Compliance - Stock Broking Company - India - Part 1

Section 18A of SECURITIES AND EXCHANGE BOARD OF INDIA (STOCK BROKERS & SUB-BROKERS) Regulations, 1992, prescribes appointment of a compliance officer for a stock broking firm.



Appointment of compliance officer

18A (1) Every stock broker shall appoint a compliance officer who shall be responsible for monitoring the compliance of the Act, rules and regulations, notifications, guidelines instructions, etc, issued by the Board or the Central Government and for redressal of investors grievances.

(2) The compliance officer shall immediately and independently report the Board any
non-compliance observed by him

Bombay Stock Exchange's Surveillnace & Supervision department publishes a compliance Manual to bring out the issues which a complinace officer has to implement and monitor to comply with the rules of central government, SEBI and stock exchange.

The latest compliance manual is published in May 2008.


The first issue discussed in the manual is maintenance of accounting records as pe Rule 15 of the Securities Contracts (Regulation) rules, 1957 and Regulation 17 of the SEBI (STOCK BROKERS & SUB-BROKERS) Regulations, 1992.



Regulation 17 of the SEBI (STOCK BROKERS & SUB-BROKERS) Regulations, 1992 is given below.



Maintenance of proper books of accounts, records etc. by Stock Brokers

17

(1) Every stock-broker shall keep and maintain the following books of accounts,
records and documents namely; -
(a) Register of transactions (Sauda Book);
(b) Clients ledger;
(c) General ledger;
(d) Journals;
(e) Cash book;
(f) Bank pass book;
(g) Documents register containing, inter-alia, particulars of securities received
and delivered in physical form and the statement of accounts and other records
relating to receipt and delivery of securities provided by the Depository
Participants in respect of dematerialized securities.
(h) Members' contract books showing details of all contracts entered into by him
with other members of the same exchange or counterfoils or duplicates of memos of confirmation issued to such other member;
(i) Counterfoils or duplicates of contract notes issued to clients;
(j) Written consent of clients in respect of contracts entered into as principals;
(k) Margin deposit book;
(l) Registers of accounts of sub- brokers;
(m) an agreement with a sub- broker specifying the scope of authority and
responsibilities of the Stock-Broker and such sub- broker.
(n) An agreement with the stock broker and with the client of the sub-broker to
establish privity of contract between a stock broker and the client of the subbroker.

(2) Every stock-broker shall intimate to the Board the place where the books of
accounts, records and documents are maintained.

(3) Without prejudice to sub- regulation (1), every stock- broker shall, after the close of each accounting period furnish to the Board if so required as soon as possible but not later than six months from the close of the said period a copy of the audited balance sheet and profit and loss account, as at the end of the said
accounting period:

Provided that, if it is not possible to furnish the above documents within the time
specified, the stock-broker shall keep the Board informed of the same together
with the reasons for the delay and the period of time by which such documents
would be furnished.

Maintenance of books of accounts and records

18. Every stock broker shall preserve the books of account and other records maintained under regulation 17 for a minimum period of five years.

Issues related to dealings with the client is the next topic

Regulation of Client Broker Transactions

All transactions relating to clients are to be routed through the client bank account. A member-baroker cannot use the clients' account to make payments for his trades as a principal.

No money can be withdrawn by the broker from clients'account unless there is a liability of clients to the member broker.

Member-brokers should not use clients' account for making payment for office expenses such as, salary, Telephone bills, TDS payments, purchase of office equipment, etc.

It is compulsory for all member-brokers to keep separate accounts for client's securities and to keep such books of accounts, as may be necessary to distinguish his securities from those of the clients' securities.

Member-broker should ensure payment of money/delivery of securities to the clients within 24 hours of the declaration of payout by the Exchange in respect of the concerned settlement.