Common Irregularities observed during inspection by SEBI

I.

1. ‘In person verification’ not done while opening the account. Photo copy of KYC &Rights and Obligations document are not provided to clients; if provided proof of delivery/dispatch is not maintained.

2.  Adding clauses in Rights and Obligations document which are contrary to the clauses as prescribed by SEBI. Voluntary clauses are not highlighted as ‘voluntary’ and signatures of clients taken on all the documents.

II.

3. Contract notes are not bearing serial numbers, SEBI registration numbers, Order no. & time. Contract notes are not issued in the prescribed format/not issued within twenty-hours of trade execution/not signed properly by the broker or his authorized representatives.

4. Duplicates/counterfoils/acknowledged copies of the contract notes issued not being maintained or maintained with inadequate details.

5. Not issuing contracts in the prescribed format while acting as principal.

6. Appropriate stamp duty not paid and charging Securities Transaction Tax (STT) on non-equity funds transactions by the brokers.

7. Brokerage is not shown separately on contract notes. The correct rate at which the transaction was executed is not passed on to the client.

8.  Charges other than brokerage and statutory charges levied on the clients which are not specifically agreed upon by the clients or charging more than the limits prescribed.

9.  In case the Electronic Contract Notes (ECN) are issued, the same are not made available on brokers’ websites/ sending ECN on single email-id for a group of clients/not maintaining ECN logs for ECN sent to the clients.

III.

10.  Deficiency in service to the clients.

11.  Non maintenance of investor grievance register and lack of proper system for receipt and reconciliation of investor grievances/not taking adequate steps for redressal of grievances of investors within one month from the date of receipt of the complaint.

12.  Non maintenance of client database or details captured wrongly in the database.

13.  There are delays between pay-out by the exchange to their members and the transmission of shares/money received in such pay-out to their clients by brokers without any record of reasons for such delay.

14.  Non dissemination of email ID created for receiving investor grievances to the investors.

15.  Freezing of accounts of clients without giving adequate reason.

16.  Providing multiple client codes to one client/using same PAN no. for more than one client.

17.  Frequent trade modification/client code modification done in client account

18.  Daily margin statement and quarterly statements not sent to clients

19.  Relationship managers acting as portfolio managers by entering into verbal agreements with clients for trading on their behalf.

IV.

20.  Unauthorized trading activities carried out in client’s account.

21.  Not having separate account for clients' funds/securities or having separate accounts for clients but not segregating clients' funds/securities from its own funds/securities.

22.  The brokers are found involved in funding activities - with the exception of those in connection with or incidental to or consequential upon the securities business.

23.  Non collection of margin from clients/wrong reporting of collection of margins to exchanges/clearing members.

24.  Accepting cash from the clients. Accepting/giving third party payments/receipts.

V.

25.  Not putting the unique client code (UCC) of clients while placing orders in the trading system.

26.  The broker granting the trading terminals at places other than that specified by SEBI e.g. registered office, branch office.

27.  Terminals operated by personnel without having proper qualification/ persons operating the terminal are not employees/remisiers.

VI.

28.  Non-maintenance or improper maintenance of Books of Accounts which are required to be maintained as per Rule 15 of SCRA Rules 1957 and Regulation 17 of Stock Brokers Regulations 1992.

29.  Non-compliance with provisions relating to spot/negotiated deals.

30.  Instances of the broker/dealers/others connected with the broker, involved in front running, circular trading, creating false markets, misuse of the exchange mechanism for securing financing transactions, entering fictitious transactions and illegal transactions.

31.  Non submission of audit report/internal audit reports within the prescribed time limit.

32.  Involved in business other than the securities business in violation of applicable laws.

33.  Non-payment/ inadequate payment of SEBI registration fees by the stock brokers.

34.  Not complying with the provisions of advertisements/internet based trading

35.  Non appointment of compliance officer.

36.  Non- compliance with trading restrictions imposed by Stock Exchanges

37.  Trading in unlisted securities and in securities prior to their admission to dealings by Exchanges

38.  Not reporting off-the-floor transactions (e.g.) (a) The transactions with stock brokers of other exchanges (b) Principal to principal transactions with clients (c) Transactions done after the trading hours.

39.  Non-formation of policies related to internal controls, employee/insider trading, Prevention of Money Laundering (PML) etc. If policies are formulated, they are not implemented.

40.  Delivery vs payment (DvP) trades are done in other than those circumstances as prescribed.