The Hindu Business Line : Execution of trades and charges

In order to facilitate maintaining database of their clients, it is mandatory for all brokers to use unique client code, which will act as an exclusive identification for the client. For this purpose, PAN /passport number/driving licence/voter ID number/ ration card number coupled with the frequently used bank account number and the depository beneficiary account can be used for identification, in the given order, based on availability.

What is a risk disclosure document?

In order to acquaint the investors in the markets of the various risks involved in trading in the stock market, the members of the exchange have been required to sign a risk disclosure document with their clients, informing them of the various risks such as risk of volatility, risks of lower liquidity, risks of higher spreads, risks of new announcements, risks of rumours.

How do I place my orders with the broker or sub broker?

You can either go to the broker's /sub broker's office or place an order over the phone / Internet or as defined in the Model Agreement given above.

How do I know whether my order is placed?

The Stock Exchanges assign a Unique Order Code Number to each transaction, which is intimated by broker to his client and once the order is executed, this order code number is printed on the contract note. The broker member has also to maintain the record of time when the client has placed order and reflect the same in the contract note along with the time of execution of the order.

What documents should be obtained from broker on execution of trade?

You have to ensure receipt of the following documents for any trade executed on the Exchange:

Contract note in Form A to be given within stipulated time.

In the case of electronic issuance of contract notes by the brokers, the clients shall ensure that the same is digitally signed and in case of inability to view the same, shall communicate the same to the broker, upon which the broker shall ensure that the physical contract note reaches the client within the stipulated time.

Purchase / sale note or confirmation memo in the case of a sub broker. However, once the tripartite agreement between broker-sub-broker and client comes into effect, the broker will only issue the contract notes.

It is the contract note/purchase or sale note (confirmation memo) that gives rise to contractual rights and obligations of parties of the trade. Hence, you should insist on contract note from stockbroker and purchase / sale note (confirmation memo) from sub broker.

What details are required to be mentioned on the Contract note issued by the Stock Broker?

A broker has to issue a contract note to clients for all transactions in the form specified by the stock exchange. The contract note inter-alia should have following:

Name, address and SEBI Registration number of the Member broker.

Name of partner /proprietor /Authorised Signatory.

Dealing Office Address/Tel No/Fax no, Code number of the member given by the Exchange.

Unique Identification Number

Contract number, date of issue of contract note, settlement number and time period for settlement.

Constituent (Client) name/ Code Number.

Order number and order time corresponding to the trades.

Trade number and Trade time.

Quantity and Kind of Security brought/sold by the client.

Brokerage and Purchase /Sale rate are given separately.

Service tax rates and any other charges levied by the broker.

Securities Transaction Tax as applicable.

Appropriate stamps have to be affixed on the original contract note or it is mentioned that the consolidated stamp duty is paid.

Signature of the Stock broker/Authorized Signatory.

In case of purchase and sale note provided by the sub broker, following additional information is provided:

Name and SEBI Registration No. of sub-broker.

Name of affiliating trading member.

Purchase/sale note number.

Corresponding contract note issued by the broker for relevant trade number along with the date of contract.

Both contract note and purchase / sale note provide for the recourse to the system of arbitrators for settlement of disputes arising out of transactions.

However, once the tripartite agreement between broker-sub broker and client comes into effect, the broker will only issue the contract notes.

What is the maximum brokerage that a broker / sub broker can charge?

The maximum brokerage that can be charged by a broker has been specified in the Stock Exchange Regulations and hence, it may differ across various exchanges. As per the BSE & NSE Bye Laws, a broker cannot charge more than 2.5 per cent brokerage from his clients. This maximum brokerage is inclusive of the brokerage charged by the sub-broker. Further, SEBI (Stock brokers and Sub brokers) Regulations, 1992 stipulates that sub broker cannot charge from his clients, a commission which is more than 1.5 per cent of the value mentioned in the respective purchase or sale note.

What are the charges that can be levied on the investor by a stock broker/sub Broker?

The trading member can charge:

Brokerage charged by member broker.

Penalties arising on specific default on behalf of client (investor)

Service tax as stipulated.

Securities Transaction Tax (STT) as applicable.

The brokerage, service tax and STT are indicated separately in the contract note.

What is STT?

Securities Transaction Tax (STT) is a tax being levied on all transactions done on the stock exchanges at rates prescribed by the Central Government from time to time. Pursuant to the enactment of the Finance (No.2) Act, 2004, the Government of India notified the Securities Transaction Tax Rules, 2004 and STT came into effect from October 1, 2004.

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