Stock Trading

Source: NSE


Dealing through NSE trading member/SEBI registered sub-broker

1. Whom should I approach for buying/selling shares on the NSE?


To buy or sell securities you could approach either;
  1. SEBI registered trading member of the NSE, or
  2. SEBI registered sub-broker of a trading member of the NSE

2. What care should I take while investing?

  1. obtain written documents explaining the investment,
  2. read and understand such documents,
  3. verify the legitimacy of the investment,
  4. find out the costs and benefits associated with the investment,
  5. assess risk-return profile of the investment,
  6. know the liquidity and safety aspects of the investment,
  7. ascertain if it is appropriate for your specific goals,
  8. compare these details with other investment opportunities available,
  9. examine if it fits with other investments you are considering or you have already made,
  10. deal only through an authorised intermediary,
  11. seek all clarifications about the intermediary and the investment,
  12. explore the options available to you if something goes wrong, and then, if satisfied, make the investment.

3. Why should I trade on a Stock Exchange?

Any trade in securities outside stock exchanges other than spot transactions, are illegal. Hence an investor do not get any protection if he trade outside an exchange. Besides, the stock exchange like NSE offers a ready market for securities. If an investor is trading outside an exchange, then he has to waste considerable time to find out the right person who is willing to undertake a corresponding transaction with him. Other benefits of trading on an exchange include:

-he have the right to receive the best price prevailing at that time for the trade;

-he do not take counterparty risk which is assumed by a clearing corporation;

-he have access to the investor grievance redressal mechanism of stock exchanges;

-he have protection upto a limit from the Investor Protection Fund and

-he have access to all company related information to enable an informed decision, etc.

4. Is it necessary to deal with a SEBI registered broker/sub-broker/NSE trading member?

You are advised to deal only with registered intermediaries as it ensures speedy settlement as well as a speedy dispute resolution mechanism. The exchange can ensure the settlement and handle disputes/claims arising out of only those trades which are executed on NSE through registered trading members/ or registered sub brokers. Thus, in case of any trade executed through a non-NSE entity, the investor may not be able to approach the investor grievance cell of the exchange in case of non-settlement or a dispute arising out of the same.

5. How do I verify the authenticity and the conduct of the trading member/sub broker?

All the SEBI registered trading member/sub brokers get the SEBI registration certificate/number. You may ask the trading member to furnish the same documents to verify the antecedents of the person. You may verify the authenticity and the validity of the registration with the exchange, or from the Exchanges website www.nseindia.com/content/members/mem_directory.htm. General reputation of a trading member/sub-brokers can be known from the existing clients. Besides, the Exchange issues press releases as and when it approves the surrender application of any trading member and also when it expels any trading member or declares any trading member a defaulter.

6. What are my general rights and obligations?

As an investor, you have the right to receive all documents evidencing your investment. If you are trading on NSE, you should get the best price at that point of time and receive money and securities in time. Your general obligations are to remain informed about the intermediary and securities you are dealing with/in, to pay/deliver funds/securities as and when called upon, to exercise all rights conferred on you and to remain vigilant.

Registering as a client

What are the formalities for registering as a client of a NSE trading member/SEBI registered sub-broker?

All investors should register themselves with registered trading members/sub-brokers by:

1. Filling a Client Registration Form and
2. Signing a Member-Constituent Agreement
3. Signing a sub-broker-client agreement, if dealing through a sub-broker
4. Obtaining a copy of the above agreement for ones' own records

The Member-Constituent Agreement contains the terms and conditions for trading and settlement including order/trade confirmation, brokerage charged by a trading member, delivery of securities and funds etc. and therefore helps reduce the chances of disputes in respect of the same. This Agreement is mandatory for all persons registering as a new client of a NSE trading member/SEBI registered sub-broker.On registration with a trading member or a sub-broker, an uniform and unique client-id needs to be obtained which is required to be incorporated in all transactions on NSE.


What precautions should I take before signing the Member-Constituent Agreement agreement/sub-brokersclient agreement?
  1. One should read the various terms and conditions carefully and understand their implications before entering into this agreement with the trading member/registered subbroker.
  2. A check should be done whether the agreement is on the stamp paper of requisite valueand whether the stamp paper is valid. Date of agreement should be within the validityperiod of the stamp paper.
  3. The Clients name and the name of the trading member/sub-broker should be clearly mentioned in the agreement. All the pages of the agreement should be duly signed by the trading member as well as the client (investor). The witnesses should also put their names and addresses against their signature.
  4. The investor (client) should check whether the trading member/registered sub-broker or their representatives have the authority (such as board resolution, power of attorney etc.) to sign the member-constituent agreement/subbroker-client agreement.

Performance of Companies

9. How do I know of the performance of companies whose securities I want to trade in?

There are a number of sources where information about the company can be received. In terms of listing agreement, the companies are required to make continuous disclosures about the price sensitive information. These disclosures are disseminated through the websites of the exchanges. Besides, SEBI provides EDIFAR (Electronic Data Information Filing and Retrieval System), which contains information about (i) financial statements comprising of balance sheets, profit and loss account and full version of the annual report, half yearly financial statements , (ii) corporate governance reports (iii) shareholding pattern and (iv) action taken against the company by a regulatory body. Apart from the above, the details of a company are also available with the various market participants and numerous public online sites. News magazines also carry out analysis of the companies periodically.

Trading related Issues

Giving purchase /sale instructions

How should I give my purchase/sale instructions to my trading member/sub-broker?

A trading member/client relationship is one of trust. However, it is very important that all your order instructions are given in writing and are duly acknowledged by the trading member. The order instructions should clearly indicate the scrip name, whether order is for buy or sell, the quantity for each of the scrips, rate specifications if any, and other relevant instructions. This reduces chances of miscommunication between you and your trading member/sub-broker at the time of placing deals on your behalf. You are advised to quote your uniform and unique client id, while communicating with the trading member or the sub-broker.

Price at which trade executed

What is price-time priority?

The system arranges all orders in the priority of price and within price by time. You have, let us say, placed a buy order for 100 shares of company A at Rs. 285 and another investor has placed a buy order at Rs.290. So, anyone who places a sell order in company A will be first matched with the buy order of second investor as he has given a better price. This is price priority. Let us say both of you have quoted Rs. 285 as the price at which you want to buy shares of company A, then sell order which comes into the system at this price will be matched against the order which was placed first.

How do I know my trading member has given me the best price?

The NSE trading system matches orders in such a way that the order gets executed at a price which is either equal to or better than the specified price but never worse than it. Therefore, if you have given an order for selling 100 shares at the rate of Rs.50, your order will be traded in the system in such a way that you will get a sale price of Rs.50 or more but never less. Similarly, if you have given an order for buying 100 shares at the rate of Rs.50, your order will be traded in the system in such a way that you will get a buy price of Rs.50 or less but never more.

What are the documents I should receive from my NSE trading member pertaining to my trade and when should I get them?

After the order/trade is placed/executed you(investor) should receive an order/trade confirmation slip from the trading member. Within 24 hours of the execution of the trade, you should also receive a contract note from the trading member. Receipts of all the monies paid to the brokers, specifying the nature of payment should also be obtained from the trading member.

What is a contract note and why is it essential?

Contract note is a confirmation of trade(s) done on a particular day for and on behalf of a client. It establishes a legally enforceable relationship between the client and the trading member with respect to the settlement of the trades. It also helps to settle disputes/claims/differences in terms of the contract note. It is a prerequisite for filing a complaint or arbitration proceeding against the trading member/sub-broker in case of a dispute. A valid contract note should be in the prescribed form, contain the details of trades, stamped with requisite value and duly signed by the authorized signatory.

Contract notes are made in duplicate, the trading member and the client should keep one copy each. After verifying the details contained therein, the client keeps one copy and returns the second copy to the trading member duly acknowledged by him.

Will a contract note be issued even if the trade has been executed through a registered subbroker?

In case of a deal executed through a registered sub-broker, the sub-broker is required to issue purchase/sale notes to the client (investor). However, the trading member would issue to the registered sub-broker back-to-back contract notes giving details of all transactions done by the subbroker through the trading member's terminal.

How do I know that the broker has given me the correct price ?

Regulations provide that the client receives a contract note indicating details like order number, trade number, time, price, brokerage, etc. within 24 hours of the trade. In case of any doubts about the details of the contract note, you (investor) can avail the facility provided by NSE, wherein you can verify the trades on our website www.nseindia.com/content/equities/eqtrdverify.htm. The Exchange generates and maintains an audit trail of orders/trades for a number of years and you can counter check details of order/trade with the Exchange.

What are the points to be checked by an investor to check the validity of a contract note?

To ensure that the contract note issued to you by the trading member is a valid one, you must verify the following details:

  • The contract note should be in prescribed format
  • Name and address of the trading member.
  • The SEBI registration number of the trading member
  • Details of trade viz. Order number, trade number, trade time, security name, quantity, rate, brokerage, client code etc. The trade price should be shown separately from the brokerage charged.
  • Signature of authorised signatory.

Brokerage and other charges

What is the maximum brokerage that a NSE trading member/registered sub-broker can charge?

As stipulated by SEBI, the maximum brokerage chargeable by a trading member in respect of trades executed on the Exchange is fixed at 2.5% of the trade value. This maximum brokerage is inclusive of the brokerage charged by a sub-broker which shall not exceed 1.5% of the trade value. Apart from the above, the trading member can charge statutory levies.

Clearing and Settlement related Issues

Types of Settlement

What is a Rolling Settlement?

In a Rolling Settlement trades executed during the day are settled based on the net obligations for the day. In NSE, the trades pertaining to the rolling settlement are settled on a T+2 day basis where T stands for the trade day. Hence trades executed on a Monday are typically settled on the following Wednesday (considering 2 working days from the trade day). The funds and securities pay-in and pay-out are carried out on T+2 day.

Pay-in and Pay-out of funds and securities

When and how do I pay/receive payment for the securities that I have bought/ sold?

You should pay for your purchases within 24 hours of trade. It is advisable to make payment by way of account payee cheque/demand draft in the name of the trading member/sub-broker only. A proper receipt should be collected from the intermediary. You should receive payment for securities within 24 hours of declaration of pay-out by the Stock Exchange.

When and how do I deliver and receive securities?

In case of a sale transaction, you should deliver securities within 24 hours of trade. For this, instructions should be given to the DP to transfer securities from your beneficiary account to the pool account of your trading member. In case of purchase, you should receive securities (in your beneficiary account with DP), within 24 hours of the securities payout of the Exchange. For this, instructions should be given to the DP to receive securities in your beneficiary account from the pool account of your trading member.

What are the margins payable on securities and transactions?

Exchange prescribes margin rules from time to time and such margining rules are posted on the website of the Exchange. Currently the Exchange calculates margins on the basis of Value at Risk principles as well as Mark to Market basis. The margins are charged on client level positions. The investors are advised to educate themselves about the margining principles. Do I need to keep any deposit with the trading member /sub-broker?

The regulations do not mandate any such requirement. It depends on your understanding with the trading member /sub-broker. You are, however, required to pay upfront margin to the trading member before the trade is executed.

 

Activity

Day

Trading

Rolling Settlement Trading

T

Settlement

Securities and Funds pay in

T+2 working days

 

Securities and Funds pay out  

T+2 working days

Post Auction T+3 working Settlement

Auction

T+3 working days

 

Auction settlement

T+5 working days

Demat settlement

What is a depository ?

A depository is like a bank wherein the deposits are securities (viz., shares, debentures, bonds, government securities, units etc.) in electronic form. Besides holding securities, a depository also provides services related to transaction in securities.

Who is Depository Participant?

Depository provides its services to investors through its agents called depository participants (DPs). These agents are appointed by the depository with the approval of SEBI. According to SEBI regulations, amongst others, three categories of entities i.e. Banks, Financial Institutions and Members of Stock Exchanges registered with SEBI [TMs] can become DPs.

What is dematerialisation?

Dematerialisation is the process by which physical certificates of an investor are converted to an equivalent number of securities in electronic form and credited in the investor's account with his depository Participant (DP).

What is the procedure for dematerialization ?

In order to dematerialize certificates, you will have to first open an account with a DP and then request for the dematerialization of certificates by filling up a dematerialization Request Form (DRF), which is available with DP and submitting the same along with the physical certificates. Ensure that the certificates are defaced by marking: Surrendered for Dematerialisation" on the face of the certificate before the certificatesare handed over to the DP.

Why should I hold securities in depository and is it compulsory for every investor to open a depository account to trade in the capital market?

Holding securities in depository enables immediate transfer of securities in case of purchases. The stamp duty to be paid on transfer of securities is not needed, all risks associated with physical certificates like fake securities, forgery, bad delivery etc. is not involved. Also, since more than 99% of the settlement at the stock exchanges is taking place in the demat form, it is advisable that securities be held in demat form with any depository participant (DP).

How do I receive demat shares in my account towards my purchase transaction and pay-in demat shares towards my sale obligation?

For receiving demat securities in case of purchases made, you may give a one-time standing instruction to your Depository Participant. This standing instruction can be given at the time of account opening or later. Alternatively, you may choose to give a separate receipt instruction to your depository participant for receiving every credit.

For pay-in obligations, you should instruct your DP to give 'Delivery Out' instructions to transfer the shares from your beneficiary account to the pool/principal account of your trading member through whom you have sold the shares. The details of the pool/principal account of your trading member/clearing member to which shares are to be transferred, security, quantity etc. should be mentioned in the 'Delivery Out' instructions given by you to your DP

The instructions should be given well before the prescribed securities pay-in day. SEBI has advised that the 'Delivery Out' instructions should be given at least 24 hours prior to the cut-off time for the prescribed securities pay-in to avoid any rejection of instructions due to data entry errors, network problems etc.

Settlement Guarantee Fund

What is a Settlement Guarantee Fund?

The Clearing Corporation (NSCCL) has set up the Settlement Guarantee Fund (SGF) that is intended primarily to guarantee completion of settlement upto the normal pay-out for trades executed in the regular market and does not act as guarantee for company objection case. The SGF, therefore, ensures that the settlement is not delayed on account of failure of trading members to meet their obligations and all other trading members who have completed their part of the obligations are not affected in any manner whatsoever.

Are investors affected, in case a counter trading member fails to pay-in funds as per his settlement obligation?

No, the investor is not affected in case the counter trading member fails to meet his obligation since National Securities Clearing Corporation Limited (NSCCL), the clearing corporation, guarantees the net settlement obligations. The Clearing Corporation guarantees completion of settlement through the Settlement Guarantee Fund in case of any default by the trading member towards his obligation.

Auction of shares

What is an Auction?

The securities are put up for auction by the Exchange when there is a non-delivery of the securities by the selling trading member. This is to ensure that the buying trading member receives the securities due to him. The non-delivery by the trading member could arise on account of short delivery. The Exchange purchases the requisite quantity of securities in the Auction Market and gives them to the buying trading member.

If I have shares to deliver, can I take the benefit of the auction mechanism?

Yes, you can ask your trading member to sell your securities in the Auction. However you should ensure that you have the shares readily available for delivery. Securities not delivered on auction pay-in day are directly squared off at a price specified by the Exchange/Clearing Corporation.

What happens if the shares are not bought in the auction ?

If the shares are not bought in the auction, the transactions are squared up as per SEBI guidelines.

Complaints to be addressed to

Whom should I approach if I have a grievance against a sub-broker/company?

You should bring it to the notice of the broker with whom the sub-broker is affiliated. In case the subbroker/ broker fails to resolve the dispute and in case of complaints against a broker/ company, you should take up the matter with Investor Grievance Cell of the exchange. The Cell takes up complaints for redressal in respect of trades executed on the exchange or trades pertaining to companies traded on the exchange. You should lodge the complaints in the prescribed form with all associated documents such as contract notes, purchase/sale notes, bills, statement of accounts and the member-client agreement.

Who should I approach for Redressal of my Complaints?

Despite all the precautionary measures taken by you and the Exchange, there might be some grievances. The Exchange tries to solve and sort out all the grievances, in addition to this you also have the freedom to take up the grievance with SEBI, Consumer forum and Court of law.

Whom should I address my complaint against a trading member/registered sub-broker or against company traded on NSE?

You should address the complaint to the Mumbai office or the Regional office of NSE based on the dealing office where the deals were executed as given below:

State in which dealing office of the trading member is located where trade was executed

Complaint to be addressed to

Maharashtra, Gujarat, Goa, Daman,

Investor Grievance Cell

Diu, Dadar & Nagar Haveli, Madhya Pradesh, Chattisgarh

National Stock Exchange of India Ltd.
Exchange Plaza, Bandra‐Kurla Complex,
Bandra (East), Mumbai 400051.
Tel. No. (022) 26598100‐114
Fax No. (022) 26598191
email : ig_nse@nse.co.in

Delhi, Haryana, Punjab, Uttar
Pradesh, Uttaranchal, Himachal
Pradesh, Jammu & Kashmir,
Chandigarh, Rajasthan

National Stock Exchange of India Ltd.
“Thapar House”, Western Wing,
Mezzanine Floor, Janpath Lane,
124 Janpath, New Delhi ‐ 110 001.
Tel No.: (011) 2334 4313 to 23344327
Fax No.: (011) 2336 6658

West Bengal, Bihar, Jharkhand,
Orissa, Assam, Arunachal Pradesh,
Mizoram, Manipur, Sikkim,
Meghalaya, Nagaland, Tripura,
Jharkhand

National Stock Exchange of India Ltd.
Ideal Plaza, 11/1, Sarat Bose Road,
Kolkatta ‐ 700 020.
Tel No.: (033) 2280 1202‐05, 2280 5950‐55
Fax No.: (033) 2240 9783, 2280 5957

Andhra Pradesh, Karnataka, Kerala,
Tamilnadu, Andaman & Nicobar,
Lakshwadeep, Pondicherry

National Stock Exchange of India Ltd.
7th Floor, Arihant Nitco Park, 90,
Dr Radhakrishanan Salai, Mylapore,
Chennai ‐ 600 004
Tel No.: (044) 2847 5100 / 2847 3670
Fax No.: (044) 2847 3633

What complaints are taken up for redressal by the IGC?

The IGC takes up complaints for redressal in respect of:

Trades executed on the NSE through its NEAT terminal and routed through the NSE trading member or SEBI registered sub-broker of NSE trading member.

Trades pertaining to Companies traded on the NSE.

The investors are therefore required to furnish relevant contract or purchase/sale notes for referring their case to the Investor Grievance Cell.

How do I lodge a complaint with the IGC? What documents do I need to enclose for the same ?

You are requested to use the following forms for lodging complaints:

Investor Complaint Form - I (ICF-I) for lodging complaints against trading members/registered sub-brokers.

Investor Complaint Form - II (ICF-II) for complaints in respect of companies traded on NSE.

  • The complaint forms are available at NSEIL website (www.nseindia.com/content/assist/ assist_invcentre.htm).

Following documents needs to be enclosed when lodging a complaint against trading members/ registered sub-broker:

Copies of contract or purchase/sale notes

Copies of member-client agreement/registered sub-broker client agreement

Statement of accounts

Certificate from your bankers giving details of the cheque/pay-order no., date, amount, encashment details etc. issued by you in favour of the trading member/registered subbroker

Transaction statement issued by your DP reflecting transfer of securities from your account to the account of the trading member/ registered sub-broker

Acknowledgement of securities delivered to the trading member in case of physical Certificates

Copies of previous correspondence with the trading member with regards to the dispute

Other documents as listed on the reverse of ICF-I

Following documents needs to be enclosed when lodging a complaint against a company:

Copies of contract or purchase/sale notes

Copies of previous correspondence with the company/registrars

Other documents as listed on reverse of ICF-II

What steps are taken by the IGC to ensure speedy redressal of the complaints by the trading members/registered sub-brokers and companies?

Complaints against trading members/registered sub-brokers

Complaints received from the investor if accompanied by relevant documents as mentioned above are forwarded to the respective trading member/registered subbroker asking them to provide their comments or for resolving the case. The trading members are expected to file their replies within 15 days.

In case of the trading member/registered subbroker disputes the claim of the investor, the response of the trading member is forwarded to the investor. If required both the parties are called for a joint meeting. Most of the complaints are resolved in this manner. In cases where the disputes remain unresolved in IGC, the parties may refer the matter for arbitration if they so desire.

(Complaints against Companies)

Complaints received from the investors are forwarded to the respective Companies/Share Transfer Agents for necessary action at their end. In case no response is received from the Company/Share Transfer Agents within 21 days, a follow up by way of letters, telephone calls and personal meetings is undertaken to expedite their replies.

Investor Protection Fund

What protection is available from Investor Protection Fund?

The Exchange maintains an Investor Protection Fund to make good investor claims, which may arise out of non settlement of obligations by the trading member, who has been declared a defaulter, in respect of trades executed on the Exchange. The maximum amount of claim payable from the Fund is Rs. 10 lakh in respect of trades on NSE.

Investor Rights

Investor Obligations

Right to get

  • The best price
  • Proof of price/brokerage charged
  • Money/shares on time
  • Shares through auction where delivery is not received
  • Square up amount where delivery not received in auction

The obligation to

  • Sign a proper member constituent/ sub broker-client agreement
  • Possess a valid contract or purchase/ sale note
  • Deliver securities with valid documents and proper signatures

Right for redressal against

  • Fraudulent price
  • Unfair brokerage
  • Delays in receipt of money or shares
  • Investor unfriendly companies

The obligation to ensure

  • To make payment on time
  • To deliver shares on time
  • To ensure that securities purchased are received in the client's beneficiary account
  • To send securities for transfer to the company on time
  • To deal only with SEBI registered trading members and sub-brokers
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Disclaimer:

Information provided herein is purely for dissemination of information and creating awareness among the investors about various aspects of investing. Although due care and diligence has been taken, the Institute of Company Secretaries of India (ICSI) shall not be responsible for any loss or damage resulting from any action taken by a person on the basis of the contents hosted on the website. It may also be noted that laws/regulations governing the markets are continuously evolving, hence an investor should familiarize himself with the latest laws/ regulations by visiting the relevant websites or contacting the relevant regulatory body.