out by the Trading Member/Clearing Member are as per the applicable Acts. Securities Contracts (Regulation) Act 1956. records and documents . To the best of our knowledge and belief and according to the information and explanations given to us. Based on the scrutiny of relevant books of accounts. Segment Activity (Cash Segment/Derivatives Segment / (Trading/Clearing/Trading Debt Segment /Currency and Clearing) Derivatives/Securities Lending & Borrowing segment) SEBI registration number The purpose of this Audit is to examine that the processes. records and documents maintained by M/s. so far as it appears from examination of the books. Regulations. The Member has complied with the Rules. records and documents. which to the best of our knowledge and belief were necessary for the purpose of this Internal Audit. we certify that the Member has complied with the relevant provisions of SEBI Act.Annexure III CERTIFICATE FOR INTERNAL AUDIT We have examined the relevant books of accounts. for the half year ended_____________________. Bye laws. Bye-laws and Circulars prescribed by SEBI and the stock exchange(s). 1992. We have conducted the audit within the framework provided by SEBI/Stock Exchange for the purpose of this Internal Audit. We have obtained all the information and explanations. _______________. Securities Contracts (Regulation) Rules 1957. We declare that we do not have any direct / indirect interest in or relationship with the member or its share holders / directors / partners / proprietors / management and also confirm that we do not perceive any conflict of interest in such relationship / interest while conducting internal audit of the said member. as per the regulatory requirement have been maintained by the member.

Place:Date:- 75 . __________________ Company Secretary / Cost and Management Accountant / Chartered Accountant (Seal & Signature) (Name of the Proprietor / Partner) Membership no. which covers the entire scope of the Audit.provided by us as per the Annexure and subject to our observations. No. / CP. is true and correct.

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