Maintenance of Books of Accounts, Records & Documents

The member-brokers of the Exchange are required to maintain the following books of accounts and records as per Rule 15 of the Securities Contracts (Regulation) Rules, 1957 and Regulation 17 of the SEBI (Stock Brokers and Sub Brokers) Regulations, 1992. These books and records are to be preserved for a minimum period of five years as per the requirements of Regulation 18 of SEBI (Stock Brokers and Sub-Brokers) Regulations, 1992.

It may however, be noted that, in cases where copies of books of accounts have been taken by any of the enforcement agencies during the course of any investigation, it is necessary to preserve the original documents, both in electronic and physical form till the trial is completed. Members may refer to Exchange Notice No. 20050805-20 dated August 5, 2005 & Exchange Notice No. 20051227 – 18 dated December 27, 2005 in this regard.

As per Rule 15 of the Securities Contracts (Regulation) Rules, 1957 and Regulation 17 of the SEBI (Stock Brokers and Sub-Brokers) Regulations, 1992 following books of accounts & documents are required to be maintained by the members.

a. Register of transactions (Sauda Book);

All member-brokers are required to maintain a `Sauda Book’, which contains details of all trades transacted by them on a day-to-day basis. This is a basic record, which each member-broker is required to maintain regularly on dayto-day basis. It contains the details regarding the name of the scrip, name of the client on whose behalf the deals have been done, rate and quantity of scrip bought or sold. These details are to be maintained date-wise. This register contains all the transactions, which may be of any of the kind mentioned below:

− Member-broker’s own business on the Exchange.

− Member-broker’s business on the Exchange on behalf of clients.

− Member-broker’s business with the clients on principal-to-principal basis.

− Member-broker’s business with the members of other Stock Exchanges.

− Member-broker’s business on behalf of his clients with the members of other Stock Exchanges.

− Spot transactions, etc.

b. Clients ledger;

Every member-broker is required to maintain a clients’ ledger in respect of all the clients registered with him.

This ledger contains the details of the bills raised by the member-broker on the clients and the payment received from or made to them. Inspection of this ledger can bring out the cases of delay by a member-broker in making payment to the clients.

c. General ledger;

d. Journal;

e. Cash book;

f. Bank book;

g. Register containing particulars of securities received and delivered.

Reg. 17(1) of the SEBI (Stock Brokers & Sub Brokers) Rules, 1992 a member-broker is required to maintain a register of securities, client wise and security wise, giving, inter alia, the following details:

60

− Date of receipt of the security.

− Quantity received.

− Party from whom received.

− Purpose of receipt.

− Date of delivery of the security.

− Quantity Delivered.

− Party to whom delivered.

− Purpose of Delivery, and

− A Separate register or ledger in respect of its own securities.

h. Counterfoils or duplicates of contract notes issued to clients;

i. Written consent of clients in respect of contracts entered into as principals;

j. Margin deposit book;

k. Register of accounts of sub-brokers;

Members are required to maintain separate set of books for each Exchange in which they operate.

Further, for a particular Exchange a separate set of books is required to be maintained for each particular segment of the Exchange in which the member is operating.

3.3.3

Settlement

Once the shares have been bought or sold, the transaction is complete only when the person has received the delivery for the shares purchased, or received money for the shares sold. This process of carrying the transactions to its logical conclusion is called “settlement” in stock market parlance.

Further, “Pay-In” means funds and securities receivable by Stock Exchange from the broker towards the obligation and “Pay-Out” means funds and securities payable by Stock Exchange to the broker.

− Settlement Cycle for Cash Market

The settlement cycle in the Indian cash market is trade plus two days, i.e., T+2, as per the SEBI directive implementing this new cycle from April 1, 2003. Under rolling settlement, trades done on one day are settled after the specified number of days. So, T+2 will mean that the final settlement of transactions done on the trade day will take place two days after the trade day (excluding Saturday, Sundays, Bank and Exchange Settlement holidays). If there is a shortfall in securities on the pay-in day, then an auction is conducted to meet it. The settlement cycle is summarized as under:

Trading Rolling Settlement Trading T

Clearing Custodial Confirmation T+1 working days

Delivery Generation T+1 working days

Settlement Securities and Funds pay in T+2 working days Securities and Funds pay out T+2 working days

Valuation Debit T+2 working days

Post Settlement Auction T+2 working days

Auction settlement T+3 working days

61

Bad Delivery Reporting T+4 working days

Rectified bad delivery pay-in and pay-out T+6 working days Re-bad delivery reporting and pickup T+8 working days Close out of re-bad delivery and funds

pay-in & pay-out T+9 working days

Some Important Terms for usage with reference to the settlement procedure are:

Clearing House:

Clearing House carries out clearing and settlement functions as per the settlement cycles provided in the settlement schedule.

The clearing function of the clearing corporation is designed to work out a) what members are due to deliver and

b) what members are due to receive on the settlement date.

Settlement is a two way process which involves transfer of funds and securities on the settlement date.

Clearing is the process of determination of obligations, after which the obligations are discharged by settlement.

There are two categories of clearing members: trading clearing members and custodians.

Trading members can trade on a proprietary basis or trade for their clients. All proprietary trades become the member’s obligation for settlement. Where trading members trade on behalf of their clients they could trade for normal clients or for clients who would be settling through their custodians.

Trades which are for settlement by Custodians are indicated with a Custodian Participant (CP) code and the same is subject to confirmation by the respective Custodian. The custodian is required to confirm settlement of these trades on T + 1 day by the cut-off time 1.00 p.m. Non-confirmation by custodian devolves the trade obligation on the member who had input the trade for the respective client.

A multilateral netting procedure is adopted to determine the net settlement obligations (delivery/receipt positions) of the clearing members. Accordingly, a clearing member would have either pay-in or pay-out obligations for funds and securities separately.

In the case of securities in the Trade for Trade – Surveillance segment and auction trades, obligations are determined on a gross basis i.e. every trade results into a deliverable and receivable obligation of funds and securities. Members pay-in and pay-out obligations for funds and securities are determined by 2.30 p.m. on T + 1 day and are downloaded to them so that they can settle their obligations on the settlement day (T+2).

− Settlement Cycle for F&O Market Daily Mark to Mark settlement

The settlement of trades is on T+1 working day basis. Members with a funds pay-in obligation are required to have clear funds in their primary clearing account on or before 10.30 a.m. on the

62

settlement day. The payout of funds is credited to the primary clearing account of the members thereafter.

The positions in the futures contracts for each member is marked-to-market to the daily settlement price of the futures contracts at the end of each trade day.

The profits/ losses are computed as the difference between the trade price or the previous day's settlement price, as the case may be, and the current day's settlement price. The CMs who have suffered a loss are required to pay the mark-to-market loss amount to NSCCL which is passed on to the members who have made a profit. This is known as daily mark-to-market settlement.

Theoretical daily settlement price for unexpired futures contracts, which are not traded during the last half an hour on a day, is currently the price computed as per the formula detailed below:

F = S * e rt where:

F = theoretical futures price S = value of the underlying index

e is the mathematical constant for the base of the natural logarithm.

r = rate of interest (MIBOR) t = time to expiration

Rate of interest may be the relevant MIBOR rate or such other rate as may be specified. After daily settlement, all the open positions are reset to the daily settlement price. CMs are responsible to collect and settle the daily mark to market profits / losses incurred by the TMs and their clients clearing and settling through them. The pay-in and pay-out of the mark-to-market settlement is on T+1 days (T = Trade day). The mark to market losses or profits are directly debited or credited to the CMs clearing bank account.

Option to settle Daily MTM on T+0 day

Clearing members may opt to pay daily mark to market settlement on a T+0 basis. The option can be exercised once in a quarter (Jan-March, Apr-June, Jul-Sep & Oct-Dec). The option once exercised shall remain irrevocable during that quarter. Clearing members who wish to opt to pay daily mark to market settlement on T+0 basis shall intimate the Clearing Corporation as per the format specified in specified format.

Clearing members who opt for payment of daily MTM settlement amount on a T+0 basis shall not be levied the scaled up margins. The pay-out of MTM settlement shall continue to be done on T+1 day basis.

Final Settlement

On the expiry of the futures contracts, NSCCL marks all positions of a CM to the final settlement price and the resulting profit / loss is settled in cash.

The final settlement of the futures contracts is similar to the daily settlement process except for the method of computation of final settlement price. The final settlement profit / loss is computed as the difference between trade price or the previous day's settlement price, as the case may be, and the final settlement price of the relevant futures contract.

63

Final settlement loss/ profit amount is debited/ credited to the relevant CMs clearing bank account on T+1 day (T= expiry day).

Open positions in futures contracts cease to exist after their expiration day.

Settlement Procedure Daily MTM settlement on T+0 day

Clearing members who opt to pay the Daily MTM settlement on a T+0 basis would compute such settlement amounts on a daily basis and make the amount of funds available in their clearing account before the end of day on T+0 day. Failure to do so would tantamount to non payment of daily MTM settlement on a T+0 basis. Further, partial payment of daily MTM settlement would also be considered as non payment of daily MTM settlement on a T+0 basis. These would be construed as non compliance and penalties applicable for fund shortages from time to time would be levied.

A penalty of 0.07 % of the margin amount at end of day on T+0 would be levied on the clearing members. Further, the benefit of scaled down margins shall not be available in case of non payment of daily MTM settlement on a T+0 basis from the day of such default to the end of the relevant quarter.