LETTER FROM M/S. ANGEL CAPITAL & DEBT MARKET LTD.
January 28, 2005
To,
The Secondary Market Policy Decision,
Securities and exchange Board of India,
29th Floor, World Trade Centre No. 1,
Cuffe Parade,
Mumbai-400005
Kind Attn: Mr. V.S.Sundaresan
Sub: Request for Informal Guidance under clauses- 4&5 (ii) of the SEBI (Informal Guidance) Scheme, 2003
Ref No:
Angel Capital & Debt Market Ltd- Member NSE Cash and F&O, Member-OTCEI
NSE Cash SEBI Regn No: INB230600236
NSE F&O SEBI Regn No: INF231134331
OTCEI Regn No: INB200600232
UIN No: 100002964
Sir,
1) We would be highly appreciative in obtaining your interpretative guidance on ‘Issuance of Contract Notes in Electronic Form’. There are certain considerations entailed below on which clarification is deliberated.
2) As per the SEBI Circular SMDRP/POLICY/CIR-56/00 dated December 15, 2000 it was indicated and provided that ‘Brokers are allowed to issue Contract Notes authenticated by means of digital signatures provided that the broker has obtained the ‘Digital Signature Certificate’ from the certifying authority under the Information Technology Act, 2000. It was further specified that the mode of confirmation by the client may be as specified in the agreement between the broker and the client. The same has been clarified in SEBI Circular SEBI/SMD/SE/15/2003/29/04 dated April 29, 2003.
3) We would like to draw your kind attention to the provisions of the Information Technology Act, 2000.
i) Section 3 of the Act specifies that any subscriber may authenticate an electronic record by affixing his digital signature by effectively using the asymmetric crypto system comprising of the unique ‘public and private key’.
ii) We have obtained the ‘Digital signature Certificate’ required under Section 24 from ‘Verisign’ a certified authority under the IT Act, 2000.
iii) Section 12 of the Act specifies that the acknowledgment of receipt of an electronic record may be as decided between the originator and the addressee.
4) With the aforementioned contemplation, we would like to mention the clauses inserted by us in the ‘Member-Client Agreement’ correlated to the ‘Electronic Contract Note’.
The Client has permitted the Stock Broker to provide the Electronic Contract Notes (ECN) authenticated by means of digital signature in substitute of the Physical Contract Note/ statement of A/c’s etc through internet. However, the Stock Broker may at its discretion; continue to issue contract notes in Physical format instead of ECN with or without levying charges for the same.
Now therefore in consideration of the Stock Broker having agreed to provide the ECN/ Statement of A/c’s etc. through internet, both the parties to the agreement hereby agree to the following terms:
i) The Client shall provide his/her/its registered E-mail ID for delivery of contract notes/ Statement of Account etc. In case client does not provide or posses an E-mail ID he agrees that he will access the website of the Stock Broker www.angeltrade.com or any other designated location (specified by the Stock Broker from time to time). The ECN will be deemed to be delivered at the designated location where client can log into the internet site using his/ her/ its username and password. Once the ECN have been delivered at the designated location viz. the internet site the client accepts the same as delivery of the contract note.
ii) The Client shall access the contract notes/trade confirmation of the trades executed on their behalf on the trade date electronically through e-mail or www.angeltrade.com or such other means / mode as may be provided by the Stock Broker from time to time. The Client understands that it is their responsibility to review all confirmations, contract notes, statements, notices and other communications including but not limited to margin and maintenance calls. All information contained therein shall be binding on the Client, if Client does not object, either in writing or via electronic mail within 24 hours after any such documents are available to the Client. Further, the ECN will be available for such time as specified from time to time at the designated location. The client will be required to save/ print/ download the contract note for archiving.
iii) Should the Client experience any difficulty opening a document electronically delivered by the Stock Broker, the Stock Broker may make the required delivery by any other electronic means (e-mail, electronic mail attachment, or in the form of an available download from the back office website) or in paper based format. Failure to advise the Stock Broker of such difficulty within forty eight hours after delivery shall serve as an affirmation that Client was able to receive and open the said document.
iv) That in case when the Stock Broker is not able to provide Contract Notes to its Client’s through Internet due to any unforeseen problem, the Stock Broker should ensure that the contract note reaches the Client in physical form as per the time schedule stipulated in Bye laws Rules and Regulations of the stock exchange.
5) In lieu of the SEBI acquiescence’s we intend to pursue the following system:
i) The Digital Contract notes shall be delivered to all clients on their E-mail IDs, recorded with us. Alternately, he may visit our website www.angeltrade.com to access the contract notes/trade confirmation of the trades executed on their behalf on the trade date. In addition, our Branches shall, on a daily basis, take the print-outs of the contracts/Trade confirmations on plain paper and transmit the same to their affiliated clients which satisfies the dispatch of the Contract notes within 24 Hours of the trade to the respective clients. These print-outs will bear a remark “The Contact Notes are digitally signed and hence does not require any signature”.
ii) The intention of taking the print outs on plain paper is that the client has confirmed with us vide the ‘Member-Client Agreement’ that he shall accept the same electronically. It is therefore devised that the physical copies of the Contract Notes in the format desired by SEBI and the Exchanges is not mandated and shall be distributed in circumstances mentioned in clauses i) to iv) as mentioned above.
iii) This practice shall also do away with the maintenance of the duplicate copies of the contract notes, the physical copies of which are cumbersome to retain for 7 years. Albeit, the same shall be preserved electronically which is more expedient and which easily facilitates the identification and retrieval of past records.
iv) This practice shall ensure that the requirements as specified in our ‘Member-Client Agreement’ associated with the mode of confirmation of Contract Notes in conformity with Section 12 of the IT Act, 2000 and vis-à-vis the SEBI Circulars as aforementioned are satisfactorily complied with.
6) We would be highly obliged in getting an early reply in this regard.
7) We are also enclosing herewith a demand draft of Rs 25,000/- as required under Clause 6 (ii) of the said scheme.
Thanking you in anticipation.
For Angel Broking Ltd,
Amit Majumdar
Head-Operations
***********************************************************************************************
REPLY OF MRD-DoP
General Manager
Market Regulation Department – Policy
Email:-sundaresanvs@sebi.gov.in
MRD/Policy/IGS/AT/37104/2005
March 29, 2005
Angel Capital & Debt Market Ltd.
32/34, Churchgate House, 1st Floor,
Veer Nariman Road
Opp. Akbarally’s
Fountain, Fort
Mumbai – 400 001
Dear Sir,
Sub: Informal Guidance – Interpretive Letter – under clauses-4&5 (ii) of SEBI (Informal Guidance) Scheme, 2003
Ref: Request for Guidance from Angel Capital & Debt Market Ltd. vide letter dated January 28, 2005
1. Please refer to your letter dated January 28, 2005 seeking clarification on issuance of Contract Notes in electronic form, under the SEBI (Informal Guidance) Scheme, 2003.
2. You have, inter-alia, represented vide the letter under reference that:-
a. You are a member of the BSE and NSE has obtained the ‘Digital Signature Certificate’ from ‘Verisign’ a certifying authority under the Information Technology Act, 2000.
b. You are contemplating issuance of electronic contract notes(ECNs) to its clients and you have proposed to add the following clauses to the member-client agreement:-
i) The Client shall provide his/her/its registered E-mail ID for delivery of contract notes/ Statement of Account etc. In case client does not provide or posses an E-mail ID he agrees that he will access the website of the Stock Broker www.angeltrade.com or any other designated location (specified by the Stock Broker from time to time). The ECN will be deemed to be delivered at the designated location where client can log into the internet site using his/ her/ its username and password. Once the ECN have been delivered at the designated location viz. the internet site the client accepts the same as delivery of the contract note.
ii) The Client shall access the contract notes/trade confirmation of the trades executed on their behalf on the trade date electronically through e-mail or
iii) www.angeltrade.com or such other means / mode as may be provided by the Stock Broker from time to time. The Client understands that it is their responsibility to review all confirmations, contract notes, statements, notices and other communications including but not limited to margin and maintenance calls. All information contained therein shall be binding on the Client, if Client does not object, either in writing or via electronic mail within 24 hours after any such documents are available to the Client. Further, the ECN will be available for such time as specified from time to time at the designated location. The client will be required to save/ print/ download the contract note for archiving.
iv) Should the Client experience any difficulty opening a document electronically delivered by the Stock Broker, the Stock Broker may make the required delivery by any other electronic means (e-mail, electronic mail attachment, or in the form of an available download from the back office website) or in paper based format. Failure to advise the Stock Broker of such difficulty within forty eight hours after delivery shall serve as an affirmation that Client was able to receive and open the said document.
v) That in case when the Stock Broker is not able to provide Contract Notes to its Client’s through Internet due to any unforeseen problem, the Stock Broker should ensure that the contract note reaches the Client in physical form as per the time schedule stipulated in Bye laws Rules and Regulations of the stock exchange.”
c. In light of the above, you have sought SEBI’s comments on the aforesaid clauses of the member-client agreement under the SEBI (Informal Guidance) Scheme, 2003.
3. Our clarification to your aforesaid query is as under:-
a. The issuance of ECNs shall be subject to the provisions of SEBI circular dated December 15, 2000 and the provisions of the Information technology Act, 2000.
b. The usual mode of delivery of ECNs to the clients shall be through e-mail, subject to the following conditions:-
· The e-mail shall be digitally signed, encrypted, non-tamperable and shall follow the measures as specified in the IT Act, 2000. In case the ECN is sent through e-mail as an attachment, the attached file shall also be secured with the digital signature, encrypted and non-tamperable.
· The acknowledgement of the e-mail shall be obtained from the client in terms of Section 12 of the IT Act, 2000 and such acknowledgements shall be retained by the broker in a soft, non-tamperable form.
c. The alternative mode of uploading the contract note in the designated web site of the member with access to the clients through a password as proposed by you shall not amount to delivery of contract note to the client, and accordingly, would not be in order.
4. The above clarifications are based on the representation made to the Department in your aforesaid letter. Different facts or conditions might require a different result. This letter does not express decision of the Board on the questions referred.
5. You may note that the above views are expressed only with respect to the clarification sought on the circulars referred by you in your aforesaid letter and do not affect the applicability of any other law or Regulations of SEBI.
Yours faithfully,
V S SUNDARESAN