The Hindu Business Line : Do's and don'ts for investors

STOCK exchanges enable investors who hold securities to adjust their holdings in response to changes in their assessment of risk and return, and also to meet their liquidity needs.

An investor buys and/or sells securities to rebalance his portfolio or meet his liquidity needs. He enjoys certain protection if he deals in securities through the trading platform of an exchange.

While placing the order, the client has to follow certain requirements to secure protection under the protective mechanism extended by the respective stock exchanges.

The broker or sub-broker also has to follow various requirements stipulated by the respective stock exchange or by SEBI, from time to time, while dealing with the clients. Some "good clients' practices" are:

Do's for clients

Ensure that the broker or sub-broker through whom you intend to buy and/or sell a security listed on the exchange is a trading member of the exchange, or a registered sub-broker of a trading member of the exchange. These brokers or sub-brokers are required to display various details in a legible manner on a board placed at a conspicuous place.

The details include SEBI registration number, address of the registered office and the name of the stock exchange which the broker is a member of.

Fill up the `know your client' form giving correct and complete details.

Execute the client-broker agreement with the broker or sub-broker through whom you intend to deal in securities, and ensure that you have one copy of the agreement. Also, insist that you get a unique client code.

In case the broker or sub-broker has required you to pay a certain amount towards deposit/margin before making a transaction, ensure that you obtain a receipt for such payment clearly stating the amount paid as a deposit/margin towards execution of a transaction for buying/selling of a security at the specified stock exchange.

Ensure that you pay the upfront margin payable as prescribed by SEBI and/or by the respective exchange.

While dealing with a broker or sub-broker, ensure that the name of the persons for whom the dealing is to be done is correctly indicated, and all the formalities are completed for each person.

Ensure that the instructions for buying and/or selling a security are, as far as possible, given in writing. In case such instructions are given through telephone, make sure to get your instructions validated by requiring the person in the office of the broker or sub-broker taking your instructions to read out the instructions given to avoid mistakes.

Ensure that you get the contract note from the broker or purchase-sale note from the sub-broker within 24 hours. If the contract note is in a printed form, it should have pre-printed serial numbers. If the contract note is on computer-generated stationery, it should have system generated serial numbers for each of the offices separately. Also, ensure that the contract note is signed by the authorised-signatory and the client's name is stated correctly. The contract note should mention the order number, trade number, trade time, quantity, price, brokerage etc.

If you have any doubt about the details contained in the contract note with respect to order number, trade number, etc. you must avail yourself of the facility now provided to the investors by the stock exchanges to verify their trades on the respective websites.

It is desirable to avail of this facility in respect of a few trades on random basis even when there is no doubt. In respect of trades executed on NSE, you may visit www.nseindia.com.

Ensure that the brokerage amount is indicated separately on the contract note and the provisions relating to arbitration are printed overleaf.

Ensure that the payment is always made by account payee cheque in the name of the broker or sub-broker, be it the payment towards margin liability or settlement liability. The name of the broker or sub-broker is the name registered by SEBI.

Ensure that the delivery of a security in demat mode is given to the pool account of the broker or sub-broker rather than the beneficiary account. In case you have the delivery of security in hand, and do not wish to pay any margin for sale of a security, make sure to credit the security to the pool account of the broker or sub-broker concerned, preferably on the same day on which the transaction took place.

Ensure that the cheque is given and securities are delivered to broker/sub-broker well before the pay-in to be made by the broker.

Ensure that the broker/sub-broker maintains separate accounts for transactions executed for the same client on different stock exchanges, and also make sure that the accounts are settled separately and the credits/debits are not mixed up.

Ensure that you receive the pay-out of funds and/or security within 48 hours of the pay-out declared by the exchange from the broker or sub-broker unless you have given specific instructions to have your account settled at a different specified duration.

In case you have not received the pay-out of funds and/or security as specified above, please ensure that you demand it in writing from the broker or sub-broker concerned, giving the details of your transactions and details of payment/delivery of security to the broker or sub-broker.

In case you do not get your pay-out of funds and/or securities, despite your demand in writing as above, make sure to take up the matter with the investors grievance department of the respective stock exchange by forwarding (1) a copy of the contract note and (2) proof of payment/ securities delivered.

Claims/complaints supported with the copy of a contract note and the proof of payment/delivery of security, as the case may be, will facilitate their expeditious resolution.

In case the claim is not supported by the copy of the contract note and/or with the proof of payment/ delivery of security, and there has been a running account which has not been reconciled for a long period of time, and such claims are not accepted by the broker or sub-broker,then it becomes difficult for the investors grievance department to assist in resolving the claims.

Don'ts for clients

Do not deal with an unauthorised person, that is, deal with only the registered broker or a registered sub-broker of the stock exchange.

Do not start dealing unless you have filled up the `know your client' form and entered into a broker-client agreement.

Do not give deposit money without a proper receipt stating the amount and purpose for which the deposit is given.

All payments should me made through account payee cheques. Do not make payments through any other means.

Do not issue cheques in any name other than that of the registered broker or the registered sub-broker.

In case you are not issued a contract note, do not continue further dealing unless you are satisfied that the transaction is done on the stock exchange and the contract note is under way.

Do not deliver securities to any account other than the pool account of the broker.

Do not allow your account to remain unreconciled for more than one calendar month if you are having a running account with the broker.

Do not continue further dealing with the broker if the account has remained unreconciled for more than one calendar month.

Do not wait to seek assistance from the investors grievance department of the stock exchange at which you have made dealings through the broker or sub-broker in case of dispute/claim remaining unresolved.

Do not have a running account with a registered sub-broker.

Do not deal in more than one name under one client name.

Do not wait for settlement of your transaction beyond a reasonable period (not more than six months from the date that the transaction took place or dispute arose) to avail of the redressal mechanism of the stock exchange at which you have dealt with.

Do not wait for submitting your claim against any broker or sub-broker beyond the period indicated above, as the claim in respect of any defaulter or expelled member is liable to be rejected summarily if lodged after expiry of 90 days of the public notice appearing in the daily newspaper as above.

Do not allow the broker/sub-broker to adjust the balance in your account in respect of one stock exchange with another account in respect of another exchange.

(To be continued.)

Edited extracts from "Do's and Don'ts for Investors" (by M. L. Soneji) published in NSE News by the National Stock Exchange.

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