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INTERNAL CONTROL MANUAL
OF
KMS STOCK BROKING CO. PVT. LTD.
MEMBER:
BOMBAY STOCK EXCHANGE LIMITED (BSE)
CENTRAL DEPOSITORY SERVICES INDIA LIMITED (CDSL)
This Internal Control Manual includes following:
• DEALING WITH CLIENTS
• OFFICE MANAGEMENT
• BRANCH MANAGEMENT
• RISK MANAGEMENT SYSTEM
• PMLA GUIDELINES
• POLICY REGARDING TREATMENT OF INACTIVE CLIENTS
• POLICY REGARDING MAINTENANCE OF BOOKS AND RECORDS
DEALING WITH CLIENTS
REGISTRATION OF CLIENTS
Know Your Client Form (KYC)
Member Constituent Agreement (MCA)
Risk Disclosure Document (RDD)
Maintenance/Upload of Unique Client Code
1. Salient features of Know Your Client
Forms Client information / Status
Bank and Depository Account details
Financial details of the constituent
Investment/ Trading experience
References
Financial documents (for Non Individual Constituents)
Attachments to KYC form
−Photograph
−Proof of identity and address
−Board Resolution from corporate clients permitting trading in
derivative products
−KYC to be obtained duly signed by all the clients
2. Salient features of Member Constituent Agreement
Printed on a non-judicial stamp paper of appropriate value
To be signed by both the TM and the client & to be dated
To be witnessed
Must contain clauses prescribed by SEBI / NSE from time
to time
Additional clauses may be included, but shall not contradict
with Rules, Byelaws, Regulations
Requirements of MODEL TRIPARTITE AGREEMENT made
effective from 01-04-2005
Trading Member and FI / FII clients may at the discretion
decided about the requirement of entering into Member
Constituent Agreement
3. Salient features of Risk Disclosure Document
−Client to acknowledge the risk disclosure document and be
aware that certain basic risks are involved in trading in
equity and derivative products
−Client to be solely responsible for the losses
−Client to be aware that NSE/NSCCL/SEBI are not responsible
for losses
−Client to fulfill certain formalities as a requirement for trading
Salient features of Risk Disclosure Document
−Client to be aware that contracts cannot be rescinded on the
ground of lack of awareness or any other ground
−Trading Member to obtain acknowledgement in prescribed
format of RDD
−Additional clauses may be introduced by the trading member
but shall not contradict with the basic format or the Rules,
Byelaws, Regulations, etc.
4. Salient features of Unique Client Code
−Every client to be assigned one unique code only
−Fool proof mapping of unique client code in back office with
trading code allotted to the respective client
−Mandatory collection and upload of PAN for all
−Both trading code and unique client code to be printed on the
contract note
RELATED TO CONTRACT NOTES
−To be issued in Prescribed format
−Trading Code & Unique Client Code of the Constituent to be printed
−Running serial number (reset to one at the beginning of the
Financial Year)
−To be issued within 24 hours of the trade
−To be issued only for transactions executed in the trading system
−Acknowledgement of client / Proof of delivery
−On pre-printed stationary or in electronic form with certified digital
signature
−To be signed by an Authorised Signatory mentioning name/ certified
digital signatory
−Revision in the format from time to time to be up-dated (including
revised legal jurisdiction & arbitration clause)
−Can be issued in continuation sheet as per prescribed format
Electronic issue of Contract notes
• Issuing ECNs when specifically consented
• ECNs to be digitally signed, encrypted and non tamper able
in with provisions of IT Act, 2000
• Delivery of ECNs to e-mail of client, Preserve Log reports for
mails sent and bounced back.
• In case of non delivery, to be sent in physical mode
• Simultaneously publish ECNs on the web-site.
• Enable access to clients in a secured way by allotting unique
user name and password.
FUNDS AND SECURITIES OF CONSTITUENTS
Separate Bank and Demat Account to be maintained for
client funds and securities
Segregation of own and clients funds/ securities
Funds / securities to be received only from respective clients
accounts directly
Pay-out of funds / securities directly to respective clients
within one working day of pay-out by Exchange
Funds / securities of a client should not be transferred to
the account of the trading member / another client
Funds / securities of a client should not be used for pay-in
obligation of another constituent / pro-trades
Client funds to be used only for the purposes specified
Clients funds / securities not to be misused
Not to receive/ pay cash to clients for margin/ Settlement
Dividends received on clients’ securities to be disbursed
within 30 days
Statement of funds and securities
−Sending statement of funds and securities to clients on a
quarterly basis within one month from the end of the
relevant period
−Statement of funds and securities/ margin and settlements
should contain an error reporting clause of 30 days −Proof of
dispatch/ delivery to be maintained
MARGINS FROM CONSTITUENTS (CM SEGMENT)
At discretion may collect margin from its client as a risk containment
measure
MARGINS FROM CONSTITUENTS (F&O SEGMENT)
To madatorily collect initial margin (MG 13 file) upfront on a daily basis
from the clients.
• Daily reporting of Initial Margin collected
• Non-reporting considered as 100% shortfall
• Penalty for shortfall in collection
• Wrong reporting (considered as serious violation with
stringent disciplinary actions
MARGINS COLLECTION
Mode of collection
• Funds
• Securities
• FDR and Bank Guarantee favoring TM Other
requirements
• Maintenance of adequate records for identifying
clientwise margin collection
• If securities collected as margins, statement of
securities to be issued to the clients
BROKERAGE
−Brokerage not to exceed 2.5% incase of retail clients
−Brokerage not to exceed 1.5 % in case of sub- brokers
−Maximum brokerage of 25 paise per share if trade price of a share
is Rs. 10/- or less
−Incase of option contract, brokerage to be charged on option
premium amount which shall not exceed 2.5% of premium
amount or Rs. 100/- per lot whichever is higher
STRAIGHT THROUGH PROCESSING (STP)
−All institutional trades to be mandatorily processed through STP
system
TRANSFER OF TRADES
−No Transfer of trades from PRO to client and vice versa
−No transfer of trades from one client to another
OTHERS
−Not charging excess rates for the trades
−Declaration of PRO trading to clients
−Confidentiality of client information
−No false inducement to trade by giving misleading advice or
information to clients
−Client trades to be done with CLI code only
RELATING TO TRADING REQUIREMENTS
MARGIN TRADING
Prior permission to be obtained for providing Margin Trading
Facility to the clients
Agreements to be entered into with all the clients
Margin Trading Facility to be provided only for the specified
securities.
To upload the details of margin trading in the prescribed file
formats
Separate records to be maintained detailing funds used for the
purpose of margin trading
Maintenance of separate demat account for every client for holding
client-wise securities purchased under margin trading facility
Funds if borrowed should be either from scheduled commercial
banks and/ or NBFC
Total indebtness not to exceed 5 times of networth
Funds of any client not to be used for providing margin trading
facility to another client
Exposure to any single client not to exceed 10% of the total
lendable resources
Maximum allowable exposure not to exceed the borrowed funds
plus 50% of networth
Collection of initial and maintenance margin in Cash / FDR /
Bank Guarantee
Enabling client to observe movement of securities from his/ her
demat account through internet
INTERNET TRADING (NO INTERNET TRADING PROVIDED)
Prior permission to be obtained for providing Internet Trading
Facility to the clients
Agreements to be entered into with all the clients in the prescribed
format
Prior approval to be obtained incase of use of internet trading
software other than that of empanelled vendors
Trading member to ensure reliability, security and confidentiality
of internet trading system
Client specific user id and password to be used for execution of
trades
Password policy to be adhered for security, reliability and
confidentially
Trading Member to ensure clients do not deal on behalf of others
Submission of SSL Certificate (Yearly) & Internet Trade Statistics
(Weekly)
Trading Member to submit system audit certificate on a half yearly
basis.
OFFICE MANAGEMENT
Notice Board
• Display of permanent nature Notice Board (viz. painted
board) containing required details, at all places where
trading terminals are located including registered
offices and branch offices of trading member
/subbroker
• Display of copy of SEBI Registration Certificate
related to trading terminals
• Trading Terminal to be located at registered offices
and/ or branch offices of trading member /sub-broker
• No extension of NEAT terminal without prior approval
of the Exchange
• Trading terminal to be operated by approved persons
only
• Trading terminal to be operated by person having valid
NCFM certification
related to trading terminals
• Upload of CTCL terminal to the Exchange before
activation
• All information to be correctly uploaded in the
prescribed format particularly user name, location of
the terminal and CTCL id
• Any change in the uploaded details to be immediately
uploaded to the Exchange
• Due diligence to be exercised while allotting trading
terminal and prevent misuse
• PRO trading to be done only from trading terminals
enabled for PRO trading
Officer
Trading member to appoint officer
officer to monitor the with regulatory requirements
and redress investor’s grievances.
Inspection
Trading member to inspect on a yearly basis
- 10% active sub-brokers ;
- 10% of active branches ;
- each active sub-broker/ branch to be inspected atleast once in
every 5 years
BRANCH MANAGEMENT:
OPENING OF NEW BRANCH
A BEFORE FINALISATION OF LOCATION
1 Search of location outside the range of existing branch office of
the company as decided by the management of the company
from time to time.
2 Do proper Survey of the selected locations
3 Assessment of Prospective clientele at new location with
expected Brokerage earned from the Branch.
4 Exiting offices of other Stock brokers at the same locations to
access the profitability of the location
5 To judge the Cost factor as against the expected income.
6 Basic facilities, i.e., electricity, water, etc
7 Requirement and availability of new Staff at new location
B AFTER FINALISTION OF LOCATION
8 Make necessary arrangements for uploading of necessary
information with Exchange(s), wherever required.
9 Make sure to display Notice Board and Name of the company as
per the Exchange(s) norms.
10 Make sure to display SEBI Certificate on the office
11 Make sure to display Investors Rights and Obligations on the
office.
SHIFTING OF BRANCH FROM ONE LOCATION TO OTHER LOCATION
1 Search of new location – the location for branch office be
finalized taking into consideration following factors
a) Do proper Survey of the selected locations
b) Accessibility of Existing Clients (if any)
c) Prospective clientele at new location
d) Cost factor
e) Basic facilities, i.e., electricity, water, etc.
f) Requirement and availability of new Staff at new location
2 After Finalizing new location to shift the existing branch following
compliance to be done w.r.t. existing (old) branch:
a. To make sure to display address of new branch office along
with contact detail(if changed) at least 15 days prior to
shifting of office and One month after shifting the office so as
to enable all the clients search the New Branch Office of the
company without any hassle.
b. To communicate telephonically to all the existing clients of
the Branch about shifting to new Branch.
c. Make necessary arrangements to shift the terminals and
wait for green signal from Head Office for want of necessary
approvals/intimations to the Exchange(s), wherever
required.
3 After Shifting to New Address following compliance to be done at
New Branch Office:
a. Communicate all clients, except dormant clients, about the
shifting of office telephonically.
b. Make sure to display Notice Board and Name of the company
as per the Exchange(s) norms.
c. Make sure to display SEBI Certificate on the office
d. Make sure to display Investors Rights and Obligations on the
office
CLOSURE OF BRANCH
1 The company shall give notice to the customer in the event of
closure of its branch office.
2 Intimate all the clients about nearest located Branch office of
the company and also the Registered office of the company
3 Intimate the clients about the contact detail/email id of the
head office in case they have any query.
RISK MANAGEMENT SYSTEM:
RISK PERCEPTIONS
A HIGH RISK CATEGORY:
Under this category following type of Investors do fall
(i) NRIs and Foreigners
(ii) Clients/Investors trading in the ‘T’ Group and ‘Z’ group covers
under High risk category.
(iii) Clients/Investors with High turnover coupled with delayed
payment of more than 3 days of track record.
(iv) trusts, charities, NGOs and organizations receiving donations
(v) politically exposed persons (PEPs) of foreign origin
B MEDIUM RISK CATEGORY:
Under this category following type of Investors do fall:
(i) Clients/Investors trading in “C’ group scrip
(ii) Clients/Investors with low turnover coupled with delayed payment
of more than 3 days track record
C LOW RISK CATEGORY:
Under this category following type of Investors do fall:
(i) Clients/Investors trading in ‘A’ Group, ‘B1, B2’
Group.
(ii) Clients/Investors with High Turnover coupled with
prompt payment track record.
(iv) Clients/Investors with low turnover coupled with prompt payment
track record.
(v) entities whose identities and sources of wealth can be easily
identified and transactions in whose accounts by and large
conform to the known profile
GOAL:
The goal of a risk management system is to measure and manage the
company’s exposure to various risks identified as central to its franchise,
clients, branches etc. For each risk category, the company employs a
four-step procedure to measure and manage the exposure. These are:
1) Establish Standards and Reports;
2) Impose Position Limits and Rules;
3) Set Investment Guidelines and Strategies; and 4) Align Incentive
Contracts and Compensation.
ESTABLISH STANDARDS AND REPORTS:
A standard is a point against which a client is measured. A report given
to management may follow a standardized format that requires
presentation of information in a structured way for ease of use or
understanding. Standardized financial reporting is essential for investors
to gauge asset quality and company-level risk.
IMPOSE POSITION LIMITS AND RULES:
A key element of financial and market risk management is deciding
which risks to bear and to what degree. A company needs to impose
limits to cover exposures to counter-parties, credit, and overall position
concentrations relative to systematic risks. Summary reports to
management can periodically show counter-party, credit, and capital
exposure by business unit. Principles of accountability, transparency,
and improved financial performance are being translated into demands
to quantify and measure as much operational activity as possible and
correlate that activity to the business plan
SET INVESTMENT GUIDELINES AND STRATEGIES:
Risk management involves determining what risks a company’s financial
activities generate and avoiding unprofitable risk positions. The board’s
role is usually described as setting the risk appetite of the organization;
however this is not possible if risks are understated or ill defined.
Guidelines can advise on the appropriate level of active management,
given the state of the market and senior management's willingness to
absorb the risks implied by the aggregate portfolio.
ALIGN INCENTIVE CONTRACTS AND COMPENSATION:
The need for elaborate controls lessens when management can enter into
incentive-compatible contracts with line managers and relate
compensation to the risks they bear. For example, management can offer
a salary level without commission. Commissions encourage
salesmen/traders put in more transactions because of the commissions.
KEY RESPONSIBILITIES FOR COMMUNICATIONS (TIER WISE)
Tier 4 :( The Basic Tier)
Who should call RMS (Tier 4)?
Authorized persons only from Branch / Associate (Business
manager, Authorized Person in absence of Business manager)
All Communications regarding requests and queries to RMS Department
from Branches and Business Associates (Authorized persons only from
Branch / Associate (Business manager, Authorized Person in absence of
Business manager) should be addressed to this Tier only.
Reasons to call RMS (Tier 4)?
1) Trading requests in emergency conditions (Like VSAT or Internet
connectivity is broken)*
2) Requests to leverage Client Accounts limit up to 10% of available
margin in cash segment. (Subject to sufficient liquidity in margin and
intraday Mark to Market on open positions in Client portfolio). 3)
Mapping and Password Related Queries.
*(In case of emergency situation all persons calling RMS Department
for trading or squaring off the positions shall keep in mind the net
positions hence arrived after such trades as it might be done on
direct terminals of exchanges and may or may not reflect as
positions open or squared at branch terminals, the persons calling
for such trades should ensure that there is no duplicity of trade is
being performed after the systems at branch or client locations gets
connected. )
Authorized Persons calling RMS for trades should also note if you
are calling for squaring off a open position in cash segment which
was actually created in Margin/Intraday account and were subject to
square off while trading should be converted into delivery trades as
the counter trades done to square off may not reflect at master
terminals at branches and can be re-subjected for square-offs by
system once the system recovers for operations.)
Tier 3 :( Intermediate Tier)
Who should call RMS (Tier 3)?
Authorized persons only from Branch / Associate (Business
manager, Authorized Person in absence of Business manager)
Reasons to call RMS (Tier 3)?
1) Trading requests in illiquid securities and BSE T2T segment which is
not allowed at branch locations up to 1 time of available margin in
portfolio.
2) Trade Back-Up related
Notes:
Branches which do not have requisite Certification to Trade in any
segment (NSE/NSEFO/BSE) need to submit the required Certificate
otherwise they would not be allowed to place the order in that segment
even from Head Office
Tier 2 :( The Middle Part)
Who should call RMS (Tier 2)? State
Head/ Cluster Head
Reasons to call RMS (Tier 2)?
1) All Communications and clarifications regarding confirmation of Client
positions and Mark to Market losses.
2) MIS and Stock Related Queries
3) Queries and unresolved issues / Requests would be heard at this Tier.
4) Software Related understanding of reports. 5) For creation/deletion of
IDs.
Tier 1 :( The Manager)
Who should call RMS (Tier 1)?
Cluster Head / State Head/ Country Head
Reasons to call RMS (Tier 1)?
1) Communications regarding HNI / Approved Clients.
2) Communications regarding request for holding of position (which are
subject to RMS square off) or special leverage under exceptional
circumstances.
3) Trading Platform(ODIN/OMNESYS) Application Tier issues (For
Connectivity related issues contact IT Department)
4) All critical and disputes which were not resolved to the satisfaction of
concerned persons at previous Tiers would be addressed at this Tier.
Head of Department
Who should call RMS Head of Department?
1. For all Exchange related issues and queries.
2. All critical and disputes which were not resolved to the satisfaction of
concerned persons at previous Tiers would be addressed at this Tier.
BASIC RULES FOLLOWED IN RMS DEPARTMENT IN RESPECT TO:
1) Negotiable Instrument Guidelines
2) 7 Day Debits Guidelines
3) Short Margin Guidelines
4) Negotiable Instruments updating Guidelines
5) Payout Requests Guidelines
6) Intraday Square Off Guidelines
7) Near Circuit Scripts Square Off Guidelines
8) M2M Loss Guidelines
9) Special Extra Intra Day Limit Guidelines
1) Negotiable Instrument Guidelines
A Negotiable instrument payable to us is a mode for monetary transfer
from Client side.
A negotiable instrument is categorized in following breakdowns according
to their nature and relevance for necessary consideration and benefits
thereto.
Negotiable Instrument (Class A)
Fund Transfers
(A fund transfer by the mode of registered bank account of client with us
is considered as a liquid fund reported for consideration of margin money
available with us.)
Same Day Same bank Cheque Clearing
(A Same Day Same bank Cheque Clearing is a cheque issued in the name
of Company deposited in the same bank to us; the submission of such
cheques should be reported in stipulated format.)
Negotiable Instrument (Class B)
Cheque Deposited to Other Banks
(A Cheque Deposited to Other Banks is a Cheque issued in the name of
Company deposited in the different bank from the issuer bank in
accounts of Company for clearing to us; the nature of clearing is
moderate and may take from 2-7 days time, the submission of such
cheques should be reported in stipulated format.)
2) 7 Day Debits Guidelines
Guidelines 1). 7 Day cases will be squared off from 9:15 AM and no
fresh buying will be allowed to that client on the 7th day (even if that
client sells stock, future or options more than his 7 days debit)
Guidelines 2). Stock selection category is not a practice (RMS 7 Day
square off of stocks is a random process of selection and request to
consider selective stock for square off is not considered)
Guidelines 3). All Collection of Negotiable instrument for 7 Day
instances should be informed, collected, deposited and reported in
stipulated format at T+4 or T+5 Day, No Negotiable instrument will be
considered to hold the positions unless there is a fund transfer reported
before market opens in stipulated format at designated mail address.
Guidelines 4). No Calls is accepted for holding 7 Days Debits.
3) Short Margin Guidelines
Guidelines 1). Cash Short Margin will be squared off from 9:15 AM
while F&O Short Margin will be squared off from 9:30 AM, In Case of
market Volatility the same will be squared off from 9:00AM without a
prior notice thereof.
Guidelines 2). Stock or FO selection category is not a practice (RMS
square off of stocks or F&O is a random process of selection and request
to consider selective stock or contracts for square off is not considered)
Guidelines 3). All Collection of Negotiable instrument for Short Margin
instances should be informed, collected, deposited and reported in
stipulated format, Negotiable instruments (Fund Transfer, Same day
same bank Clearing) will be considered to hold the positions reported
before 9:00 AM in stipulated format at designated mail address.
Guidelines 4). In case of Short Margin Square Off in cash segment, If
Group 1 Approved stocks are squared off the amount to the extent the
stocks will be squared off will be 4 times of the short margin amount
being reported, Group 2 Approved stocks are squared off the amount to
the extent the stocks will be squared off will be 3.3 times of the short
margin amount being reported and If Group 3 Approved stocks are
squared off the amount to the extent the stocks will be squared off will be
2 times of the short margin amount being reported, If Un-Approved
Category stocks are squared off the amount to the extent the stocks will
be squared off will be 1 times of the short margin amount being reported.
(Approved List is sent to official email id of Branch Manager and
Business Associates on regular basis)
Guidelines 5). No Calls will be entertained to hold the positions unless
there is a mail with details of acceptable negotiable instrument stipulated
earlier on with proper details like Scan Copy, Excel Details,No details of
funds will be considered after 9:00 AM
4) Negotiable Instruments updating
All negotiable instruments collected and deposited must be reported in
stipulated format with Scan copy, Excel Format, Covering letter at
designated email id for this purpose; For limit updates thereto is
uploaded in systems Four times during trading hours at 10:00 AM,
11:00 AM, 12:00AM and 1:00 PM, all mails reported in the context is
collected and reviewed for limits approval, Only Class A category
Negotiable instruments are subjected for limits.
5) Payout Guidelines
All Sales persons or Business managers must post Payout Requests at
designated email id for this purpose.
The limits will be decreased from trading accounts once accounts
sections intimate us about such payout requests.
All requests to entertain limit or hold positions in short margin will only
be allowed if client requests to cancel payout being processed after we
receive a request from Branch manager or above only after providing the
scan copy of across cancelled issued negotiable instrument at designated
email id for this purpose..
6) Intraday Square Off Guidelines
All intraday / Margin positions created in cash Segment is subject to
square off around 3:10 PM to 3:20 PM, all product conversion must be
done before 3:00 PM.
7) Near Circuit Scripts Square Off Guidelines
All the Intraday positions will be squared off from RMS when the scripts
breaches the 4%Tier (for Scripts with 5% Circuit), 8% Tier (for
Scripts with 10% Circuit), 16%Tier (for Scripts with 20% Circuit
Tier),
Also note that it is the prime responsibility of the Branch to square off
the Near Circuit Scripts positions of its Clients. The position will be
squared off from RMS in case of failure of Branch in fulfilling its
responsibility.
8) M2M Loss Guidelines
Client id whose liquidity erodes more than 70% during the intraday is
squared off immediately from RMS and intimation will be sent to
branches after such square off.
9) Special Extra Intra Day Limit Guidelines
Special extra Intraday Limit provided to clients would be withdrawn at
2:45 PM and needs to be squared off before 3 o clock otherwise it would
be squared off by the RMS Department without any prior intimation
thereof..Also note that no request to hold the position would be
entertained except in case of fund transfer.
IMPORTANT NOTES TO ABOVE GUIDELINES
No Calls would be entertained for working outside the below
mentioned rules.
1. Limit against cheque collected from the client is given by RMS
Department on the same day in case of Transfer Cheque (Where
issuing bank and the bank in which cheque is deposited is same) and
in case of other cheques it is given after it gets cleared and Accounts
Department gives that confirmation to RMS Department. Please note
that in case the client is in short margin or 7 days Debit or is a
critical client( in terms of risk)the limit would be provided only on
cleared funds i.e. after the cheque gets cleared and Accounts
Department gives that confirmation to RMS Department.
2. The Cheque collected from the client is considered by RMS
Department when a mail is sent by the Branch at designated email id
for this purposealong with the scan copy of cheque as well as Excel
containing Details as to serial number, Date, Cheque No., Client
Code, Amount, Deposited Bank, Exchange.
3. (Approved List of Stocks) The Trading Limit for each client is fixed as
the sum of his ledger balance and stock position after haircut. Hair-
cut is determined on the basis of the category to which the stock
belongs. If a stock belongs to Group 1 then the hair-cut on such
stock would be 25%,
Group 2 then the hair-cut on such stock would be 30% and if it belongs
to Group 3 the hair-cut is 50% and if it does not belong to any of the
above category then the hair cut would be 100%.Therefore, the client
won’t get any benefit in terms of limit on his unapproved stock
holding while he would get 50% benefit on Group 3 stock, 70%
benefit on Group 2 stock and 75% benefit on his Group 1 stock
4. While determining the Trading Limit of Client stock which is there in
beneficiary account is only considered. Stock in DP account of client
is not considered.
5. Short Fund Margin of the client is arrived at by deducting the stock
position after Hair-cut from the Overall debit ledger Balance of the
client i.e. the clients whose stock position after hair-cut is not
enough to cover the debit in his ledger Balance is in short margin.
Such clients have to give a cheque to cover the short margin before
9:15 AM otherwise the position of such client is squared off at 9:15
AM by the RMS department at H.O to the extent of the short margin.
6. The client needs to be informed by the branch when their account
comes in 4-days debit and the cheque should be collected from them
and mailed till 5th day debit. If the client does not give payment till
then the positions are squared off on the 7th day by the RMS
Department.
7. The client needs to square off his intraday margin position by 3 o
clock otherwise it’s automatically squared off by RMS.
8. All Queries related to pending cheques deposited which is not cleared
till date should be enquired in accounts section only, Limits will be
provided once the pending cheques are cleared in our accounts, no
calls for any update in pending cheques should be accepted from
branches or business associates as the same is intimated through
accounts only.
9. All High value same bank clearing deposited and reported at earlier
trading sessions if not cleared will not be considered for limits until
the same is fully cleared in our books and any update in the same
context will only be updated in accounts section only.
10. In case of reversal or dishonor of a negotiable instrument RMS holds
the right to square off the Open positions and stocks in portfolio
subject to the margin shortage amount arising due to such reversal
or dishonor (RMS Keeps the right intact for square off viewing the
crucial conditions of portfolio and impact due to such reversals.)
11. If a Short margin instance which is squared off from RMS if reported
later with fund transfers or other Class A Negotiable instruments
with stipulated documents will be provided with the limits up to the
amount reported to us by the way of such negotiable instruments
(Only BM’s and Authorized persons are allowed to contact TIER 4
RMS department for such limits, The executive will allow limit after
properly scrutinizing of such reported negotiable instruments.
12. All Business managers are hereby advised to properly scrutinize the
M2M losses and SPAN they are carrying for the next Day as the same
will reveal the next day short margin.
13. No leverage will be allowed in F&O segment as we are already
facilitating F&O trading with no Exposure margin which is normally
5%.
14. Note that the password of Online Clients would only be mailed at the
client email Id that is registered with the CRF department. No request
for sending at that any other email Id or on phone would be
considered..
15. Any change in RMS Guidelines will be informed separately.
PMLA GUIDELINES
This policy has been prepared pursuant to ‘Prevention of money
Laundering Act’, 2002 (PMLA) as applicable to the intermediary’
registered under Section 12 of the SEBI Act,
It provides general background on the subject of money laundering and
terrorist financing and summarizes the main provisions of applicable
anti money laundering and anti-money terrorist financing legislation in
India.
The provisions of PMLA-2002 are applicable for the company. The
procedure for the purpose are selected on the basis of specific nature of
its business. Organizational structure, type of customers and transaction
etc to satisfy itself that the measures adopted by the company are
adequate and appropriate to follow the spirit of the suggested measures
the Prevention of Money Laundering Act, 2002.
This policy provides to have a system in place to identify, monitor and
reporting the suspected money laundering or terrorist financing
transactions to law enforcing authorities. This policy are in conformity
with SEBI Guidelines, CDSL and Exchanges Requirements.
Obligations of intermediaries under Prevention of Money Laundering Act,
2002 (PLMA)
Appoint a Principal Officer who would be responsible for ensuring
of provisions of PMLA
Name, designation, address and e-mail address of such Principal
officer be intimated to Office of Director – FIU, Delhi
Adopt written procedures to implement the anti-money laundering
provisions
Communicating the policies relating to PMLA/CFT to
management/staff handling accounts information, securities
transactions and customer records (at branches/ department/
subsidiaries)
The Policy to contain ; risk based approach, classification of clients
as Clients of Special category (CSC), verification of names of
customers in updated list of individuals and entities subject to
various sanction measures of UN Security Council Committee and
complying with Government order UAPA
Co-operation with law enforcement authorities and timely
disclosure of information
The Policy aims to achieve:
a) Customer acceptance policy and customer due diligence measures
b) Monitoring of transaction, its evaluation for the purpose.
c) Maintenance of records.
d) Compliance with statutory and regulatory requirements
e) Co-operation with law enforcing agencies, including the timely disclosure of
information.
f) Proper training of the staff member in efficient monitoring the procedure.
g) Role of internal auditors to ensure compliance of policies, procedures and control
to prevent money laundering.
Appointment of Principal Officer:
To prevent and control Money Laundering, we have appointed “Principal
Officer” in terms of Money Laundering Act, 2002 and the same were
intimated to FIU-DIRECTOR, Chanakyapuri, Delhi.
RIGHTS AND POWERS OF PRINCIPAL OFFICER
1. The principal officer / other appropriate officials have timely
access to customer identification data and other CDD information.
2. The principal officer has access and is able to report to Senior
Management his/her next reporting level or the Board of Directors.
CONTENTS OF PMLA/CFT GUIDELINESS
1. Communicating the policies relating to PMLA/CFT to
management/staff handling accounts information, securities
transactions and customer records (at branches/ department/
subsidiaries)
2. The above to contain ; risk based approach, classification of clients
as Clients of Special category (CSC), verification of names of
customers in updated list of individuals and entities subject to
various sanction measures of UN Security Council Committee and
complying with Government order UAPA.
3. Co-operation with law enforcement authorities and timely
disclosure of information.
Risk-Based Approach to KYC
Client acceptance is a critical activity in AML compliance. Every new
Client accepted by an institution provides the individual with an entry
point to local and international financial systems. Client acceptance,
thus, becomes the first step in controlling money laundering and
terrorist financing.
Regulatory guidelines stipulate that a sound KYC program should
determine the true identity and existence of the customer and the risk
associated with the customer. It is imperative that institutions
capture information about their customers’ background, sources of
funds, business, domicile and financial products used by them and
how these are delivered to them in order to properly understand their
risk profile.
Encouragingly, 88 per cent of respondents reported that they are
adopting a risk based approach to account opening, and hence KYC,
with another 8 per cent actively considering moving towards it.
With the multitude of requirements by different regulators around the
globe, specifically when entering into a correspondent financial
relationships, Indian financial institutions may have adopted a
riskbased approach earlier than expected and before regulations
mandated it. For local business of multinational financial institutions
this would not be the case as they often adopt global policies and
procedures, hence, they follow global best practices and standards.
As customer risk rating and KYC drives enhanced due diligence and
ongoing monitoring it is critical that organizations conduct a
comprehensive assessment to understand the risks associated with
their business and customers. This in turn will provide a basis upon
which associated policies and procedures can be developed.
Across all the sectors, the greatest consideration was the nature of
the customer’s business. With increased regulatory concern on PEP’s,
it is surprising to note that they do not constitute the heaviest
weightage. In absence of the active review by various industry bodies
and independent experts, it is unclear how effective these processes
are and if they would meet best practice standards.
We have adopted the following specific parameters, which are
related to the overall ‘Client Due Diligence Process’:
a. Policy for acceptance of clients
b. Procedure for identifying the clients
c. Transaction monitoring and reporting especially Suspicious
Transactions Reporting (STR)
d. Risk management
e. Analyzing alerts
f. Reporting of alerts to FIU-IND
g. Other Parameters
(a) Policy for acceptance of clients
We are taking following safeguards while accepting the clients:
1. We have instructed our account opening section not to open
account in a fictitious / benami name or on an anonymous basis
in any circumstances.
2. It is Necessary made proper checks before opening a new account
so as to ensure that the identity of the customer does not match
with any person with known criminal background or with banned
entities such as individual terrorists or terrorist organizations etc.
3. We have not been allowing account opening, where it is unable to
apply appropriate clients due diligence measures / KYC policies
i.e. it is unable to verify the identity and /or obtain documents
required as per the risk categorisation due to non cooperation of
the Client.
4. We have been regularly updating KYC profile of “clients of special
category” defined under Money Laundering Act 2002, if any.
5. We are taking full detail of all the clients including occupational
detail and financial detail.
6. We have been properly complying documentation requirement and
other information in respect of different classes of clients
depending on perceived risk and having regard with the
requirement to the Prevention of Money Laundering Act 2002,
guidelines issued by RBI and SEBI from time to time.
7. We have not been allowing any client to act on behalf of another
person / entity.
8. We have been taking special caution in case of account opening of
NRI, OBC, FIIs etc.
9. Special instructions given to update on yearly Basis financial
updates of all the clients.
(b) Procedure for identifying the clients
1. Maintenance of updated list of individuals / entities subject to
various sanctions / measures available from the site
http:www.un.org/sc/committees/1267/consolist.shtml and to
regularly scan all existing accounts to ensure that no account is
held by any of the entities or individuals included in the above
list.
2. For customers that are natural persons, it is required to obtain
sufficient identification data to verify the identity of the customer,
his address/location, and also his recent photograph. For
customers that are legal persons or entities, it is required to (i)
verify the legal status of the legal person/ entity through proper
and relevant documents (ii) verify that any person purporting to
act on behalf of the legal person/entity is so authorized and
identify and verify the identity of that person, (iii) understand the
ownership and control structure of the customer and determine
who are the natural persons who ultimately control the legal
person. Customer identification requirements in respect of a few
typical cases, especially, legal persons requiring an extra element
of caution.
3. In the event of matching any particulars of designated
individuals/entities, we will inform the full particular of the
funds, financial assets or economic resources or related services
held in the form of securities, within 24 hours to the joint
secretary (IS.I) Ministry of Home Affairs, at a given fax / phone
number and email id and will also send the same to the email id
and address of SEBI.
4. In the event of matching the details beyond doubt, we will
prevent the persons from conducting any further financial
transactions under intimation to the above mentioned authorities
and will file STR to FIU, IND, covering all transactions.
5. The ‘Know your Client’ (KYC) policy is clearly defined and adopted
under the supervision of Principal Officer.
6. We have been identifying the client by using reliable sources
including documents / information, in person verification, etc.
7. We have seen each original document prior to acceptance of a
copy and same be stamped “Verified with the original”. The
information collected by us is enough to satisfy competent
authorities (regulatory / enforcement authorities) in future that
due diligence was observed by us in compliance with the
Guidelines.
8. We have been noting failure by prospective client to provide
satisfactory evidence of identity and same to be reported to the
higher authority within the organisation.
(c) Transaction monitoring and reporting especially Suspicious
Transactions Reporting
Ongoing monitoring is an essential element of effective KYC procedures.
We can effectively control and reduce the risk only if the company have
an understanding of the normal and reasonable activity of the client so
that they have the means of identifying transactions that fall outside the
regular pattern of activity. However, the extent of monitoring will depend
on the risk sensitivity of the account. Special attention is required to pay
to all complex, unusually large transactions and all unusual patterns
which have no apparent economic or visible lawful purpose. For the
purpose of monitoring of transaction unde PMLA following should be
taken care of:
1. we will examine the background and the purpose of transactions
which are complex or unusually large/ with patterns which appear
to have no economic purpose/ which exceed the limits specified for
the relevant class of client accounts, and record the findings in
writing; make available such findings, records and related
documents to auditors, SEBI, Stock Exchanges, FLUIND, other
relevant authorities during audit, inspection or as and when
required.
2. we will submit cash Transactions Report (CTR) wherever
applicable, for each month by 15th of the succeeding month to
FIUIND
3. We will submit Suspicious Transaction Report (STR) within 7 days
of arriving at a conclusion that any transaction are of suspicious
nature to FIU-IND
4. To preserve records involving CTR/STR for ten years as required
under PMLA, 2002
5. We have been taking close surveillance, where transaction
amounting to Rs. 10 Lacs or more.
6. We have not been allowing any cash transaction with client.
7. We regularly monitor the transactions for generation of alerts for
identification of suspicious transactions.
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The Principal Officer would act as a central reference point in facilitating
onward reporting of suspicious transactions and for playing an active
role in the identification and assessment of potentially suspicious
transactions.
(d) Risk Managment
The Board of Directors of the company ensure that an effective KYC
programme is put in place by establishing appropriate procedures and
ensuring their effective implementation covering proper management
oversight, systems and controls, segregation of duties, training and other
related matters. Responsibility are explicitly allocated within the
company for ensuring that the Company’s policies and procedures are
implemented effectively. The company, in consultation with boards, has
decided to devise procedures for creating Risk Profiles of the existing and
new customers and apply various Anti Money Laundering measures
keeping in view the risks involved in a transaction, account or business
relationship.
As The internal audit and compliance functions have an important role
in evaluating and ensuring adherence to the KYC policies and
procedures, the compliance function should provide an independent
evaluation of the Company’s own policies and procedures, including legal
and regulatory requirements. The company will appoint and conduct
Concurrent/ Internal Audits on specific intervals that will specifically
check and verify the application of KYC procedures at the branches and
will comment on the lapses observed in this regard. The compliance in
this regard may be put up before the Board on quarterly intervals.
The company will conduct an ongoing employee training programme so
that all the staff are adequately trained in KYC procedures. Training
requirements should have different focuses for frontline staff, compliance
staff and staff dealing with new clients. It is crucial that all those
concerned fully understand the rationale behind the KYC policies and
implement them consistently
Implementation of KYC procedures requires the company to demand
certain information from client which may be of personal in nature or
which has hitherto never been called for. This can sometimes lead to a
lot of questioning by the client as to the motive and purpose of collecting
such information. There is, therefore, the company will educate, from
time to time, the customer of the objectives of the KYC programme.
(e) Analyzing alerts
1. We have mechanism to analysis the alerts, as and when generated
and also using KYC information including details of occupation and
financial status at the time of analyzing alerts.
2. The company will maintain record of all such suspicious transactions,
its nature and its value
(f) Reporting of alerts to FIU-IND
1. All the suspicious transaction Alerts generated will be reported to FIU-
IND.
(g) Other parameters
Retention of Records
We have observed the following document retention:
a. We have bound to maintain all necessary records, if any, on
transactions, both domestic and international at least for the
minimum period prescribed under the relevant Act (PMLA,
2002 as well SEBI Act, 1992) and other legislations,
Regulations or exchange bye-laws or circulars.
b. We have also bound to kept records, if any, on customer
identification (e.g. copies or records of official identification
documents like passports, identity cards, driving licenses or
similar documents), account files and business
correspondence for the same period.
Training of staff
The company has adequately trained staff in AML and CFT (Combating
Financing of Terrorism) procedures.
In situations where the records relate to on-going investigations or
transactions which have been the subject of a suspicious transaction
reporting, the same will be retained until it is confirmed that the case
has been closed
Review of PMLA/CFT Procedures
We will review regularly the policy and procedures on prevention of
money laundering and terrorist financing to ensure their effectiveness.
POLICY REGARDING TREATMENT OF INACTIVE
ACCOUNTS
What happens when a client is declared inactive?
On a client being declared inactive,
1. All the securities of the client are transferred into the last known
demat account of the client.
2. All the funds of the client are returned to the client.
3. In case the demat account/ bank account details are not available and
the client is not contactable, , the securities/ funds are transferred
into a separate account of the company and held till such time the
company hears from the client or their representatives.
4. Trading in the client account is stopped.
Client declared inactive voluntarily
A client may write to the company stating that he wishes to transfer his
account into an “inactive” status, based on which the account will be
marked as such.
Client declared inactive by passage of time
Any client who has not traded continually for a period as may be decided
by the management from time to time and has also not renewed his
running account authorization for such continuous period as decided by
the management will automatically be moved to the “inactive” category.
Client declared inactive by law
Any client will be moved to the “inactive” category if required by law.
Procedure to activate the client
To reactivate the account, the client is expected to write to the TM
requesting for activation of the account, based on which the account
would be activated after due diligence by the TM.
MAINTENANCE OF BOOKS AND RECORDS
Securities Contracts (Regulation) Rules, 1957 (SCRR) and
the Securities and Exchange Board of India (Stock Brokers
and Sub-Brokers) Regulations, 1992 specifies maintenance
of proper books of accounts.
Members to maintain Exchange-wise separate books of
accounts, other records and documents, in accordance with
the Rules, Regulations, Bye-laws and relevant circulars of
Stock Exchanges.
Regulation 17 (1) of SEBI Regulations provides for maintenance of
following books, records and documents by the Brokers.
Register of transactions (Sauda Book)
Clients ledger
General ledger
Journals
Cash book
Bank pass book
Register of Securities
Members’ contract books
Counterfoils or duplicates of contract notes issued to clients;
Written consent of clients in respect of contracts entered into
as principals ;
Margin deposit book;
Register of accounts of sub-brokers;
Tripartite Agreement between broker, sub-broker and clients
specifying scope of authority and responsibilities of the
Broker and such sub-broker.
All these books of accounts and other records are to be preserved by the
broker for a minimum period of five years as per Regulation 18 of SEBI
(Stock Brokers and Sub Brokers) Regulations,1992
Other Books and Records
−Register of Complaints
−Records of Particulars of Approved Users
−Record of Brokerage Collected
−Dividend Ledger
−Statement of funds and securities obligations received from
the Clearing Corporation
Register of Transactions should contain :
−Name of the Constituent
−Rates both gross and net of brokerage
−Name of the Security (CM) /Contract Specification (F&O)
−Value of the security (CM) / derivatives contract (F&O)
−Date of expiry of Contract (F&O)
Register of securities to be maintained client-wise scrip-wise and should
provide for following details
−Date of receipt / delivery
−Quantity received / delivered
−Entity from / to whom received / delivered
−Balance Quantity
−Purpose of receipt / delivery