Safeguards' for Investors'
These are some of the safeguards the investors should keep in mind before trading in the securities market.
Selecting a Broker/ Sub - Broker
Deal only with a SEBI registered Broker / Sub - broker after due diligence. Details of the BSE Brokers can be obtained from the Member's List published by BSE and from the website.
Entering into an Agreement
- Fill in a Client registration form with the Broker / Sub - broker
- Enter into Broker / Sub - broker - Client Agreement. This agreement is mandatory for all investors for registering as a client of a BSE Trading Member. Ensure the following before entering into an agreement
Carefully read and understand the terms and conditions of the agreement before executing the same on a valid stamp paper of the requisite value.
Agreement to be signed on all the pages by the Client and the Member or their representative who has the authority to sign the agreement. Agreement has also to be signed by the witnesses by giving their names and addresses.
Please note that Regulatory Authorities have not stipulated for execution of any document other than Broker/ Sub - Broker / Client Agreement.
- Specify to the Broker / Sub - broker, the exchange through which your trade is to be executed and maintain separate account for each exchange.
- Obtain a valid Contract Note from the Broker / Sub-broker within 24 hours of the execution of the trade.
Contract note is a confirmation of trade(s) done on a particular day for and on behalf of a client in a format prescribed by BSE. It establishes a legally enforceable relationship between the Trading Member and his Client in respect of settlement of trades executed on BSE as stated in the Contract Note.
Contract Notes are made in duplicate, and the Trading Member and Client, both keep one copy each. The Client is expected to sign on the duplicate copy of the Contract Note, confirming receipt of the original.
a. Contract Note - Form 'A' - Contract Note issued where Member is acting for constituents as brokers/ agents.
b. Contract Note - Form 'B' - Contract Note issued by Members dealing with constituents as principals.
- Ensure that the Contract Note contains:
SEBI registration number of the Trading Member/ Sub - broker
Details of trade such as, Order no, trade no., trade time, quantity, price, brokerage, settlement number, details of other levies.
Trade price should be shown separately from the brokerage charged.
The maximum brokerage that can be charged is Rs. 0.25 per share/debenture or 2.5% of the contract price per share / debenture whicherver is higher. This maximum brokerage is inclusive of the brokerage charged by the sub-broker (Sub-brokerage cannot exceed 1.5% of the contract price.) Any additional charges that a Trading Member can charge are Service Tax on the brokerage, any penalties arising on behalf of client and Securities Transaction Tax (STT).
The brokerage, service tax and STT are required to be indicated separately in the Contract Note.
- Signature of authorised representative.
- Arbitration clause stating that the Courts in Mumbai shall have exclusive jurisdiction in respect of all proceedings to which the Exchange is a party, and in respect of all other proceedings, the Courts having jurisdiction over the area in which the respective Regional Arbitration Centre is situated, shall have jurisdiction, must be present on the face of the Contract note.
- Ensure delivery of securities /payment of money to the broker immediately upon getting the Contract Note for sale / purchase but in any case, before the prescribed pay-in-day.
- Member should pay the money or securities to the investor within 24 hours of the payout.
- Open a demat account.
- Opt for buying and selling shares in demat form.
- For delivery of shares from demat account, give the Depository Participant (D P) 'Delivery out' instructions to transfer the same from the beneficiary account to the pool account of broker through whom shares and securities have been sold.
The following details to be given to the DP: details of the pool a/c of broker to which the shares are to be transferred, details of scrip, quantity etc. As per the requirement of depositories the 'Delivery out' Instruction should be given atleast 48 hours prior to the cut-off time for the prescribed securities pay-in.
- For receiving shares in your demat account, give the Depository Participant (D P) 'Delivery in' instructions to accept shares in beneficiary account from the pool account of broker through whom shares have been purchased.
- If physical deliveries are received check the deliveries received as per Good/Bad delivery guidelines issued by SEBI.
- Bad delivery cases should be sorted out through BSE mechanism immediately.
- Ensure that all registration of physical shares for ownership by transfer should be executed by a valid, duly completed and stamped transfer deed.
Source: Bombay Stock Exchange