The Forward Markets Commission (FMC), the commodity futures market regulator, has relaxed contract note delivery requirements of brokers to clients. It has permitted member brokers to send contract notes to clients in electronic form only on specific request from clients. FMC had earlier made delivery of physical notes compulsory.
However, delivery of electronic contract notes would be based entirely on the discretion of the client. Circular issued by FMC states that the delivery of contract note to a client must be in physical form only, unless a client specifically indicates his preference for contract notes in electronic form.
This intent by the client has to be expressed in an electronic contract note (ECN) in an ‘ECN declaration form’ prepared by FMC. The ECN declaration form should be in English but in case a client is not conversant with the language, ECN form should be bi-lingual, that is, in English and the local language known to the applicant, states FMC.
Some brokers had however told the regulator that this will be difficult to execute. Circular also said the above declaration needs to be obtained from the client afresh before April 1 of every financial year by following the same procedure. Thus, such declaration would be valid for that financial year only.
For the existing clients, the same procedure of opting for physical note or electronic note needs to be followed afresh according to the new norms and is to be completed by June 30, 2011.
Besides, the client can revoke the ECN facility and opt for the contract note in the physical form only by giving seven working days’ notice to the member and copy of the same would be retained by the client.
In a measure towards client protection, FMC has directed all members of commodity exchanges to deliver contract notes to client on whose behalf trading is done within 24 hours of transaction.
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The regulatory directive issued on April 19 also states that the proof of delivery needs to be preserved by the member.
Commodity exchanges, on the other hand have been entrusted the responsibility of ensuring compliance of this norm by its members by doing test check of delivery of both physical as well as electronic notes once in a month and preserve the record of such checks.
On the issue of checking whether clients have received contract notes or not, an exchange official said exchanges can do this checking while doing inspection of brokers. Some brokers had suggested to FMC that exchanges can even sent SMS to clients randomly to verify transactions. Such things are common among depositories. FMC however has not accepted the suggestion.
A detailed statement of accounts must be sent every month to all the clients in physical form. The proof of delivery of the same should be preserved by the member.
Chief compliance officer, India Infoline group said that the new circular is a relief as on the request of clients, electronic contract notes can be provided and there are some checks and balances which will ensure proper functioning of electronic system and take care of broker as well as client’s needs.