The Securities and Exchange Board of India (Sebi) has released a discussion paper on code of conduct for sub-brokers.
The markets watchdog has already set up an internal group, which is in the process of reviewing regulations for sub-brokers, which will address primary registration, capital adequacy, eligibility norms, reporting, monitoring, inspection among others.
This group has recommended that sub-brokers should be registered with the stock exchanges and the registration of the sub-brokers with Sebi would be a secondary level. The sub-brokers would be regulated by the stock exchanges. And the stock exchange would amend / frame rules, bye-laws and regulations accordingly.
Meanwhile, the code of conduct has said that they have to maintain high standards of integrity, promptitude and fairness in the conduct of securities business especially with investors.
Sub-brokers in their dealings with clients and the general investing public should faithfully and promptly place the orders for buying and selling of securities, and ensure that all relevant information and the necessary documentation is correctly processed.
Sub-brokers should not match the purchase and sale orders of their clients and each order must invariably be routed through a member-broker of the stock exchange with whom they are affiliated.
Sub-brokers should not encourage sales or purchases of securities with the sole object of generating brokerage and should not furnish false or misleading quotations.
Further, they should not charge clients a brokerage (including the brokerage charged by the broker) exceeding two and half percentage of the trade executed price.
In order to ensure fairness to clients sub-brokers when dealing with clients should disclose that they are acting as agents and should issue appropriate purchase or sale note ensuring at the same time, that no conflict of interest arises between him and the client.
Sub-brokers should not make recommendations to clients who might be expected to rely on it and dispose of their securities accordingly unless the brokers have reasonable grounds for believing that the recommendation is suitable for such clients upon the basis of the facts.
The sub-brokers or any of their employees should not render, directly and indirectly any investment advice about any security in the publicly accessible media, whether real - time or non real-time, unless a disclosure of their interest including long or short position in the said security has been made.
In dealings with brokers, sub-brokers should co-operate with their brokers. A sub-broker shall not knowingly and wilfully deliver documents which constitute bad delivery.
A sub-broker should not fail to carry out his stock broking transactions with his broker nor shall he fail to meet his business liabilities or show negligence in completing the settlement of transactions with them. A sub-broker is not allowed to advertise his business publicly unless permitted by the stock exchange.
A sub-broker should not indulge in any improper with the stock exchange nor should it wilfully obstruct the business of the stock exchange. It shall comply with the rules, bye-laws and regulations of the stock exchange and circulars, notices, and other instructions issued by the board and the relevant stock exchanges.
A sub-broker should not indulge in manipulative, fraudulent or deceptive transactions. It shall also not indulge in any float schemes or spread news with a view to distorting market equilibrium or making personal gains.
A sub-broker should not create false market either singly or in concert with others or indulge in any act detrimental to the public interest or which leads to interference with the fair and smooth functions of the market mechanism of the stock exchanges.
He should not also involve himself in excessive speculative business in the market beyond reasonable levels not commensurate with his financial soundness.
