National Stock Exchange of India Limited s1

NATIONAL STOCK EXCHANGE OF INDIA LIMITED INSPECTION DEPARTMENT CIRCULAR

DOWNLOAD REF.NO: NSE/INSP/6084 Circular No. NSE/INSP/2005/35 Dated: 27th April, 2005

To All Members

Sub : Revised sample list of violations and indicative fines in respect thereof (Futures and Options segment)

Trading Members are requested to refer to our circular no. NSE/INSP/2004/24 (download reference no NSE/INSP/4733) dated 16th January, 2004, Circular no. NSE/INSP/2003/22 (download reference no. NSE/INSP/4399) dated 8th September 2003 and Circular no. NSE/INSP/2004/26 (download reference no NSE/INSP/4952) dated 31st March, 2004 giving a sample list of violations and indicative fines in respect thereof.

Based on the experience gathered on observing the violations committed by the Trading Members during the past inspections and in view of the amendments to the Futures and Options Regulations of the Exchange / NSCCL, the above mentioned list has been revised.

A revised consolidated sample list of violations along with indicative fines in respect thereof is attached as Annexure. The same shall be applied for the violations observed during the course of inspection or otherwise from the financial year 2005-06 onwards.

It is also clarified that the actions including fines for the violations as per the revised list are only indicative and that, in case of a large number of instances of a serious violation involving large amount of funds / large quantity of securities or of repetitive nature, the Disciplinary Action Bench / Disciplinary Action Committee may take such strict action as it may deem fit including levy of higher fines / suspension / expulsion

For any clarifications, members may also contact the following officials: Mr. C. N. Upadhyay, Ms. Harshda Dubey, Mr. Ankit Badalia, Ms. Karen D’souza Phone nos.: 2659 8100 – 8114 Extn. nos. 5115/5127/5125

For National Stock Exchange of India Limited

J. Ravichandran Director (F&L)

Annexure to Circular No. NSE/INSP/2005/35 dated 27th April, 2005

List of indicative disciplinary actions for the violations observed during the inspections or otherwise in the Futures and Options segment.

(Notes:- 1. Action for repeat violations:-In respect of repeat violations, action may be restructured to cases where multiple instances of a violation have been observed in both, the last annual inspection of a trading member and the current inspection, by levying additionally 50% of the fine applicable for multiple instances of the violation. In all other circumstances of repeat violation, the fine structure in respect of initial violations to be followed.

2. The below mentioned actions including fines are only indicative. In case of a large number of instances of a violation involving large amount of funds /large quantity of securities or of repetitive nature, in respect of the items with “*”(asterisk) mark which are of serious nature, the Disciplinary Action Bench / Disciplinary Action Committee may take such strict action as it may deem fit including levy of higher fines/suspension/expulsion. )

Rules / Violations Observed Disciplinary Actions Byelaws / One or a few Multiple instances Regulations / instance(s) Circular Nos. (Amount in Rs) (Amount in Rs) Books of Accounts

Reg 6.1  Not maintained 10,000/- N.A *

 Not maintained 5,000/- properly N.A

 Not made available Reprimand/Warning for verification N.A *

 Not maintained for branch 10,000/- per office N.A *

 Not maintained properly for branch 5,000/- per office N.A

 Not made available for branch Reprimand/Warning N.A *

Rules / Violations Observed Disciplinary Actions Byelaws / One or a few Multiple instances Regulations / instance(s) Circular Nos. (Amount in Rs) (Amount in Rs) Reg 6.1.3 Segregation of 10,000/- per office N.A Exchange wise client ledgers not maintained

Non-maintenance of Advice Reprimand/Warning vouchers (entries being directly posted to ledgers)

Non-maintenance of up- Reprimand/Warning to date bank Advice reconciliation statements Registers and Documents Reg 6.1 Non-maintenance of 5,000/- per register 5,000/- per register registers (Register of per office per office Transaction / Register of Securities/ Register of Complaints / Margin Deposit Book)

Non-availability of Reprimand/Warning Reprimand/Warning prescribed information in Registers. Reg 6.1.4 (g) Non-maintenance of Advice 5,000/- NEAT reports

Reg 6.1.13 Non-preservation of Advice 5,000/- records for the prescribed period in respect of constituents’ accounts which are closed

Reg 4.3.1 Non-execution of Reprimand/Warning 10,000/- * member constituent agreement

Execution of member Advice 5,000/- constituent agreement otherwise than in the prescribed format

Both non-execution of N.A 10,000/- * member constituent agreement and- execution of member constituent agreement otherwise than in the prescribed format in multiple instances

Rules / Violations Observed Disciplinary Actions Byelaws / One or a few Multiple instances Regulations / instance(s) Circular Nos. (Amount in Rs) (Amount in Rs)

Reg 4.3.2 Non-obtainment of Reprimand/Warning 10,000/- * Client registration form

Client registration form Advice 5,000/- not completed or not supported by documents

Both non-obtainment of N.A 10,000/- * client registration form and client registration form not completed or not supported by documents, in multiple instances

Reg 4.3.3 Non-issue of Risk Reprimand/Warning 10,000/- Disclosure Document

Issue of Risk Disclosure Advice 5,000/- Document otherwise than in the prescribed format

Both Non-issue of Risk N.A. 10,000/- Disclosure document and issue of Risk disclosure document otherwise than in the prescribed format in multiple instances

Reg 4.3.2 Non-obtainment of Advice Reprimand/Warning board resolution permitting trading in derivatives, from non- individual constituents

Reg 6.1 Non-maintenance of 5,000/- 10,000/- duplicates / copies of contract notes

Reg 6.1 Non-maintenance of Advice Advice Order book

Reg 4.4.6 Order placement / Advice Advice modification / cancellation details were not obtained in writing from the constituents.

Rules / Violations Observed Disciplinary Actions Byelaws / One or a few Multiple instances Regulations / instance(s) Circular Nos. (Amount in Rs) (Amount in Rs) Order confirmation / Advice Advice modification / cancellation slips were not being provided to the constituents.

Reg 4.4.11 Trade confirmation slips Advice Advice / exercise notice records were not being provided to the constituents

Banking Operations Reg 6.1.6.1 Non maintenance of 25,000/- N.A Client a/c

Reg 6.1.6.1 Non-segregation of own Reprimand/Warning 10,000/- and client transactions in separate bank accounts

Reg 6.1.6.2 Use of Client bank Reprimand/Warning 10,000/- account for purposes other than specified

Dealings with Clients Reg 6.1.6.1 Use of clients’ funds for 50,000/- 1,00,000/- * own purposes / Misuse of clients’ funds / Unauthorised transfer of funds from one client’s account to another client’s account

4.4.15 Delay in payment of Advice 5,000/- * funds to constituents (In case of inordinate delays of more than 1 week, double the fine amount to be collected )

4.4.15 Non-payment or delay Advice 5,000/- in payment of dividend amounts to constituents / non-reconciliation of dividend account Reg 4.5.3 (e) Securities due to Reprimand/Warning 5,000/- constituents transferred to Trading Member’s beneficiary account

Rules / Violations Observed Disciplinary Actions Byelaws / One or a few Multiple instances Regulations / instance(s) Circular Nos. (Amount in Rs) (Amount in Rs)

Securities due to one 50,000/- 100,000/- * client transferred to other clients OR Securities due to constituents used for meeting the margin obligation of the trading member / other constituents

4.4.15 Delay in delivery of Advice 5,000/- * securities to the clients (In case of delays of more than 1 week, double the fine amount)

Reg 6.1.6.2(v) Non-maintenance of 25,000/- N.A. (a),(b) and (c) separate constituents beneficiary demat account for keeping client securities

Non-segregation of own Warning 10,000/- and clients securities in separate beneficiary demat accounts

Use of constituents Warning 10,000/- * beneficiary demat account for purposes other than specified

Circular no Brokerage charged at a The Trading Member to be advised to refund NSE/FOTRD/0 rate higher than the the excess brokerage charged to the 01 dated permissible maximum constituents and a similar amount or Rs 08/06/2000 of 2.5% 5,000/- whichever is higher be levied on the (ref no. Trading Member NSE/F&O/168 8) Circular no Non-maintenance of 5,000/- 10,000/- * NSE/FOTRD/0 Unique client code / 01 dated Non maintenance of 08/06/2000 mapping of the trading (ref no. codes to unique client NSE/F&O/168 codes 8)

Circular no Trading on behalf of Advice 10,000/- NSE/INVG/20 certain specified 04/010 (ref no categories of

Rules / Violations Observed Disciplinary Actions Byelaws / One or a few Multiple instances Regulations / instance(s) Circular Nos. (Amount in Rs) (Amount in Rs) NSE/INVG/20 constituents without 04/5271) UIN under MAPIN dated database 20/07/2004 and Circular no NSE/INVG / 2004/017 (ref no NSE/INVG / 2004/5523) dated 14/10/2004 Circular no Half yearly statement of 5,000/- 10,000/- NSCC/F&O/C accounts for &S/132 settlements and dated October margins not sent to 8, 2002 constituents

Partial compliance for 50% of the fine 50% of the fine issue of statement of applicable for non- applicable for non- accounts for issue of statement of issue of statement of settlements and accounts for funds accounts for funds margins and securities and securities Circular no Cash dealings with Advice 10,000/- NSE/INSP/200 clients 3/21 (ref no NSE / INSP/4377) dated 01/09/2003 Circular no Receipt of Advice 10,000/- NSE/INSP/200 funds/securities on 3/21 (ref no behalf of clients from NSE/INSP/437 others 7) dated 01/09/2003 Payment of funds or Advice 10,000/- delivery of securities on behalf of the clients to others Dealings with intermediaries Byelaw 33 of Sharing of brokerage Chapter IX of with the Byelaws of -another trading 5 ,000/- 10,000/- the Exchange member and Cir no 333 -an employee of 10,000/- 20,000/- (ref no another trading member NSE/MEM/408 or a person for or with 2) dated whom trading members 10/04/2003 are forbidden to do business

Rules / Violations Observed Disciplinary Actions Byelaws / One or a few Multiple instances Regulations / instance(s) Circular Nos. (Amount in Rs) (Amount in Rs) -persons who are not 5,000/- 10,000/- authorised persons

Dealing with 25,000/- per 25,000/- per * intermediaries intermediary intermediary

Rule 5 of Doing business with or Reprimand 10,000/- chapter IV of for the trading members the Rules of who are prohibited to the Exchange transact, including suspended/expelled/ defaulter trading members; defaulting constituents and employees of other trading members

Contract Notes Reg 3.6.1 Non-issue of contract 5,000/- 10,000/- * notes

Reg 3.6.1 and Issue of contract notes Advice 5,000/- 3.6.2 otherwise than in the prescribed format / Issue of contract notes without the signature of authorized signatory or which do not bear a running serial number or bear a serial number which is not initiated at the beginning of each financial year.

SMD/SED/Cir/ Delay in issue of Advice 10,000/- 93/23321 contract notes dated 18/11/1993

Reg 3.6.1 Issue of NSE contract 1,00,000/- 2,00,000/- * notes for transactions not executed on the exchange / for fictitious transactions.

Reg 3.6.1 Difference in trade rate Excess amount to be returned to the client and as per the NEAT fine equal to twice the excess amount charged system and the rate or Rs. 25,000/-, whichever is higher, to be charged levied on the trading member.

Rules / Violations Observed Disciplinary Actions Byelaws / One or a few Multiple instances Regulations / instance(s) Circular Nos. (Amount in Rs) (Amount in Rs) Reg 3.6.1 Transfer of trades Advice 0.02% of the value of executed for one client the trades transferred to another client or Rs 5,000/- whichever is higher

Transfer of trades from 5,000/- 0.02% of the value of PRO account to client the trades transferred account or vice-versa or Rs 10,000/- whichever is higher

Rule 4a of Use of fictitious client 10,000/- 0.02% of the value of * Chapter IV of codes during order the trades transferred the Rules of placement or Rs 20,000/- the Exchange whichever is higher

SMDRP/POLI Off-market transactions 0.01% of trade value 0.01% of trade value CY/CIR-32/99 or Rs 5,000/- or Rs 15,000/- dated whichever is higher whichever is higher 14/09/1999

Reg 3.6.1 Off-market transactions 0.05% of trade value 0.05% of trade value * executed partly on the or Rs 10,000/- or Rs 20,000/- Exchange whichever is higher whichever is higher

Margin Requirements Circular no Wrong reporting of The percentage of difference amount * NSCC/F&O/C initial margin collected (minimum of margin required and margin &S/97 dated from constituents reported as collected less margin actually 01/02/2002 collected) with respect to the total of the column showing instance wise minimum of initial margin either required or reported as collected, is to be calculated. If the percentage of difference amount (i) is less than 10%, the member be reprimanded (ii) is in the range 10% - 80%, a fine of 0.5% of the difference amount be levied (iii) is more than 80%, a fine of 1% of the difference amount be levied

Byelaw 25 of Entering into any 0.1 % of the margin evaded or Rs 25,000/- * chapter IX of arrangement or whichever is higher the byelaws of adopting any procedure the Exchange for the purpose of evading or assisting in the evasion of margin (like use of PRO code/other codes for clients trades etc)

Rules / Violations Observed Disciplinary Actions Byelaws / One or a few Multiple instances Regulations / instance(s) Circular Nos. (Amount in Rs) (Amount in Rs) Membership Requirements NSE/MEMB/2 Fund Based activities Advice 20,000/- 61 dated 27/05/1997 NSE/MEM/310 Shareholding pattern A fine of Rs 10,000/- dated not verifiable due to 23/07/1997 incomplete / absence of records Circular no 68 Change in the 1,00,000/- 1,50,000/- * ( Reference no shareholding pattern NSE/MEM/310 without the prior ) dated approval of the 23/07/1997 Exchange which has resulted in the dilution of the shareholding / Withdrawal of trading facility of the trading profit sharing ratio of member till the changes are approved by the the dominant group Exchange. below 51% (40% in the case of listed trading member). NSE/MEM/310 In case of any other 5,000/- dated change in the 23/07/1997 shareholding pattern (except in case of shareholding changes related to public shareholding in listed company) Rule 8 (4a) of Non appointment of If experienced director(s) is(are) not available Securities minimum 2 experienced the trading member be advised to appoint Contracts directors within three months and confirm the same to (Regulation) the Exchange. In case of non compliance to Rules,1957 the Exchange directive, a fine of Rs. 25,000/- per experienced director not appointed to be levied MIRSD/MSS/ Change in the qualified 5,000/- per instance Cir- directors and whole 30/13289/03) time directors without dated the prior approval of the 09/07/2003 Exchange and Circular no 355 ref no NSE/MEM/429 Change in the non- 3,000/- per instance 9 dated qualified directors 25/07/2003 without obtaining prior approval of the Exchange. Rule (5) (h) of Violation of the 5,000/- 10,000/- Chapter IV of Advertisement Code of the Rules of the Exchange. the Exchange

Rules / Violations Observed Disciplinary Actions Byelaws / One or a few Multiple instances Regulations / instance(s) Circular Nos. (Amount in Rs) (Amount in Rs) Bye Law (7) Trading member acting 10,000/- 25,000/- * chapter VII of through or on behalf of the bye laws another trading member of the for trading on the Exchange Exchange without the prior approval of the Exchange in writing

Cir no Dealing with one Warning 10,000/- NSE/F&O/007/ member broker of 2004 dated another exchange for 22/01/2004 proprietary trading (ref no without intimating the NSE/FAOP/47 name of such member 58) broker to NSEIL

Dealing with more than 10,000/- for every such additional member one member broker of broker another exchange for proprietary trading

Dealing with one or 25,000/- more member broker of another exchange on behalf of constituents

Office Management Reg 2.2.1 and Usage and operation of Advice 10,000/- Circular no. a trading terminal by a 309 (ref no person (an employee of NSE/MEM/374 the trading member) 0) dated other than an approved 29/08/2002 user / approved person

Circular no User ids given to 5,000/- 10,000/- 309, Ref no persons without NCFM NSE/MEM/374 certification 0 dated November 13,2002

Rules / Violations Observed Disciplinary Actions Byelaws / One or a few Multiple instances Regulations / instance(s) Circular Nos. (Amount in Rs) (Amount in Rs) Circular Trading (NEAT/CTCL) For each unauthorised CTCL terminal and / or * no.163 Ref. terminals provided to extension of NEAT terminal, a fine of Rs No. intermediaries or clients 20,000/- (Rupees twenty thousand only) per NSE/MEM/159 / unauthorised terminal be levied for the first five terminals 1 dated April extension of trading and the fine amount be stepped up by Rs 20, 2000 and network / non 5,000/- (Rupees five thousand only) per Circular no submission of required terminal in successive batches of five 282, Ref no details of CTCL terminals each thereafter. NSE/MEM/357 terminals to the 4 dated Aug Exchange 29, 2002, Circular no. 292 dated 25th Terminals for which 50% of the fine levied for non-submission of September, information has been the required information regarding CTCL 2002 (Ref no. uploaded but with minor terminals NSE/MEM/363 errors 5) and all subsequent circulars issued wrt the same. Circular Non-display of Notice 10,000/- 20,000/- no.163 Ref. board No. NSE/MEM/159 Display of notice board 50% of the fine 50% of the fine levied 1 dated April otherwise than in the levied for non-display for non-display of 20, 2000 prescribed format of notice board notice board

Circular Non-display of SEBI 10,000/- 20,000/- no.163 Ref. Registration Certificate No. NSE/MEM/159 1 dated April 20, 2000 Circular no Non-appointment of 10,000/- 257 ref no compliance officer NSE/MEM/344 1 dated 14/06/2002 Circular no Execution of trades on Advice 10,000/- NSE/INVG/PR own account without E/2003/ 16 ref disclosing to the clients no NSE/INVG/ 2003/4590 dated 25/11/2003 Circular no Execution of trades on 10,000/- NSE/F&O/005 own account from 1/2003 (ref no locations other than 4542) dated those permitted by the 06/11/2003 Exchange

Rules / Violations Observed Disciplinary Actions Byelaws / One or a few Multiple instances Regulations / instance(s) Circular Nos. (Amount in Rs) (Amount in Rs) Other Violations NSE/F&O/005/ Commencement of 10,000/- N.A. 2000 (ref no Internet Trading without NSE/F&O/187 prior approval from the 7) dated Exchange. August 24,2000 Cir no Non-submission / Fine at the rate of NSE/I&ID/200 delayed submission of Rs. 100 per day for 2/8 (ref no annual compliance the first month, Rs. NSE/I&ID/317 report on or before the 500 per day for the 4) dated due date following month and 05/02/2002 Rs 1,000/- per day and Cir no thereafter NSE/INSP/431 0 (ref no NSE/INSP/431 0) dated 31/07/2003