STOCK BROKING: AN INTRODUCTION AND SEBI GUIDELINES pdf
STOCK BROKING: AN INTRODUCTION AND SEBI GUIDELINES
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In India, stock exchanges were almost self regulatory till 1988,
supervised by Ministry of Finance under the Securities Contracts
Regulation Act (SCRA). However, the stock exchanges
were not discharging their self-regulatory role as well as a result
of which malpractices crept into trading, adversely affecting
investor’s interests. SEBI has been setup to ensure that the
stock exchanges discharge their self-regulatory role properly.
Ever since SEBI began to monitor brokers, stock broking is
emerging as a professional advisory service, in tune with the
requirements of a mature, sophisticated, screen based, ring-less,
automated stock exchanges in the country in sharp contrast to
traditional, closed character as inherited family business.
So we will discuss, the Indian Stock Broking system here. The
stock broking activity consists of various intermediaries. Let us
discuss them one by one.
Stockbroker is a member of a recognized stock exchange who
buys, sells or deals in securities. To work as a stockbroker
registration with SEBI is mandatory. SEBI is empowered to
impose conditions while granting the certificate of registration.
Registration : A broker seeking registration with SEBI, has to
apply through the stock exchange of which he is member. For
registering SEBI checks - eligibility of the applicant to become
the member of stock exchange, has the necessary infrastructure
to effectively discharge his duties, past experience etc.
Every registered stockbroker is required to pay annual fee @ Rs.
5,000 for turn over up to Rs. 1 crore and 0.01% of turnover
exceeding Rs. 1 crore. For calculating turnover underwriting and
collection of deposits are not taken into account for the
purpose of calculating the turnover. The authenticity of the
annual turnover is to be certified by the stock exchange concerned.
A sub-broker acts on behalf of a stockbroker as an agent or
otherwise for assisting investors in buying, selling or dealing in
securities through such brokers but he is not a member of a
stock exchange. To act as a sub-broker, registration with SEBI is
required. It grants a certificate of registration to a sub-broker
subject to the conditions that (a) he has to pay the prescribed
fee, (b) he takes adequate steps for redressal of investor
grievances within one month of the receipt of the complaint
and keeps SEBI informed about the number, nature and other
particulars of the complaints © he is authorized in writing by a
broker for affiliation in buying, selling or dealing in securities.
Registration of Sub-brokers : According to SEBI regulations
currently in force, a sub-broker is required to submit along with
the application (a) recommendation from a stockbroker with
whom he will be affiliated and (b) two references, including one
from his banker.
Stock Market Trading
We will discuss the stock trading activity with reference to
National Stock Exchange Ltd, in short NSE. Before setting up
NSE, Indian stock exchanges were operating only in cities in
which they were setup. The NSE represented an attempt to
overcome the fragmentation of regional markets by providing
screen-based system, which transcends geographical barriers.
The main objective has been to set up comprehensive facilities
for the entire range of securities under a single umbrella
Foreign institutional investors (FIIs) now play a significant role
in the stock markets. With a view to helping the FIIs to follow
the procedures and encourage them to invest in India, SEBI has
issued a different set of guidelines:
Registration with SEBI : It is mandatory for a foreign broker
to get registered with SEBI in order to do business in India.
While applying for registration, a foreign broker has to disclose
to SEBI name(s) and registration number(s) of the stock
exchanges where he is registered in the capacity of a broker
dealer together with an undertaking that he would operate and
assist only on behalf of the registered FIIs and would not deal
in securities on his own account as principal in India. On advice
from SEBI, the RBI would accord approval to him to open (a)
a foreign currency denominated bank account and a rupee
account with a designated bank branch and (b) multiple
custodian accounts with the approved custodian of all registered
FIIs whom he may be assisting or on whose behalf he
would be placing orders with a member of Indian stock
Clearing and Settlement System of NSE
Trading has grown rapidly at NSE, due to short and tight
settlement cycles which the NSE operates as per a well defined
schedule so that investors are assured of settlement.
Settlement Features of Capital Market Segment : The cycles
are short and announced well in advance by the NSE. All scrip
are handled by the Clearing House. The gap between fund payin
and pay-out is only one day. The NSE takes responsibility for
rectifying short or bad deliveries and objections by initiating
auction buy-in. It assures legal guarantee of transactions and
settlement of the NSE.
NSE operates on account period for a periodic settlement cycle.
Trading period starts on Wednesday and ends on Tuesday of
the next week. All trades concluded during a particular period
are settled during the next week. At the end of a trading period
of the NSE, it multilaterally net obligations and generates
delivery statements for members. Securities are paid in on the
Monday following the trading period. Funds are paid in on
Tuesday. The payout day for both funds and securities is
Wednesday. Thus, settlement is completed in eight days from
the end of the last day of the trading cycle.