NATIONAL STOCK EXCHANGE OF INDIA LIMITED
INSPECTION DEPARTMENT
CIRCULAR
DOWNLOAD REF.NO: NSE/INSP/6083
Circular No. NSE/INSP/2005/34Dated: 27th April, 2005
To
All Members
Sub : Revised sample list of violations and indicative fines in respect thereof (Capital Market and Wholesale Debt Market segments)
Trading Members are requested to refer to our circular no. NSE/I&ID/2001/4 (download reference no. NSE/I&ID/2937) dated 19th October, 2001, NSE/INSP/2003/20 (download reference no NSE/INSP/4341) dated 20th August, 2003, Circular no. NSE/INSP/2003/22 (download reference no. NSE/INSP/4399), dated 8th September 2003 and Circular no. NSE/INSP/2004/25 (download reference no NSE/INSP/4951) dated 31st March, 2004 giving a sample list of violations and indicative fines in respect thereof.
Based on the experience gathered on observing the violations committed by the Trading Members during the past inspections and in view of the amendments to the Capital Market Regulations of the Exchange / NSCCL, the above mentioned list has been revised.
A revised consolidated sample list of violations along with indicative fines in respect thereof is attached as Annexure. The same shall be applied for the violations observed during the course of inspection or otherwise from the financial year 2005-06 onwards.
It is also clarified that the actions including fines for the violations as per the revised list are only indicative and that, in case of a large number of instances of a serious violation involving large amount of funds / large quantity of securities or of repetitive nature, the Disciplinary Action Bench / Disciplinary Action Committee may take such strict action as it may deem fit including levy of higher fines / suspension / expulsion.
For any clarifications, members may also contact the following officials:
Mr. C. N. Upadhyay, Ms. Harshda Dubey, Mr. Ankit Badalia, Ms. Karen D’souza
Phone nos.: 2659 8100 – 8114 Extn. nos. 5115/5127/5125
For National Stock Exchange of India Limited
J. Ravichandran
Director (F&L)
Annexure to Circular no. NSE/INSP/2005/34 dated 27thApril, 2005
List of indicative disciplinary actions for the violations observed during the inspections or otherwise in the Capital Market and Wholesale Debt Market segments.
(Notes:- 1.Action for repeat violations:-In respect of repeat violations, action may be restructured to cases where multiple instances of a violation have been observed in both, the last annual inspection of a trading member and the current inspection,by levying additionally 50% of the fine applicable for multiple instances of the violation. In all other circumstances of repeat violation, the fine structure in respect of initial violations to be followed.
2. The below mentioned actions including fines are only indicative. In case of a large number of instances of a violation involving large amount of funds / large quantity of securities or of repetitive nature, in respect of the items with “*”(asterisk) mark which are of serious nature, the Disciplinary Action Bench / Disciplinary Action Committee may take such strict action as it may deem fit including levy of higher fines / suspension / expulsion. )
Rules / Byelaws / Regulations / Circular Nos. / Violations Observed / Disciplinary ActionsOne or a few instance(s)
(Amount in Rs) / Multiple instances
(Amount in Rs)
Books of Accounts
Reg 6.1 /
- Not maintained
- Not maintained properly
- Not made available for verification
- Not maintained for branch / sub-broker
- Not maintained properly for branch / sub-broker
- Not made available for branch / sub-broker
5,000/-
Reprimand/Warning
10,000/- per office
5,000/- per office
Reprimand/Warning / N.A
N.A
N.A
N.A
N.A
N.A / *
*
*
*
Reg 6.1.5 (e) / Segregation of Exchange wise client ledgers not maintained
Non-maintenance of vouchers (entries being directly posted to ledgers)
Non-maintenance of upto date bank reconciliation statements / 10,000/- per office
Advice
Advice / N.A
Reprimand/Warning
Reprimand/Warning
Registers and Documents
Reg 6.1 / Non-maintenance of registers (Register of Transactions / Register of Complaints / Dividend ledger / Margin Deposit Book)
Non-availability of prescribed information in Registers
Non-maintenance of register of securities
Maintenance of register of securities otherwise than in the prescribed format / 5,000/- per register per office
Reprimand/Warning
25,000/-
10,000/- / 5,000/- per register per office
Reprimand/Warning
Reg 4.3.1
NSE/MEMB/245 dated May 2, 1997 and Cir. No. NSE/INSP/2004/31 dated 27/08/2004
Download Ref.No: NSE/IINSP/5387 / Non-execution of member / sub-broker -constituent agreements
Execution of member / sub-broker -constituent agreement otherwise than in the prescribed format
Both non-execution of member / sub-broker -constituent agreements and execution of member / sub-broker -constituent agreement otherwise than in the prescribed format in multiple instances
Not obtaining Client registration forms
Client registration forms not completed or not supported by documents
Both non-obtainment of client registration forms and client registration forms not completed or not supported by documents, in multiple instances / Reprimand/Warning
Advice
N.A
Reprimand/Warning
Advice
N.A / 10,000/-
5,000/-
10,000/-
10,000/-
5,000/-
10,000/- / *
*
*
*
Reg 1.3.13A and Cir no NSE/CMO/0060/2003 (ref no. NSE/CMTR/4468) dated 08/10/2003 and Cir. No. NSE/INSP/2004/31 dated 27/08/2004
(Ref.No: NSE/IINSP/5387 ) / Non-issue of Risk Disclosure Document
Issue of Risk Disclosure Document otherwise than in the prescribed format
Both non-issue of Risk Disclosure document and Risk disclosure document otherwise than in the prescribed format in multiple instances / Warning
Warning
N.A. / 10,000/-
5,000/-
10,000/-
Reg 6.1.12 / Non-preservation of records for the prescribed period in respect of constituents’ accounts which are closed /
Advice
/ 5,000/-Banking Operations
Reg 6.1.5 (b)
Reg 6.1.5 (b)
Reg 6.1.5 (c) / Non maintenance of Client a/c
Non-segregation of own and client transactions in separate bank accounts
Use of Client bank account for purposes other than specified / 25,000
Reprimand/Warning
Reprimand/Warning / N.A
10,000/-
10,000/-
Dealings with Clients
Reg 6.1.5 (b), Reg 4.5.3 (e) and Circular no NSE/ARBN/1354/1999 dated 27/12/1999
4.4.15
4.4.15 / Use of clients’ funds for own purposes / Misuse of clients’ funds / Unauthorised transfer of funds from one client’s account to another client’s account
Delay in payment of funds to constituents
Non-payment or delay in payment of dividend amount to constituents / non-reconciliation of dividend account / 50,000/-
Advice
Advice / 1,00,000/-
5,000/-
(In case of inordinate delays of more than 1 week, double the fine amount be levied)
5,000/- / *
*
Reg 4.5.3 (e)
Reg 4.5.3 (e)
4.4.15
Reg 6.1.5 (f) / Securities due to constituents transferred to Trading Member’s beneficiary account
Securities due to one client transferred to other clients OR
Securities due to constituents used for meeting the payin obligation of the trading member / other constituents
Delay in delivery of securities to the clients
Non-maintenance of separate constituents beneficiary demat account for keeping client securities
Non-segregation of own and clients securities in separate beneficiary demat accounts
Use of constituents beneficiary demat account for purposes other than specified / Reprimand/Warning
50,000/-
Advice
25,000/-
Warning
Warning / 5,000/-
1,00,000/-
5,000/-
(In case of inordinate delays of more than 1 week, double the fine amount be levied)
N.A.
10,000/-
10,000/- / *
*
*
NSE circular no NSE/CMT/001 dated 28/10/1994 / Brokerage charged at a rate higher than the permissible maximum of 2.5% / The Trading Member to be advised to refund the excess brokerage charged to the constituents and a fine of an equivalent amount or Rs 5000/-, whichever is higher, be levied on the Trading Member
NSE/CMO / 22 / 2001 dated 24/07/2001
Circular no NSE/INVG/2004/010 ref no NSE/INVG/2004/5271 dated 20/07/2004 and Circular no NSE/INVG /2004/017 ref no NSE/INVG /2004/5523 dated 14/10/2004 / Non-maintenance of Unique client code / Non maintenance of mapping of the trading codes to unique client codes
Trading on behalf of certain specified categories of constituents without UIN under MAPIN database /
5,000/-
Advice /10,000/-
10,000/- /*
Reg 6.1.5 (d) / Half yearly statement of accounts for funds /securities not sent to the clientsPartial compliance for issue of statement of accounts for funds and securities / 5,000/-
50% of the fine applicable for non-issue of statement of accounts for funds and securities / 10,000/-
50% of the fine applicable for non-issue of statement of accounts for funds and securities
Circular no NSE/INSP/2003/21 ref no NSE / INSP/4377 dated 01/09/2003 / Cash dealings with clients / Advice / 10,000/-
Circular no NSE/INSP/2003/21 ref no NSE /INSP /4377 dated 01/09/2003 / Receipt of funds/securities on behalf of clients from others
Payment of funds or delivery of securities on behalf of the clients to others / Advice
Advice / 10,000/-
10,000/-
Dealings with intermediaries
Byelaw 33 of Chapter IX of the Byelaws of the Exchange and Circular no 60 ref no NSE / MEM / 275 dated 12/06/1997Circular no 60 ref no NSE / MEM / 275 dated 12/06/1997 and NSE circular no 185 ref no NSE/MEM/2284 dated 31/01/2001 / Sharing of brokerage with
-another trading member
-an employee of another trading member or a person for or with whom trading members are forbidden to do business
-persons who are not registered as
sub-brokers
Dealing with unregistered intermediaries / 5,000/-
10,000/-
5,000/-
25,000/- per intermediary / 10,000/-
20,000/-
10,000/-
25,000/- per intermediary
In respect of a trading member dealing with more than 10 unregistered intermediaries, the trading member may be suspended for a period of one month, apart from levy of monetary penalty as applicable for dealing with unregistered intermediaries / *
Circular no 60 ref no NSE / MEM / 275 dated 12/06/1997 and circular no NSEIL/INSP/2002/14 dated 17/10/2002
/Inspection of the books of registered sub-brokers not done
/ Reprimand/Warning / 10,000/-Rule 5 of chapter IV of the Rules of the Exchange / Doing business with or for the trading members who are prohibited to transact, including suspended/expelled/ defaulter trading members; defaulting constituents and employees of other trading members / Reprimand/Warning / 10,000/-
Contract Notes ( Purchase / Sale notes in the case of sub-brokers )
Reg 3.5.1
Reg 3.5.1
Circular no NSE/CMT/005 dated 12/12/1994
Reg 3.5.1 / Non-issue of contract notes
Issue of contract notes otherwise than in the prescribed format / Issue of contract notes without the signature of authorized signatory or which do not bear a running serial number or bear a serial number which is not initiated at the beginning of each financial year
Delay in issue of Contract notes
Issue of NSE contract notes for transactions not executed on the exchange / for fictitious transactions / 5,000/-
Advice
Advice
1,00,000/- / 10,000/-
5,000/-
10,000/-
2,00,000/- / *
*
Reg 3.5.1 / Difference in trade rate as per the NEAT system and the rate charged / Excess amount to be returned to the client and fine equal to twice the excess amount charged or Rs 25,000/-, whichever is higher, to be levied on the trading member
Reg 3.5.1 and NSCCL circular no. NSCC/CM/C&S/207 dated 31st August, 2001
Rule 4a of Chapter IV of the Rules of the Exchange / Transfer of trades executed for one client to another client
Transfer of trades from PRO account to client account or vice-versa
Use of fictitious client codes during order placement / Advice
5,000/-
10,000/- / 0.02% of the value of trades transferred or Rs 5,000/-, whichever is higher
0.02% of the value of trades transferred or Rs 10,000/-, whichever is higher
0.02% of the value of trades transferred or Rs 20,000/-, whichever is higher / *
NSE/CMO/22/99 dated 08/10/99
Reg 3.5.1 / Off-market transactions
Off-market transactions executed partly on the Exchange / 0.01% of trade value or Rs 5,000/- whichever is higher
0.05% of trade value or Rs 10,000/- whichever is higher / 0.01% of trade value or Rs 15,000/- whichever is higher
0.05% of trade value or Rs 20,000/- whichever is higher / *
Circular no NSE/INVG/2004/009 ref no NSE/INVG/2004/5216 dated 30/06/2004 / Institutional trades not routed through STP system
Not using the prescribed identification codes for transactions routed through STP system /
Advice
Advice / 10,000/-10,000/-
Margin Requirements
Circular no NSCC/M&S/1811 dated 24/08/2001 & NSCC/CM/C&S/229 dated 01/08/2002 / Non–collection / short collection of upfront margins from constituents
Non–collection / short collection of daily margin from constituents / Advice / Reprimand/Warning
For short collection of daily margin upto 20%, the trading member be reprimanded and in other cases, a fine of 0.1% of amount of short collection be levied
Byelaw 25 of chapter IX of the Byelaws of the Exchange / Entering into any arrangement or adopting any procedure for the purpose of evading or assisting in the evasion of margin (like use of PRO code/other codes for clients trades etc) / 0.1 % of the margin evaded or Rs 25,000/- whichever is higher / *
Membership Requirements
NSE/MEMB/261 dated 27/05/1997 / Fund Based activities / Advice / 20,000/-
Cir No. 68 dated 23/07/1997 (ref no NSE/MEM/310) / Shareholding pattern not verifiable due to incomplete / absence of records / A fine of Rs 10,000/-
Cir No. 68 dated 23/07/1997 (ref no NSE/MEM/310) / Change in the shareholding pattern without the prior approval of the Exchange which has resulted in the dilution of the shareholding / profit sharing ratio of the dominant groupbelow 51% (40% in the case of listed trading member) / 1,00,000/- / 1,50,000/- / *
Withdrawal of trading facility of the trading member till the changes are approved by the Exchange
Cir No. 68 dated 23/07/1997 (ref no NSE/MEM/310) / In case of any other change in the shareholding pattern (except in case of shareholding changes related to public shareholding in listed company) / 5,000/-
Rule 8 (4a) of Securities Contracts (Regulation) Rules,1957 / Non appointment of minimum 2 experienced directors / If experienced director(s) is (are) not available the trading member be advised to appoint within three months and confirm the same to the Exchange. In case of non compliance to the Exchange directive, a fine of Rs 25,000/- be levied per experienced director not appointed
MIRSD/MSS/Cir-30/13289/03) dated 09/07/2003 and Circular no 355 ref no NSE/MEM/4299 dated 25/07/2003 / Change in the qualified directors and whole time directors without the prior approval of the Exchange
Change in the non-qualified directors without obtaining prior approval of the Exchange. / 5,000/- per instance
3,000/- per instance
Rule (5) (h) of Chapter IV of the Rules of the Exchange / Violation of the Advertisement Code of the Exchange / 5,000/- / 10,000/-
Bye Law (7) chapter VII of the bye laws of the Exchange and cir no NSE/CMO/0088/2004 (ref no NSE/CMTR/4757) dated 22/07/2004
Reg 2.1.12 and cir no NSE/CMO/0088/2004 (ref no NSE/CMTR/4757) dated 22/07/2004 / Trading member/sub broker acting through or on behalf of another trading member/sub broker for trading on the Exchange without the prior approval of the Exchange in writing
-Dealing with one member broker/sub-broker of another exchange for proprietary trading without intimating the name of such member broker/sub-broker to NSEIL
-Dealing with more than one member broker/ sub-broker of another exchange for proprietary trading
-Dealing with a member broker of another exchange on behalf of constituents without necessary registration as sub-broker / 10,000/-
Warning / 25,000/-
10,000/- / *
10,000/- for every additional member broker / sub-broker
25,000/-
Office Management
Circular no.163 Ref. No. NSE/MEM/1591 dated April 20, 2000 and Circular no. 309 (ref no NSE/MEM/3740) dated 29/08/2002 / Usage and operation of a trading terminal by a person (an employee of the trading member) other than an approved user / approved person / Advice / 10,000/-
Circular no 203, Ref no NSE/MEM/2689 dated July 6, 2001 and Circular no 309, Ref no NSE/MEM/3740 dated November 13,2002 / User ids given to persons without NCFM certification / 5,000/- / 10,000
Circular no.163 Ref. No. NSE/MEM/1591 dated April 20, 2000,Circular no 282, Ref no NSE/MEM/3574 dated Aug 29, 2002, Circular no. 292 dated 25th September, 2002 (Ref no. NSE/MEM/3635) and all subsequent circulars issued wrt the same / Trading (NEAT/CTCL) terminals provided to unregistered intermediaries / unauthorised extension of trading network / non submission of required details of CTCL terminals to the Exchange
Terminals for which information has been uploaded but with minor errors / 20,000/- per terminal for the first five terminals and the fine amount be stepped up by Rs 5,000/- per terminal in successive batches of five terminals each thereafter.
50% of the fine levied for non-submission of the required information regarding CTCL terminals / *
Circular no.163 Ref. No. NSE/MEM/1591 dated April 20, 2000 / Non-display of Notice board
Display of notice board otherwise than in the prescribed format / 10,000/-
50% of the fine levied for non-display of notice board / 20,000/-
50% of the fine levied for non-display of notice board
Circular no.163 Ref. No. NSE/MEM/1591 dated April 20, 2000 / Non-display of SEBI Registration Certificate / 10,000/- / 20,000/-
Circular no 257 ref no NSE/MEM/3441 dated 14/06/2002 / Non-appointment of compliance officer / 10,000/-
Circular no NSE/INVG/PRE/2003/ 16 ref no NSE/INVG/ 2003/4590 dated 25/11/2003 / Execution of trades on own account without disclosing to the clients / Advice / 10,000/-
Circular no NSE/CMO/ 0070/2003 ref no NSE/CMTR/4540 dated 06/11/2003 / Execution of trades on own account from locations other than those permitted by the Exchange / 10,000/-
Other Violations
Circular no NSCC/M&S/1832 dated 31/08/2001 / Wrong reporting of trades as NCIT / 5,000/- / 10,000/-
NSCC/CM/C&S/175 dated January 15, 2001 / Wrong reporting of settlement of BT trades / 5,000/- / 10,000/-
Circular No. NSE/CM/6768 and Circular No. NSE/CMT/055 dated February 15, 1996 / Non submission of information as required in the prescribed format to the Exchange for underwriting / Reprimand/Warning / 10,000/-
NSE/CMO/002/2000(ref no NSE/CMT/1424 dated 31/01/2000 / Commencement of Internet Trading without prior approval from the Exchange / 10,000/-
Cir no NSE/I&ID/2002/8 (ref no NSE/I&ID/3174) dated 05/02/2002 and Cir no NSE/INSP/4310 (ref no NSE/INSP/4310) dated 31/07/2003 / Non-submission / delayed submission of annual compliance report on or before the due date / Fine at the rate of Rs. 100 per day for the first month, Rs. 500 per day for the following month and Rs 1,000/- per day thereafter
Margin Trading
Cir no 395 dated 7/04/2004 (ref no NSE/MEM/4972) and cir no 396 (ref no NSE/MEM/4973) dated 07/04/2004 and no NSE/CMO/0103/2004 dated 07/04/2004 (ref no NSE/CMTR/4974) and no NSE/CMO/0131/2004 dated 09/09/2004 (ref no NSE/CMTR/5420) and Cir No: NSE/CMO/0183/2005(Ref. no. NSE/CMTR/5914) dated10/03/2005 / - Providing margin trading facility to clients without obtaining prior permission of the Exchange / 1,00,000/-
- Non-execution of agreement for providing margin trading facility
- Execution of agreement for providing margin trading facility otherwise than in the prescribed format
- Both non-execution of agreement for providing margin trading facility and execution of agreement for providing margin trading facility otherwise than in the prescribed format
- Non-obtainment of declaration from clients, giving details of margin trading facility availed from any broker in any exchange / rejection of the client’s request for margin trading with any broker / etc.
- Providing margin trading facility to clients without Unique Identification Number / Warning
Warning
Warning
Warning
5,000/- / 10,000/-
5,000/-
10,000/-
5,000/-
10,000/-
- Non-maintenance of separate demat account for every client for holding client-wise securities purchased under margin trading facility
- Not enabling the client to observe the movement of securities from his / her demat account through internet
- Non-maintenance of separate record of details (including the sources ) of funds used for the purpose of margin trading / 5,000/-
Advice
5,000/- / 10,000/-
5,000/-
N.A.
- Providing margin trading facility using funds other than own funds and / or borrowings from scheduled commercial banks and NBFC’s regulated by RBI
- The total indebtedness of the trading member for the purpose of margin trading exceeding 5 times of its net worth, calculated as prescribed by SEBI
- Use of funds of any client for providing margin trading facility to another client (even if authorized by the client) / 50,000/- / 1,00,000/-
- Short /non-collection of prescribed initial margin and maintenance margin in cash from the clients availing margin trading facility / For short collection of upto 20% of the margin required to be collected, the trading member be warned and a fine of 0.1% of the amount of short collection be levied on the trading member for other cases.
- Maximum allowable exposure of the trading member for margin trading exceeding the borrowed funds plus 50% of its networth
- Exposure to any single client at any point of time exceeding 10% of the trading member’s lendable resource / Advice
Advice / 10,000/-
10,000/-
- Providing margin trading facility to the clients in securities other than those prescribed / 5,000/- / 10,000/-
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