OTC EXCHANGE OF INDIA  

Ref. No.: 0551/2004/NSCCL/OTC/035                                       Date: February 19, 2004

Dear Members/Dealers

SEBI vide their letter SEBI/MIRSD//Cir-06/2004 dated January 13,2004 has notified the revision of norms relating to trading by members / sub brokers through other brokers/sub brokers of the same Stock Exchange or other Stock Exchanges.

The relevant content of the SEBI Circular is as below.

QUOTE:

1.      During the course of inspections carried out by SEBI of the books of accounts and other documents of members/sub-brokers, it has been observed that certain members/sub-brokers are dealing through a large number of other stock brokers/sub-brokers of the same exchange/other exchange for their proprietary trades as well as trades on behalf of clients.

2. Trading through large number of brokers/sub-brokers raises serious issues of regulatory concerns including taking excessive exposure, executing pro account trading from multiple locations in violation of SEBI circular no. SEBI/MRD/SE/Cir-32/2003/27/08 dated August 27, 2003, possibility of over leveraging and default etc.
3. With a view to address these concerns, stock exchanges are directed to ensure the following:-

3.1 A Stock broker/sub-broker of an exchange cannot deal with brokers/sub-brokers of the same exchange either for proprietary trading or for trading on behalf of clients, except with the prior permission of the exchange. The stock exchanges while giving such permission, shall consider the reasons stated by the brokers/sub-brokers for dealing with brokers/sub-brokers of the same exchange and after carrying out due diligence allow such brokers/sub-brokers to deal with only one stock broker/sub-broker of the same exchange.

3.2 A stock broker/sub-broker of an exchange can deal with only one broker/sub-broker of another exchange for proprietary trading after intimating the names of such stock broker/sub-broker to his parent stock exchange.

3.3 As per Regulation 15(1) (e) of the SEBI (Stock Brokers and Sub-Brokers) Regulations, 1992 a sub-broker shall not be affiliated to more than one stock broker of one stock exchange. It is reiterated that a stock broker of an exchange can deal with only one broker of another exchange on behalf of clients after obtaining necessary registration as a sub-broker.

4. Stock Exchanges are directed to implement the above requirement with immediate effect and take necessary disciplinary action wherever violation of the above provisions are observed.
5. The undersigned has been authorized to direct the exchanges to

5.1 make necessary amendments to the relevant bye-laws, rules and regulations for the implementation of the above decision immediately.

5.2 bring the provisions of this circular to the notice of the member brokers/sub-brokers affiliated to the members of the exchange and also to disseminate the same on the web-site.
5.3 communicate to SEBI, the status of the implementation of the provisions of this circular in the Monthly Development Report for the month of January 2004.

6. This circular is being issued in exercise of powers conferred under Section 11 (1) of the Securities and Exchange Board of India Act, 1992, read with Section 10 of the Securities Contracts (Regulation) Act 1956, to protect the interests of investors in securities and to promote the development of, and to regulate the securities market.

 UNQUOTE:

All members/dealers are advised to ensure due compliance of the direction of SEBI and refrain from indulging in any business not complying with the stipulated requirement unless otherwise permitted to do so by the Exchange.

For OTC Exchange of India

R.Anand

Asst. Vice President