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Compliance requirements for stock brokers: The Bombay Stock Exchange Ltd

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  1. Introduction
  2. The origin Bombay Stock Exchange
    1. History
    2. Product and services
  3. Overview of the regulatory framework of the capital market in India
  4. Compliance of the BSE with SEBI
  5. Code of conduct for stockbrokers
  6. Pre-inspection preparation
  7. Inspection procedure for cash segment
    1. Penalties for cash segment
  8. Inspection procedure for derivatives segment
    1. Penalties for drivatives segment
  9. A study of the debt segment
  10. Conclusion
  11. Recommendations
  12. References

One of the most dynamic fields of business is the Capital Market. It is considered one of the most promising markets in the world. This is because of the sea change that the market has undergone from the early 90's. The market is now automated, transparent and self-driven. The Indian Financial system is regulated by two governing agencies under the Ministry of Finance. These are the Reserve Bank of India and the Securities Exchange Board of India. The Capital Market is governed by acts like the Securities Contract (Regulation) Act, 1956, Securities Contract (Regulation) Rules, 1957, SEBI Act, 1992, Companies Act 1956, SEBI (Stock Brokers and Sub Brokers) Rules, 1992 and the Exchange Bye-Laws Rules & Regulations. The objective of this study is to understand the various compliances that the member brokers need to comply with and understand the mechanism of inspection followed by the Bombay Stock Exchange Limited.

[...] in the back office and not registering these codes in the BOLT database Dealing with intermediaries sub broker brokers not done their trades through the BOLT without sub broker being registered as sub brokers without registering such person as Remisier member of another member or with a person who is forbidden to trade of the exchange the BOLT TWS terminal by a person other than an approved person unregistered intermediaries or terminal unauthorized extension of trading terminals entered with errors of the exchange exchange for proprietary trading with intimating the exchange another exchange for proprietor additional broker with trading whom trades have been executed suspended broker without prior permission from the exchange trading activities Margins disclosing the risk management system Others clarification certificate regarding implementation of suggestions made at the time of inspection than in the prescribed format certificate without the approval of the exchange questionnaire duly filled in by the expiry of the specified member within the specified time as time till the mentioned in the letter addressed to questionnaire is the member whose inspection has been submitted ordered incomplete or wrong information accounts not made available for expiry of the specified inspection time till the records and documents are submitted Margin Trading the clients without obtaining prior information from the exchange providing margin trading facility providing margin trading facility otherwise than in the prescribed format clients giving details of margin trading facility availed from any broker in any exchange or rejection of the clients requests for margin trading with any broker accounts for every client for holding client wise securities purchased under margin trading system the movement of securities from his or her demat account through the internet details of funds used for the purpose of margin trading using funds other than own funds and borrowings from scheduled commercial banks and NBFC's regulated by the RBI member for the purpose of margin worth, calculated as prescribed by the SEBI providing margin trading facility to another client initial margin and maintenance margin amount of in cash from the clients availing short margin trading facility collection be levied on the trading member for other cases trading member exceeding the borrowed the trading member's lendable resources the clients in securities other than those prescribed Subsidiaries of Regional Stock Exchanges the nominal value of the equity share capital of the trading members trades done in its own account subject to a governing board of the trading member to the SEBI lacks the prescribed composition not segregated from the functions of to the SEBI the parent stock exchange Post Compliance Inspection certificate regarding implementation of suggestions made at the time of inspection Derivatives Segment The inspection strategy suggested by the SEBI is as follows:- At least 20% of the members having the highest average daily turnover should be taken up for inspection and preference should be given to those members who have not been inspected previously so as to ensure that all trading members are inspected at least once in a few years. [...]

[...] Need for Compliance The Indian stock market has seen substantial growth since the early 90's. With this it has also witnessed various scams. This shows various loopholes in the functioning of the capital market. Therefore it is necessary that a regulatory system be placed to control the market. The entire compliance strategy includes Risk Management, Client funding, Unique Client codes, online supervision, Inspection etc. Compliance not only provides a comfort zone for to the investors but it also provides encouragement to the member brokers to trade effectively. [...]

[...] The Bombay Stock Exchange The Stock Exchange, Mumbai; popularly called The Bombay Stock Exchange, or BSE is the oldest stock exchange in Asia. It is located at Dalal Street, Mumbai, India. There are around 3,500 Indian companies listed with the stock exchange, and has a significant trading volume. At October 2006, the market capitalization of the BSE was about Rupees 33.4 trillion that is around 730 billion US dollars. The BSE SENSEX (SENSitive indEX), also called the "BSE is a widely used market index in India and Asia. [...]

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