Brokers Dealing Via Others To Be Deemed Sub-Brokers

The Securities & Exchange Board of India (Sebi) has issued a diktat making it mandatory for members of stock exchanges executing transactions through the members of other exchanges to register themselves as a sub-broker under the Sebi (Stock Brokers and Sub-Brokers) Rules & Regulations, 1992.

It has also decided to stop stock brokers or sub-brokers from buying, selling or dealing in securities unless he holds a certificate granted by the board under the regulations, under the terms of Rule 3 of Sebi (Stock Brokers and Sub-Brokers) Rules, 1992, with section 12 of Sebi Act. Further, sub-brokers will also be required to issue purchase or sale notes entered into by him on behalf of his clients as per clause B (2)(a) of the code of conduct of sub-brokers under regulation 15 of Sebi (Stock Brokers and Sub-brokers) Rules and Regulations, 1992.

 

Members acting as sub-broker on behalf of a principal broker should issue purchase or sale notes for all the transactions entered into by him through the principal broker as an agent of the principal broker.

A decision to this effect was taken by Sebi after deliberating on the issue with the chiefs of some of the major stock exchanges and a circular dated January 16 forwarded to the president, executive directors and managing directors of all the stock exchanges. Leading bourses had sought Sebi intervention on transactions being executed by the members of the stock exchanges through members of other stock exchanges and the problems arising as a result of such transactions.

Stock exchanges had claimed that since such transactions are purely of 'off the floor' in nature and presently unregulated, there is no check on the exposures of the members towards these transactions. In several cases, bourses had to declare some of the members, acting as sub-brokers, as defaulters since they defaulted to the investors for the transactions done through the members of other exchanges although the respective members did not default to the parent exchange.

At present, some exchanges members acting as sub-brokers through other exchange members have not obtained separate registration from Sebi to act as sub-brokers.

As per the new Sebi diktat, not only members acting as sub-brokers should have a certificate of registration as a sub-broker granted by Sebi, bourse members who also act as sub-brokers should have a separate registration with Sebi as a sub-broker.