<p> Broad functional areas of Compliance and setting up Internal Controls/Responsibility Fixation </p><p>Indicative Responsibility areas Reference Compliance requirement fixation/internal control CLIENT REGISTRATION DOCUMENTS It is the responsibility of the In person verification will members to satisfactorily be conducted by relation identify their clients and to ship manager. First stage ensure in-person verification by verification will be done their own staff while registering over the phone by back In person clients. office; second stage verification to be Exchange's Circular The date of in-person verification will be done done during no. NSE/INSP/10938 verification, name and signature by the relationship registration of dated 04-Jul-08 of the official who has done the manager in person. clients verification and the stamp of the member should be incorporated on the client registration form. In person verification activity cannot be outsourced</p><p>Members should obtain Initial mandatory filling of financial details of the clients forms will be observed by before registering them. the relationship manager, Members should ensure that ensuring all the columns Exchange's Circular the KYC forms are duly filled up are filled. Second level no. NSE/INSP/5387 in all respects along with the verification will be verified dated 27-Aug-04, necessary supporting by the back office client Regulation No 4.3.2 documents and financial data maintenance team. Financial details of Part A of the information of the client to be obtained in Capital Market provided in the KYC forms. Know Your segment of the In case of corporates, firms, etc Client forms Exchange and members are required obtain Regulation No 4.3.2 copies of the balance sheet for of the Future & the last 2 financial years at the Option segment of time of opening account the Exchange Further, in case of non individual clients, members are required to obtain a copy of the board resolution permitting trade in derivatives segment.</p><p>Review of client Exchange’s circular Members are required to Duty of compliance officer information / no. NSE/INVG/7236 ensure that the client that Client data details on a dated 3-Mar-06 and information is periodically maintenance is carried periodic basis Exchange's Circular reviewed and updated on an out on periodic basis. no. NSE/INSP/5387 ongoing process in view of the . dated 27-Aug-04 current trading activity of the client. Members are also advised to periodically review their database to ensure its completeness and accuracy</p><p>Page 1 of 10 Indicative Responsibility areas Reference Compliance requirement fixation/internal control In case of corporate’s, firms, etc members are required obtain copies of the balance sheet and other details obtained at the time of opening account every year and update their client database. </p><p>Upon registration of a client, Relationship manager will members are required to deliver be closing the case with to the client a copy of the duly the delivery of complete completed documents viz. document. Client registration form (KYC), Member Constituent Agreement/Tripartite Delivery of duly agreement, Risk Disclosure completed KYC, document and also a copy of MCA, RDD or Exchange's Circular any other document executed any other no. NSE/INSP/10872 by the client. document dated 23-Jun-08 The trading code and the executed by the unique client code allotted to a client client and the email id furnished by the client for the purpose of receiving electronic contract notes and other details, shall be communicated by the member through the KYC form or otherwise in writing to the clients. </p><p>Member Regulation No 4.3.1 SEBI has provided a model Compliance officer Constituent of Part A of the format for Member Clients Agreement Capital Market Agreement. (Uniform across all should contain segment of the the segments of an exchange, all clauses Exchange and however a separate agreement mentioned in Regulation No 4.3.1 would be required for each of UDR and all of the Regulations the exchanges where the clauses included (F&O segment) of the broker is trading on different therein should Exchange, exchanges) conform with Exchange's Circular Members may incorporate any SEBI / no. NSE/INSP/5387 additional clauses in these Exchange dated 27-Aug-04, documents provided these are Rules, NSE/INSP/7657 not in conflict with any of the Regulations, dated 5-Jul-06, clauses in the model document, Bye laws NSE/INSP/11324 as also the Rules, Regulations, dated 18-Sep-08 Articles, Byelaws, circulars, directives and guidelines.</p><p>Page 2 of 10 Indicative Responsibility areas Reference Compliance requirement fixation/internal control All additional documents should state in bold that the document is voluntary and if such documents are required in order to ensure smooth functioning of special facility the client shall be informed clearly that such documents are voluntary and the client need not execute such documents if he / she does not wish to use that facility The docket or folder containing draft mandatory documents for signing and the checklist containing mandatory documents shall not include draft voluntary documents, if any</p><p>Members are required to Compliance officer & execute an internet agreement relationship manager. with such clients who are Execution of availing the internet trading Internet Trading Exchange’s circular facilities offered by the member, Agreement in no. NSE/CMT/1532 spelling out all obligations and prescribed dated 16-Mar-00 rights, minimum service format standards to be maintained by the members etc. as per model agreement prepared by the Exchange. CONTRACT NOTES The Contract Notes are Back office required to be numbered with Regulation 3.5.1 of unique running serial number Part A of Capital commencing from one which Market Regulations of shall be reset only at the the Exchange, beginning of every financial Regulation 3.6.1 of year. In case separate series Contract notes the Regulations (F&O are maintained in respect of should be segment) of the different dealing offices of the issued to clients Exchange, member, then the dealing office in the prescribed Exchange's circular name or code shall be prefixed format no. NSE/LEGAL/7036 to the serial number & 7037 dated 05-Jan- Members are required to 06 and ensure that contract notes are NSE/INSP/7329 issued in the prescribed format dated 30-Mar-06 and details including dealing office details are printed on the contract note issued by them.</p><p>Page 3 of 10 Indicative Responsibility areas Reference Compliance requirement fixation/internal control Regulation 3.5.1 of Head dealer Part A of Capital Market Regulations of the Exchange, Regulation 3.6.1 of the Regulations (F&O segment) of the Exchange, Exchange Trading members are required Circular no. to carry out client code NSE/CMPT/11274 modification, if any, in the dated 10-Sep-08, window provided to them by the Exchange Circular Exchange. Members should Proper Order no. note that proprietary trades entry at client / NSE/CMPT/11276 cannot be modified to client PRO level dated 10-Sep-08 trade and vice-versa. </p><p>A Trading Member may issue Trading department and electronic contract notes to head dealer. those clients who have specifically given consent, in such format as may be prescribed by the Exchange Regulation 3.5A of from time to time, duly Part A of Capital Maintenance of authenticated by means of a Market Regulations of Log Report of digital signature as specified in the Exchange, Electronic the Information Technology Act, Regulation 3.6A of Contract Note 2000 and the Rules made there the Regulations (F&O non-delivered to under. segment) of the the clients / Members are required to Exchange and rejected or maintain log report which Exchange's circular bounced back provides details of contract no. NSE/INSP/6623 notes not delivered to clients / dated 09-Sep-05 email rejected or bounced back. In case of ECN’s not delivered to clients / email rejected or bounced back the trading members are required to issue physical contract notes.</p><p>A member in addition to email Back office & I.T Maintenance of communication of Electronic department. Designated contract note (ECN), shall website for the simultaneously publish the ECN display of Exchange's circular on his designated website in Electronic no. NSE/INSP/6623 secured way and enable access Contract Notes dated 09-Sep-05 to clients.</p><p>Page 4 of 10 Indicative Responsibility areas Reference Compliance requirement fixation/internal control Regulation 3.6.2 of The rate of brokerage in case of Relationship manager & Part A of the CM contracts executed on the compliance officer.. segment Regulation exchange is subject to a of the Exchange, maximum of 2.5% of the Exchanges Circular transaction amount. However, no. NSE/ CMT/ 001 in Capital Market segment, a dated 28-Oct-1994, trading member can charge NSE/ INSP/3685 brokerage up to 25 paise per Charging of dated 17-Oct-02, share if the market value of the Brokerage Regulation 3.7.2 of scrip is less than Rs 10/-. the Regulations (F&O segment) of the Exchange and In case of option contracts, Exchange Circular brokerage is to be charged on no. NSE/FOTRD/001 option premium amount and dated 08-Jun-00 and shall not exceed 2.5% of NSE/INSP/8338 premium amount or Rs. 100/- dated 05-Jan-07 per lot whichever is higher</p><p>STATEMENT OF ACCOUNT FOR FUNDS AND SECURITIES Every Member is required to Back office send a complete ‘Statement of Accounts’(not holding statement) for both funds and securities in respect of each of Regulation 6.1.5 (d) its client/constituents in such of Part A of the periodicity not exceeding three Capital Market months (Calendar quarter) Regulations of the Statement of within a month of the expiry of Exchange and Account for the said period. Exchange Circular no Securities/Funds The Statement shall also state NSEIL/LEGAL/6806 to be sent to that the client shall report dated 24-Oct-05 Clients errors, if any, in the Statement NSCC/F&O/C&S/132 within 30 days of receipt thereof dated 08-Oct-02 and to the Member. The statements NSE/LEGAL/7410 should have an account of all dated 21-Apr-06 receipts and deliveries / payments during the relevant period and not just the details of holdings as at the end of the period</p><p>MARGIN REPORTING Margin Exchange's circular Members are required to Trading department and collection from no ensure proper collection and head dealer/ risk clients and NSCC/F&O/C&S/97 report actual margin collected manager. Coordination reporting of dated 01-Feb-02, from clients/constituent to between trading and back correct collected Circular no. NSCCL office of utmost importance. </p><p>Page 5 of 10 Indicative Responsibility areas Reference Compliance requirement fixation/internal control Margins may also be collected Same as above in the form of liquid securities, amount to NSE/INSP/12655 units of liquid mutual funds, NSCCL dated 30-Jun-09 government securities, after applying the appropriate haircut</p><p>Information related to margin Back office/compliance applicable, utilized and required / balance in respect of each client is required to be sent on a Exchange's Circular daily basis to the respective Margin details to no. NSE/INSP/10239 clients in both the segments. be issued to dated 11-Feb-08 and This information should show clients NSE/INSP/10605 break up details in terms of dated 21-Apr-08 funds, bank guarantee, bank deposits and securities. The member must further maintain POD / dispatch proof of the same.</p><p>TRADING TERMINALS Regulation 2.2 of Part Trading department head A of the Capital Member should ensure that dealer. Operation of Market Regulations of terminals are operated only by trading terminals the Exchange and approved persons and the by approved Regulation 2.2 of details of such approved person users Regulations (F&O should be correctly Segment) of the uploaded/informed to the Exchange. Exchange</p><p>In case of NEAT Terminal in Trading department head Capital Market Segment, under dealer. each Corporate Manager / Branch Manager who is NCFM certified maximum of 4 NEAT Approved Users (Dealers) are Exchange Circular Operation of allowed. In case of CTCL no. NSE/MEM/3740 trading terminals terminals in Capital Market dated 13-Nov-02 and by persons with segment, for every 5 CTCL NSE/MEM/7992 valid certification users, 1 user should be NCFM dated 10-Oct-06 certified In case of F&O segment, every NEAT and CTCL user is required to have valid certification for operation of terminals.</p><p>Page 6 of 10 Indicative Responsibility areas Reference Compliance requirement fixation/internal control Exchange's Circular Head dealer (trading no. NSE/MEMB/3574 Trading Members are required department) Upload of dated 29-Aug-02 and to upload details of all CTCL information in NSE/MEMB/3635 terminals to the Exchange prior respect of CTCL dated 25-Sep-02 to their activation. Any change terminals to the circular no: 547 in the details viz. terminal id, Exchange download ref no. user, location, etc. also needs NSE/MEM/7913 to be uploaded prior to such dated 25-09-06 change</p><p>Exchange's circular Director & compliance no. NSE/CMTR/4460 officer. Trading on PRO dated 03-Oct-03, account from NSE/CMTR/7650 terminals dated 04-Jul-06 earmarked for NSE/F&O/4464 dated Trading members are required pro trading 03-Oct-03 and to place orders for own account NSE/FAOP/7652 from terminals which are dated 04-Jul-06 enabled for PRO trading</p><p>Exchange circular no. Director & compliance Use of PRO NSE/INVG/2002/3690 officer. code for dated 18-Oct-02, undertaking NSE/FAOP/4464 While entering trades in own proprietary dated 03-Oct-03 and account the trading members trades NSE/FAOP/7652 are required to use PRO code dated 04-Jul-06 only.</p><p>CTCL software set up at the Head dealer (trading Exchange's Circular Broadcast of member's office should ensure department) no. NSE/CMTR/6552 NSE feed to that the NSE broadcast is made dated 24-Aug-05 and terminals of available to only such CTCL NSE/FAOP/6553 Exchange only terminals which are enabled for dated 24-Aug-05 trading in NSE </p><p>DEALING WITH CLIENTS Regulation 4.5.3 (e) Back office of Part A Capital Market Regulations of Use of client the Exchange and funds / Regulation 4.5.3 (e) securities for of the Regulations specified (F&O segment) of the Members are required to purpose only Exchange and ensure that clients funds and Exchange circular securities are used to meet only No.NSE/INSP/10605 the respective client's margin / dated 21-Apr-08 pay-in requirement</p><p>Page 7 of 10 Indicative Responsibility areas Reference Compliance requirement fixation/internal control Maintenance of Back office & compliance Regulation 6.1.5 (f) of separate officer Part A Capital Market constituents Members are required to Regulations of the beneficiary segregate client securities from Exchange and demat account own securities and maintain Regulation 6.1.6.2 (v) for holding separate client beneficiary of Regulations (F&O) constituent’s account(s) for keeping client’s of the Exchange securities securities.</p><p>Receipts from Regulation 6.1.5 (c) Back office clients to be of Part A of the deposited in Capital Market Members are required to client bank Regulations of the ensure that receipts from clients account and Exchange and are deposited in client bank Payments to Regulation 6.1.6.2 of account only and similarly clients made the Regulations (F&O members are required to make from client bank segment) of the payments to clients from client account only Exchange bank account only.</p><p>Regulation 6.1.5 (b , Back office. c) of Part A of the Members are required to Capital Market ensure that no payments Use of client Regulations of the towards expenses / levies are bank account for Exchange and made from client bank account specified Regulation 6.1.6.2 of and the funds are deposited / purposes only the Regulations (F&O withdrawn from client bank segment) of the account only as per the Exchange regulations of the exchange</p><p>Members are required to Risk manager & Exchange's circular ensure that their system ensure director/back office no. NSE/MEMB/261 client-wise and security-wise operations. dated 27-May-97, limits on exposure, open NSE/CMPT/6122 position, etc. dated 09-May-05, Member are required to have Proper Risk NSE/INVG/7236 adequate systems and checks Management dated 3-Mar-06, in place for identifying debarred Policy NSE/INSP/6938 entities and to ensure that SEBI dated 09-Dec-05, debarred entities are unable to NSE/INVG/5913 trade dated 10-Mar-05 and Members should not indulge in NSE/INVG/12389 fund based activities and should dated 12-May-09 not be a party to any financing arrangements</p><p>Page 8 of 10 Indicative Responsibility areas Reference Compliance requirement fixation/internal control Members are required to Back office ensure that funds are received from / paid to clients by way of Exchange Circular No crossed cheques / demand Cash dealings NSE/INSP/4377 drafts or by way of direct credit with clients dated 1st September into the bank account through 03 EFT or any other modes allowed by RBI only Members should not indulge in cash dealing with clients</p><p>Regulation no 6.1.3A Back office (e) of Part A of the Capital Market Maintenance of Regulations of the register of Exchange, Regulation Register of securities of the securities in 6.1.1 of the member should be maintained prescribed Regulations (F&O client wise – scrip wise and format segment) of the should be in the prescribed Exchange and format viz. contain information NSE/INSP/4986 like Balance Quantity, Purpose dated April 16, 04 of receipt / delivery, etc</p><p>Regulation 4.4.15, Back office 6.1.3 A(b) of Part A of the Capital Market Distribution of Regulations of the Members are required to dividend to Exchange and reconcile dividend account clients Regulation 4.4.15 of periodically and ensure that the Regulations (F&O dividend received on behalf of segment) of the clients is credited to the Exchange respective clients account.</p><p>PROVISIONS OF PMLA Exchange's Circular Members are required to Compliance officer duly Implementation no. NSE/INVG/7102 ensure approved under PMLA by of written dated 25-Jan-06 and -Appointment of and change in FIU. procedures as NSE/INVG/7307 Principal Officer to be intimated envisaged in the dated 24-Mar-06 and to the Financial Intelligence PMLA NSE/INVG/223 dated Unit, India (FIU) Adoption of 22-Dec-08 and - Submission of client customer due NSE/INVG/11928 identification program to FIU diligence dated 22-Jan-09 -Written procedure for process compliance with PMLA to be Adequacy of adopted. systems in to -Adopt customer acceptance monitor and policies and procedures identify sensitive to the risk of money suspicious laundering or terrorist financing transactions and transactions generating alerts - Strict adherence to customer</p><p>Page 9 of 10 Indicative Responsibility areas Reference Compliance requirement fixation/internal control Maintenance of Compliance officer duly records of approved under PMLA by transactions FIU. which are prescribed under Rule 3 of due diligence requirements PMLA and from establishment of new undertaking account to transaction ongoing training monitoring and report programs for suspicious transactions, if any, staff members to the FIU</p><p>OTHER COMPLIANCE ISSUES Exchange circular no Trading members are required Director back office 60 ref no NSE / to inspect at least 10% of active MEM / 275 dated 12- branches and sub brokers Jun-1997 and circular every year and ensure that Inspection of no each branch and sub broker is sub brokers / NSE/INSP/2002/14 inspected at least once in every branches dated 17-Oct-02 five years</p><p>Trading Members are required Compliance officer to display, in all their offices / offices of their registered sub brokers where trading terminals are located, notice boards/plates at prominently Exchange circular no. visible locations, painted / NSE/MEM/6706 printed in a permanent manner, Display of notice dated 28-Sep-05 and in a font and color which board / SEBI circular no. enables easy reading of the registration NSE/MEM/1591 subject matter and containing certificate dated 20-Apr-00 prescribed details.</p><p>Additional Trading members are required Compliance officer Clauses in to ensure that additional Model Stock clauses as prescribed by SEBI Broker and Sub- Exchange circular are incorporated in the Stock Broker no.NSE/MEM/11085 Broker and Sub broker Agreement dated 05-Aug-08 Agreement</p><p>Page 10 of 10</p>