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Stock market regulator SEBI said on Tuesday that exchanges have to penalise trading members even if they have allowed the member to modify client codes on having committed a genuine error while punching orders on behalf of their retail and HNI clients. SEBI had earlier said that modification may be allowed only to rectify a genuine error in entry of the client code at the time of placing or modifying the order.
SEBI said that stock exchanges shall penalise member brokers one per cent of the turnover of modified orders in value terms if the percentage of orders modified is below five per cent of the total orders punched for retail and HNI clients.
If orders modified exceeds five per cent of the total orders punched in for retail and HNI clients the penalty would be two per cent of the turnover of modified orders in value terms.
Brokers punch in the unique client code before placing a buy or a sell order on behalf of a client and there are possibilities of errors while doing the same.
This circular supersedes SEBI's January 3circular on modification of client code after trade execution. Prior to this date, there was no penalty for modification of client codes.
Only those exchanges that wish to allow trading members to modify client codes of non-institutional trades are bound by this circular.
The circular will come into force with effect from August 1 and will be applicable to all segments of all exchanges – equity, equity derivatives and currency derivatives across NSE, BSE, MCX-SX and USE.
Exchanges that wish to allow such modification have been asked lay down strict objective criteria (approved by their board) for identifying genuine errors and disclose them to the market in advance.
Exchanges are also expected to set up a monitoring mechanism to ensure that trading members modify the client code only as per the criteria specified.
SEBI has also asked exchanges to incorporate this in the internal audit of brokers.
Stock exchanges have been directed to conduct a special inspection of the trading member to ascertain whether the modifications of client codes are being carried on as per the strict objective criteria set and take appropriate disciplinary action, if any deficiency is observed.
SEBI shall examine implementation of this circular during its inspection of stock exchanges.
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