SR. EXECUTIVE DIRECTOR
SECONDARY MARKET DEPARTMENT
NO.SMD/OPG/AA/1020/96
March 14, 1996
To,
The Executive Director/President
All Stock Exchanges
Dear Sir,
REGISTRATION OF SUB-BROKER
As you are aware, sub-brokers are required to obtain certificate of registration from Securities and Exchange Board of India in accordance with regulations made under section 12(1) of SEBI Act, 1992 without which they are not permitted to buy, sell or deal in securities. The applications from sub-brokers were invited in May, 1992 through recognised Stock Exchanges for registration with SEBI. A large number of applications were received and registration granted to approximately 1200 applicants fulfilling the requirements.
It is felt that a large number of sub-brokers still are not registered with SEBI and therefore carrying out their activities without any valid legal sanction. SEBI at its end has started returning all incomplete applications directly to the applicants. Those who were already in the business of sub-broking and had applied for registration before 21st May, 1992 are being advised to re-submit their applications complete in all respects within two months failing which it shall be construed that they are acting as sub-brokers without holding certificates of registration in violation of section 12(1) of SEBI Act, 1992. The applicants who had applied after 21st May, 1992, are being advised to stop the business of sub-broking immediately which can be re-started after they are duly registered with SEBI.
We have devised guidelines for making applications complete in all respects. A copy of the same is being enclosed for your perusal. Co-operation from the Stock Exchanges will help us immensely in registering and regulating this class of capital market intermediaries.
We request you to keep sufficient stock of Form 'B' (application form for registration as sub-broker) and Form 'C'(recommendation letter to be given by the member with whom the sub-broker is affiliated), for free distribution amongst applicants. We are enclosing a copy of these forms. In September, 1993, we had sent a copy of model agreement advising you to circulate the same amongst your members. This agreement between broker and sub-broker specifies the scope of their rights and liabilities. A copy of the same is once again being enclosed with a request that sufficient number of copies may be kept available and supplied to desirous applicants.
We advise you to bring the contents of this letter to the notice of your members by suitable display on your notice board. Applicants who had applied earlier and not heard anything from SEBI may be advised in their own interest to make fresh application complete in all respects in accordance with attached guidelines. Doing business with unregistered sub-broker, in future, will be viewed seriously and penal action taken.
Kindly acknowledge receipt of this letter.
Yours faithfully,
sd/-
O. P. GAHROTRA
Encl: A.A.
FORM - B
SECURITIES AND EXCHANGE BOARD OF INDIA
(Stock Brokers and Sub-Brokers)Regulations 1992
(Regulation II)
APPLICATION FORM FOR REGISTRATION AS A SUB-BROKER
WITH SECURITIES AND EXCHANGE BOARD OF INDIA
1. Name of applicant Sub-Broker :
2. Trade Name of Sub-broker, Firm, Corporate Body :
3. Form of organisation - sole proprietorship, partnership, corporate body. Please give names of proprietor, all partners directors etc. :
4. Educational qualifications of proprietor, partners,directors etc. :
Name Status Qualifications
5. Name of the member-broker and Stock Exchange to which applicant is affiliated :
6. Date of acquiring sub-brokership :
7. Infrastructural arrangements - indicate fax, telex, phones, number of offices and residential numbers. Also indicate the number of employees. :
Office Address :
Phone No. :
Telex No. :
Fax No. :
Residential Phone Nos. of Proprietor, Partners,Directors etc. :
8. Number of branch offices and their location with phone, telex and fax numbers :
I certify that the information given in this application form is true to the best of my/our knowledge and belief.
Recommendation letter from the Stock Broker to whom I/We am/are affiliated and two references, including one from the Banker as required are enclosed.
Signature ......................
Date ......................
.........................Recommendation of Stock Exchange
This is to certify that .................................. is a sub-broker affiliated to ........................... member broker of this exchange.
The application is recommended/not recommended for registration by the Board.
AUTHORISED SIGNATORY
Signature
.................... Stock Exchange
FORM C
SECURITIES AND EXCHANGE BOARD OF INDIA
(Stock Brokers and Sub-Brokers)Regulations 1992
RECOMMENDATION LETTER TO BE GIVEN TO THE MEMBER
WITH WHOM THE SUB-BROKER IS AFFILIATED
To.
The _ Stock Exchange
Dear Sirs,
I/We understand that __ Son _ and attached to me at _ for carrying on the shares and securities business as a sub-broker. I/We confirm that _ is transacting business through me for a period from __ Exchange hereby agree to recommend the above mentioned applicant.
Yours faithfully,
Signature of Member/s
SECURITIES AND EXCHANGE BOARD OF INDIA
Mittal Court 'B' Wing, 224 Nariman Point, Mumbai 400021
Dear Sir,
SUB:GRANT OF REGISTRATION
Please refer to your application submitted to us for grant of registration as a sub-broker. On preliminary scrutiny it appears that you do not fulfil the criterion for grant of registration as marked hereinunder.
(1) Copy of agreement between the broker and sub-broker as stipulated vide SEBI Circular No.SMD-I/22364 dated 16.9.93 has not been submitted.
(2) Application is not signed.
(3) Seal/signature of the Exchange/broker is not affixed.
(4) Age of proprietor/partner/director is below 21 years/not mentioned.
(5) Educational qualification of proprietor/partner/director is less than 10 + 2/ not mentioned/not as per SEBI Regulations.
(6) Recommending stock-broker is not registered with SEBI.
(7) Brokers recommendation letter (Form 'C') is not enclosed/not signed by the broker.
(8) Both references/bankers reference/reference from a person other than banker is not enclosed.
(9) Memorandum and Articles of Association has not been sent/object clause of the company does not permit the business of the sub-broking.
(10) Copy of the partnership deed has not been enclosed.
(11) Registration fee of Rs.1,000/- has not been paid by demand draft payable at Bombay.
(12) Declaration that the applicant/partners/its directors have not been convicted of any offence and presently they are not on trial for any offence involving fraud or dishonesty has not been furnished.
(13) Directors named in the application are different from those mentioned in the Article of Association and copy of the resolution appointing new directors has not been attached.
Therefore your application cannot be considered for grant of certificate of registration as sub-broker and is hereby returned alongwith enclosure(s) submitted by you. As your application was submitted before 21st May, 1992, you are being given an opportunity to submit a fresh application complete in all respects within 2 months from the date of the letter failing which it shall be construed that you are acting as sub-broker without holding a certificate of registration in violation of section 12(1) of SEBI act, 1992 and appropriate penal action shall be taken against you.
A checklist of requisites in this regard is given overleaf for your guidance. You may obtain application form and copy of the agreement from your Stock Exchange who have been advised to keep sufficient stock.
Yours faithfully,
(CHANDRESH SHAH)
Please mention the reference number while making the application
GUIDELINES FOR FILLING THE APPLICATION
(1) Application should be in form 'B' duly singed by applicant/ all partners/duly authorised partners as per partnership deed or authorised directors.
(2) Age should not be less than 21 years of individual/partners/directors.
(3) Application has to be submitted through respective Stock Exchanges after due recommendation by the broker and the Exchange.
(4) Minimum qualification of the applicant/partners/directors should be 10 + 2.
(5) Main broker's recommendation should be in form 'C' in favour of individual/partnership firm (not individual partners)/ corporate body (not individual directors).
(6) Two reference letters including one from the applicant's banker in favour of the applicant should invariably be attached.
(7) Registration fee of Rs.1000/- by demand draft in favour of SEBI payable at Bombay should be enclosed.
(8) Declaration to the effect that the applicant/partners/its directors have not been convicted of any offence and presently they are not on trail for any offence involving fraud or dishonesty should be attached.
(9) Copy of the partnership deed/Memorandum and Articles of Association stating relevant clause permitting the applicant to carry on the business of sub-broking should be attached.
(10) Agreement should be between broker and applicant (Not with partners or individual directors of the company). The applicant should preferably carry out business only with one broker. In case of more than one broker, agreement should be with all the brokers with whom applicant intends to carry out the business. No Objection Certificate(s) from all the brokers permitting the applicant to carry out business with every other broker as mentioned in the application should be attached.
(11) A copy of resolution appointing new directors should be attached.
(12) An undertaking should be submitted that applicant will deal directly with investors and not through any other sub-broker on being registered with SEBI.
AGREEMENT
This Agreement entered into this __ day of __ between Shri _ Exchange, ordinarily carrying on business in sale and purchase of shares and securities from office at (hereinafter referred to as "the sub-broker".)
WHEREAS the said member broker is a member of _ Stock Exchange (hereinafter referred to as "the Exchange") and also holds a certificate of registration granted under Rule 4 of the Securities and Exchange Board of India (Stock Brokers and Sub-Brokers) Rules & Regulations, 1992 (hereinafter referred to as "the said Rules and Regulations"); AND
WHEREAS the sub-broker is affiliated to the member broker Shri __ and is eligible for grant of a certificate of registration granted under rule 5 of the said rules; AND
WHEREAS in terms of item (C) (4) of Schedule II under regulation 15(b) and item (m) of regulation 17(1) of the Securities and Exchange Board of India (Stock Brokers and Sub-brokers) Regulations, 1992 the sub-broker is required to enter into an agreement with the said member broker specifying the scope of their rights and obligations, in relation to the business of dealing in securities between them.
NOW THEREFORE this agreement witnesseth as follows:
(1) The member broker hereby acknowledges and confirms that the sub-broker is affiliated to him and that the sub-broker shall within the scope of the authority given under these presents, be entitled to act as an intermediary between the said member broker and the investors for assisting the latter in buying, selling or dealing in securities.
(2) The sub-broker may conduct business on behalf of his client with the member broker as may be mutually agreed upon and subject to such conditions as may be agreed to mutually between the member broker and the sub-broker. Such agreement will, however, not contravene any provisions of these presents.
(3) The member broker agrees that he shall not, except with the previous consent of the sub-broker, commit on the latter's behalf transactions in securities in excess of the amount mutually agreed upon in writing from time to time, being the aggregate value of such transactions during any settlement period of the stock exchange.
(4) The sub-broker may with the previous consent in writing of member broker get himself affiliated to any other member broker of the said exchange or any other exchange provided that in carrying on his business as dealer in securities, the sub-broker shall not act in a manner which would be in conflict with or detrimental to the interest of the said member broker and shall enter into written agreement with each of such other member brokers and also keep the stock exchange and SEBI informed about his affiliations.
(5) The sub-broker shall maintain separate books of accounts in respect of his dealings with each of affiliating member brokers and under no circumstances, he shall mix the funds received from or payable to the one member broker with that of another member brokers.
(6) The member broker and the sub-broker agree that they shall abide by all the statutory responsibilities and obligations imposed on them by the said regulations and/or any other rules or regulations application to the members and sub-brokers in general either framed by the said Board or by the Exchange.
(7) The member broker and the sub-broker shall abide by the code of conduct as specified in Schedule II of the said regulations or any amendment thereof;
(8) The member broker can having regard to the size of the business handled on behalf of the sub-broker ask the sub-broker to deposit such amount as may be mutually agreed upon for securing sub-broker's obligations to his clients and to the member broker. The said deposit shall be kept with the stock Exchange and subject to the provisions of clause 18 of this agreement, shall be available to sub-broker's clients and to the member broker to reimburse the losses if any suffered by them on account of the default committed by the sub-broker.
(9) The sub-broker and the member broker shall co-operate and help each other in removing objections for bad delivery of shares, rectifications of bad delivery, etc. in respect of shares and securities delivered/to be delivered or received/to be received by the sub-broker from the member broker and vice-a-versa.
(10) The said member broker and the sub-broker agree that each of them shall ensure due protection to the investors regarding their rights to dividends, rights or bonus shares, etc. and neither of them shall jointly or severally do anything which is likely to harm the interest of investors with whom and for whom they may have had transactions in securities.
(11) It shall be the responsibility of the member broker to inform the sub-broker and keep him apprised about trading/settlement cycles, delivery/payment schedules, any changes therein from time to time, and it shall be the responsibility in turn of the sub-broker to comply with such procedures of the said exchange of which the member broker is a member.
(12) The member broker shall maintain a separate record including accounts in respect of the dealings in securities entered into on behalf of the sub-broker. The broker and sub-broker shall reconcile their accounts at the end of each settlement.
(13) The member broker shall issue consolidated scrip-wise contract notes to the sub-broker in respect of all the scrips traded on behalf of the latter showing execution price of transaction and brokerage separately and the sub-broker, in turn, shall brokerage issue split confirmation memos to each of his clients wherein he reference number of the consolidated contract notes of the member broker, the rate at which the sale or purchase is made and the brokerage shall be shown separately as required by the said regulations.
(14) The member broker and the sub-broker hereby agree that they will assist and co-operate with each other in ensuring faster settlement of any arbitration proceedings arising out of the transactions entered into on behalf of the sub-broker and would accept arbitration awards in respect of the transactions entered into on his behalf.
(15) The member broker and the sub-broker agree that they shall mutually decide from time to time in writing the volume of business which will be transacted during a settlement period by the member broker with the sub-broker and if the sub-broker is dealing with more than one member broker, than the agreed aggregate volume of business of the sub-broker including that with the other member broker, shall also be informed to all the affiliating member brokers.
(16) It is agreed that the member broker and the sub-broker shall be sharing the brokerage as permitted by the rules and regulations of the stock exchange in the ratio of _:_. It is agreed by the member broker that the share of brokerage receivable by the sub-broker shall be paid to him after the pay out by the exchanges in respect of transaction done on behalf of the sub-broker.
(17) The member broker and the sub-broker hereby mutually agrees that:-
(a) all transactions in securities on behalf of the clients of the sub-broker shall be settled by delivery and/or payment, between the contracting parties in accordance with the provisions and bye-laws of the said exchange and subject to the procedures for settlement of transactions laid down by the authorities of the said exchange from time to time.
(b) the member broker and sub-broker shall not encourage sales/purchase with the object of generating brokerage/commission.
(18) If any dispute arises between the member broker and the sub-broker the same shall as far as possible be settled with the help of the officials of the said exchange and if no such settlement is possible the parties hereby agree to refer such dispute to arbitration in accordance with the rules, byelaws and regulations of the said stock exchange.
(19) Either party shall be entitled to terminate this agreement at will and without giving any reasons to the other party notice in writing of not less than two months at their respective addresses mentioned above.
(20) This agreement shall forthwith terminate;
(i) if the member broker for any reason ceases to be a member of the Exchange including cessation of membership by reason of the member-broker's death, resignation or expulsion or if the certificate issued by the Board is either suspended or cancelled.
(ii) upon the demise of the sub-broker or the cancellation of his/her/its regulation with the Securities and Exchange Board of India.
(iii) notwithstanding any such termination, all rights, liabilities and obligations of the parties arising out of or in respect of transactions entered into prior to the termination of this agreement shall continue to subsist and vest in/be binding on the respective parties or his/her/its respective heirs, executors, administrators, legal representatives or successors, as the case may be.
IN WITNESS WHEREOF, the parties hereto have set their hands and signatures on the day, month and year first above written in the presence of the following WITNESSES;
WITNESS:
1) STOCK BROKERS
2)
WITNESS:
1) SUB-BROKER
2)