NATIONAL STOCK EXCHANGE OF INDIA LIMITED

INSPECTION DEPARTMENT
CIRCULAR

Download Ref No NSE/INSP/3734

Circular No. NSEIL/INSP/2002/15
Date 11/11/2002

To
All Trading Members in the Capital Market segment

Sub: Inspection of sub-brokers by Trading Members

It was informed vide circular no NSEIL/ INSP/ 2002/14 (Download Reference No. NSE/ INSP/3685)
dated 17/10/2002 that every Trading Member is required to inspect every year at least 10% of its active
sub-brokers and 10% of its active branches and also to ensure that each active sub-broker / branch is
inspected at least once in every five years.

The Exchange has received a number of requests from Trading Members to provide guidance to inspect
the books of accounts and records of their registered sub-brokers. In view of the above, an illustrative
Compliance Check List for sub-brokers is attached for ready reference.

To inspect the books of accounts and records of their branches, Trading Members are advised to refer to
the Compliance Check List provided vide circular no NSE/I&ID/2001/4 (Download Reference No
NSE/I&ID/2937) dated 19/10/2001.

Moreover, Trading Members are advised to refer to Rules, Bye-Laws, Regulations, Circulars and Notices
issued by the Exchange / Clearing Corporation and statutory / regulatory bodies to ensure proper
compliance by their registered sub-brokers and branches.

For National Stock Exchange of India Limited

J. Ravichandran
Sr. Vice President &
Company Secretary
 Compliance Check List for sub-brokers

Please note that in case of any inconsistency between the Compliance Check List as it appears
below and Rules, Bye Laws, Regulations, Circulars and Notices of the Exchange / Clearing
Corporation / other regulatory authorities, the latter shall prevail.

Books of accounts

 Whether sub-broker maintains the following books of accounts, records and documents relating to its
business for a period of five years as per Regulation 17 (1) of SEBI ( Stock Brokers & Sub-brokers )
Regulations, 1992.
1. Register of transactions (to be separately maintained for own and client transactions) providing
for the following information.
a) name of security
b) value of security
c) rates both gross and net of brokerage
d) name of constituent
2. Clients’ ledger
3. General Ledger
4. Journals
5. Cash book
6. Bank pass book
7. Documents register (client-wise, security-wise), providing for, inter alia, the following details
a. date of receipt / delivery
b. quantity received / delivered
c. party from / to whom received / delivered
d. purpose of receipt / delivery.
Every sub-broker shall also maintain a separate register or ledger in respect of its own securities
8. Counterfoils or duplicates or copies of sale / purchase notes issued to clients
9. Margin deposit book
10. Register of accounts of affiliated broker
11. Agreement with the affiliated trading member specifying the scope of authority and
responsibilities of the stock broker and the sub-broker

 Whether sub-broker maintains the following records also.

1. Contract notes received from affiliated trading member
2. Statements received from affiliated trading member
3. Records in respect of commission and brokerage collected from clients and brokerage paid to
the affiliated trading member.
4. Sub-broker client agreement executed with each of the clients.
5. Client registration form taken from each of the clients
6. Register of complaints.

 In case the sub-broker is registered with brokers of different stock exchanges, whether books of
accounts are so maintained as to clearly provide the identity of the transactions with exchange-wise
details
Banking operations

 Whether sub-broker keeps moneys of clients in a separate bank account (clients’ bank account )
 Whether the clients’ bank account is used for any transaction other than clients’ dealings in securities

Dealings with clients

 Whether sub-broker makes full payment of funds and delivers securities to their clients within
specified time.
 Whether sub-broker keeps such books of accounts to distinguish moneys received / paid on account of
each of their clients and moneys received / paid on their own account.
 Whether sub-broker has misused clients’ funds for own purpose or has transferred funds due to a
client to the account of another client
 Whether sub-broker keeps records and books of accounts, as may be necessary, to distinguish client’s
securities from sub-broker’s own securities
 Whether sub-broker has transferred securities due to a client to the beneficiary account of self /
another client
 Whether sub-broker maintains unique client code for all the clients in accordance with circular no
NSE/CMO/22/2001 dated 24/07/2001.
 Whether sub-broker has sent half-yearly statement of accounts of funds / securities to all the clients in
accordance with Regulation 6.1.5 (d) of Part A of the Capital Market Regulations of the Exchange.

Dealings with intermediaries

 Whether the sub-broker has dealt with any other trading member / sub-broker / unregistered
intermediary on behalf of its clients.

Purchase / Sale Notes ( Exchange circular no 60 ref no NSE/MEM/275 dated 12/06/1997 )

 Whether sub-broker issues purchase / sale notes to the clients for trades executed in prescribed format
with all relevant details filled in.
 Whether the purchase / sale notes are signed by sub-broker or its authorised signatory
 Whether sub-broker ensures that brokerage charged is indicated separately in the purchase / sale notes
and its commission is always less than 1.5% of the purchase / sale price exclusive of statutory levies.
 Whether sub-broker ensures that there are no differences between the trade rates as per the Neat
system and the rates charged to the clients.
 Whether sub-broker has transferred trades executed for one client to another client.
 Whether sub-broker has executed any off-market transactions

Margin requirements

 Whether sub-broker buys / sells securities on behalf of the clients only on receipt of up-front margin
as prescribed by NSCCL from time to time.
 Whether sub-broker collects daily margin from its clients as prescribed by NSCCL from time to time.
Office Management
 Whether terminals given to sub-brokers are operated by any persons other than approved users
 Whether trading terminals are located only in the registered sub-broker’s office or has the sub-broker
given / extended terminals to clients / unregistered intermediaries.
 Whether sub-broker has displayed notice boards / plates at prominently visible, painted / printed in a
permanent manner in a font and colour which enables easy reading of the subject matter and
containing details as prescribed in Annexure 2 of circular no.NSE/MEM/1591 dated April 20, 2000.
 Whether sub-broker has displayed at his office a copy of the registration certificate issued by SEBI to
the sub-broker.

Miscellaneous

 Whether sub-broker is involved in any fund based activities

 Whether sub-broker has advertised / represented himself as sub-broker of the Exchange in violation of
circular no 60 ref no NSE/MEM/275 dated 12/06/1997. ( He may represent himself only as a sub-
broker of the respective trading member )
 Whether sub-broker reconciles his accounts with the main broker as at the end of each quarter with
respect to all settlements where payouts have been declared during the quarter as per circular no 60
ref no NSE/MEM/275 dated 12/06/1997.
.