Securities Brokers (Licensing and Operations) Regulations 2016

# Government of Pakistan
## Securities and Exchange Commission of Pakistan

### NOTIFICATION

Islamabad, the 24th June, 2016

S.R.O. 569(I)/2016.- *** In exercise of powers conferred by sub-section (1) of section 169 read with sections 68, 69, 75, 76, 77, 78, 79, 80, 82, 84 and 151 of the Securities Act, 2015, the Securities and Exchange Commission of Pakistan hereby makes the following regulations, the same being previously published in the official Gazette vide S.R.O. 1087(I)/2015 dated November 5, 2015 and also placed on its website as required under sub-section (4) of section 169 of the said Act, namely:

## CHAPTER I
### PRELIMINARY

1. **Short title and commencement.**- (1) These regulations shall be called the Securities Brokers (Licensing and Operations) Regulations, 2016.

   (2) They shall come into force on the date of commencement of Part V of the Act.

2. **Definitions.**- (1) In these regulations, unless there is anything repugnant in the subject or context, —
   (a) “Act” means the Securities Act, 2015 (III of 2015);
   (b) “advertisement” means dissemination or conveyance of information, or an invitation or solicitation, in respect of the services that the securities broker is licensed to carry on, by any means or in any form, including by means of, —
      (i) publication in a newspaper, magazine, journal or other periodical;
      (ii) display of posters, notices, billboards, hoardings etc.;
      (iii) circulars, handbills, brochures, pamphlets, books or other documents;
      (iv) letters addressed to individuals or bodies;
      (v) photographs or cinematograph films;
      (vi) sound broadcasting, television, the Internet or other media; or
      (vii) tele-marketing and SMS marketing;

(c) “blank sale” means sale by a securities broker on its proprietary account or on customer’s account when the securities broker or customer does not own shares respectively, or the sale does not constitute a sale with pre-existing interest or is a sale without entering into an SLB contract to meet delivery obligations on the settlement date;

(d) “customer bank account” means the bank account opened by the securities broker with a scheduled bank in Pakistan wherein all customer money is deposited and maintained;

(e) “Ordinance” means the Companies Ordinance, 1984 (XLVII of 1984);

(f) “scheduled bank” has the same meaning as defined in clause (m) of Section 2 of the State Bank of Pakistan Act, 1956 (XXXII of 1956);

(g) “sale with pre-existing interest” shall mean the squaring up of:
   (i) an earlier purchase in the same settlement or in a different settlement which will settle prior to the settlement of the sale; and
   (ii) an open position in margin trading or margin financing as a financee on account of same UIN of same security.

(h) “short sale” means a sale by a securities broker, on its proprietary account or on customer’s account, where the securities broker or customer does not own shares respectively, or the sale does not constitute a sale with pre-existing interest, but the securities broker or the customer, as the case may be, has an SLB contract to meet delivery obligations on the settlement date;

(i) “securities lending and borrowing (SLB) contract” means the securities lending and borrowing contract executed through the system provided by an authorized intermediary as per the requirements of the applicable rules; and

(j) “unique identification number (UIN)” means the unique identification number issued by a clearing house to a person for trading on the securities exchange.

(2) Words and expressions used but not defined in these regulations shall have the same meaning as assigned to them in the Act, the Ordinance, the Securities and Exchange Commission of Pakistan Act, 1997 (XLII of 1997), Central Depositories Act, 1997 (XIX of 1997), and any rules or regulations made thereunder.

## Chapter II
### LICENSING REQUIREMENTS FOR SECURITIES BROKER

3. Prohibition.— No person shall act or perform the functions of a securities broker unless such person is licensed as a securities broker with the Commission in accordance with these regulations:

Provided that any company deemed to be licensed as a securities broker under sub-section (3) of section 177 of the Act shall be allowed to carry out its functions under the category of Trading and Self-Clearing till the time as provided in the said section and thereafter an application for licence shall be made by such company under regulation 5 for any one of the categories as provided in sub-regulation (2) of regulation 5.

4. Eligibility criteria for licensing of a securities broker.- Subject to compliance with the provisions of the Act, a company may apply to the Commission for licence as a securities broker under any one of the categories specified in sub-regulation (2) of regulation 5, if-

(a) the applicant’s memorandum and articles of association allow it to apply for grant of licence as a securities broker under the Act;

(b) the applicant holds a valid TRE certificate issued in its name;

(c) the applicant identifies names and details of its sponsors which shall be required to collectively hold and retain not less than fifty one per cent of the share capital of the applicant, and in the case of a listed company, not less than twenty five per cent of the share capital of applicant;

(d) the applicant and its sponsors do not have controlling interest in any other company holding licence as a securities broker;

(e) the applicant, its sponsors, directors and senior management officers are fit and proper persons as per the criteria specified in Annexure B;

(f) the chief executive of the company does not hold such office in any other company;

(g) in case of a company other than a company deemed licensed under regulation 3 above, its sponsors have submitted verifiable documents to demonstrate that they have financial resources not less than twice the amount of the paid-up capital requirement for the relevant category of securities broker for which application is made;

(h) the names of its sponsors, directors and senior management officers are appearing on the list of active tax payers issued by the Federal Board of Revenue;

Provided that this requirement shall not be applicable in the case of foreign nationals;

(i) its sponsors have and will continue to have representation of at least twenty per cent on its board of directors;

(j) the sponsors’ portion of share capital of the applicant or any part thereof shall not be sold or transferred, nor any arrangement for transfer of control of the securities broker shall be affected without prior written approval of the Commission;

(k) its memorandum of association requires prior approval of the Commission for making any changes therein, other than an increase in its authorized share capital;

(l) it meets the financial resources requirements specified in these regulations; and

(m) it has and shall continue to have the requisite number of personnel/employees having mandatory certification as specified by the Commission from time to time;

Provided that in case of a company deemed licensed under regulation 3, the Commission may, upon a request made by the applicant, grant additional time for compliance with the requirements of clauses (c), (d) and (i), on a case to case basis.

Explanation:- For the purpose of this regulation, where the sponsor of applicant is a company, the requirements applicable to the sponsors shall be applied to such extent as may be practical upon the majority shareholder, sponsors and directors of such sponsor company and the sponsoring company and the applicant shall give an undertaking to the Commission that they will inform the Commission in case of any change in the sponsors of the sponsoring company and the required documents.

5. Application and procedure for granting a licence.- (1) Subject to regulation (4), application for a licence as a securities broker shall be made to the Commission in Form A along with all the documents specified in Annexure A and receipt evidencing payment of non-refundable fee of such amount as specified in Schedule I.

(2) The application for licence under these regulations may be made for any one of the following categories of securities brokers-

(a) “Trading Only” category shall mean that a securities broker can only execute its proprietary trades and trades on behalf of its customers but cannot settle executed trades or keep custody of securities.

(b) “Trading and Self-Clearing” category shall mean that a securities broker can execute as well as settle its proprietary trades and trades executed on behalf of its customers and can keep custody of

securities owned by it and its customers subject to such conditions as may be imposed by the Commission.

(c) “Trading and Clearing” category shall mean that a securities broker can execute as well as settle its proprietary trades and trades executed on behalf of its customers and can keep custody of securities owned by it and its customers subject to such conditions as imposed by the Commission and, in addition, such securities broker can settle trades of other securities brokers and their customers and keep custody of the securities owned by such other securities brokers and their customers:

Provided that a securities broker deemed licenced under regulation 3 above and applying for fresh licence in accordance with the requirement of sub-section (3) of section 177 of the Act under the “Trading Only” category shall be required to transfer its clearing, settlement and custody functions within a transition period of six months or an extended time period as may be allowed by the Commission. Such securities broker, during the transition period, shall comply with the requirements applicable to the “Trading and Self-Clearing” category.

(3) A company applying for licence under sub-regulation (1) above shall submit its application along-with supporting documents through the securities exchange to the Commission.

(4) The securities exchange shall scrutinize the application for grant of licence and the documents submitted by the applicant prior to submission of the same for consideration of the Commission along-with a letter of recommendation inter alia covering the following-

(a) the contents of the application for licence and supporting documents are in conformity with these regulations;

(b) the applicant meets the requirements of the Act and these regulations for the purposes of licence under these regulations;

(c) the applicant, its sponsors, directors and senior management officers are fit and proper persons as per the criteria specified in these regulations;

(d) the applicant has arrangements for putting in place such trading, clearing and settlement, accounting and recording systems as are necessary for the purposes of the applicant's existing and anticipated operations of business; and

(e) the applicant has written policies, procedures, systems and controls to resolve customer complaints, handle conflict management, monitor unethical conduct and market abuse, prevent money laundering and combat terrorist financing.

(5) The Commission, while considering the application for licence, may require the applicant to furnish such further information or clarification as it deems appropriate.

(6) The applicant shall, if so required, appear before the Commission for a representation through a person duly authorized for this purpose in writing by the board of directors of the applicant.

(7) Any subsequent change in the information provided to the Commission at the time of filing of application under sub-regulation (1) shall be communicated to the Commission within five working days from the date of such change.

6. Financial Resources Requirement.- (1) An applicant for a licence as a securities broker shall comply with and ensure ongoing compliance with the following specified levels of minimum paid-up capital, net worth and net capital balance-

Category of securities broker	Paid up Capital -PKR million-	Net worth -PKR million-	Minimum Net Capital Balance -----PKR million-----
Trading Only	15	15	2.5
Trading and Self Clearing	35	35	5
Trading and Clearing	100	100	10

(2) A securities broker deemed licensed under regulation 3 and which obtains a licence under Trading Only or Trading and Self Clearing category but does not fulfill the requirements of minimum paid up capital and/or net worth for its category shall be required to meet the minimum paid up capital and/or net worth requirements in the following manner-

Category of securities broker	Minimum paid-up capital/net-worth requirement	Within year 1 from obtaining fresh licence	Within year 2 from obtaining fresh licence
Trading Only	Rs15 million	Securities broker to meet at	Securities broker to meet

		least 50% of the amount less than the minimum specified requirement	remaining amount less than the minimum specified requirement
Trading and Self-Clearing	Rs35 million	Securities broker to meet at least 50% of the amount less than the minimum specified requirement	Securities broker to meet remaining amount less than the minimum specified requirement

(3) In case a securities broker fails to meet the minimum paid-up capital and/or net-worth requirements as specified in sub-regulations (1) and (2), the securities exchange shall immediately restrict the trading facility of such securities broker and its licence shall be suspended by the Commission without prejudice to any other disciplinary action under the Act and these regulations.

(4) A securities broker shall file monthly statements of net capital balance and liquid capital with the Commission and the securities exchange computed in a manner specified in Schedule II and III respectively, immediately after coming into force of these regulations, and shall also submit an audited statement of net capital balance on half yearly basis. The securities broker shall start maintaining minimum liquid capital as per such amounts and/or ratios and after such period of time as may be specified by the Commission through notification. Upon such notification by the Commission, the securities broker shall be required to submit audited statement of liquid capital on half yearly basis, and the requirement to maintain net capital balance, the requirement to submit monthly statements of net capital balance and the requirement to submit half yearly audited statements of net capital balance shall be discontinued.

(5) A securities broker shall immediately notify the Commission and the securities exchange if the net capital balance and/or the liquid capital fall below the specified threshold and shall immediately submit the revised net capital balance and/or liquid capital calculations.

(6) In case of any shortfall in the net capital balance and/or liquid capital, either reported by the securities broker or identified by the securities exchange or the Commission, the securities exchange shall immediately restrict the trading facility of such securities broker and shall only allow it to close out the open position in a controlled environment.

(7) The net worth of a securities broker shall be calculated as total assets less total liabilities less surplus on revaluation, if any, created upon revaluation of fixed assets:

Provided that the Commission may issue clarification in respect of treatment of any item of assets and/or liabilities for the purpose of calculating the net worth of a securities broker.

7. Additional requirements for licence under Trading and Self-Clearing and Trading and Clearing

categories.- Licence for Trading and Self-Clearing or Trading and Clearing categories shall only be granted to an applicant which fulfils the following additional conditions-

(a) It has been admitted as a clearing member by the clearing house and a participant by the central depository; and

(b) In case of a company applying for licence under the Trading and Clearing category, it is a public company and at least one director on its board meets the criteria of independent director.

Explanation: “Independent director” in relation to the securities broker means such director who is not connected or does not have any other relationship, whether pecuniary or otherwise, with the securities broker, its associated companies, subsidiaries, holding company, sponsors or directors. The test of independence principally emanates from the fact whether such person can be reasonably perceived as being able to exercise independent business judgment without being subservient to any form of conflict of interest:

Provided that without prejudice to the generality of this explanation, no director shall be considered independent if one or more of the following circumstances exist:

(a) he/she has been an employee of the securities broker, any of its subsidiaries or holding company within the last three years;

(b) he/she is or has been the chief executive officer of subsidiaries, associated company, associated undertaking or holding company of the securities broker in the last three years;

(c) he/she has, or has had within the last three years, a material business relationship with the securities broker either directly, or indirectly as a partner, substantial shareholder or director of a body that has such a relationship with the securities broker;

(d) he/she has received remuneration in the three years preceding his/her appointment as a director or receives additional remuneration, excluding retirement benefits from the securities broker apart from a director’s fee or has participated in the securities broker’s share option or a performance-related pay scheme;

(e) he/she is a close relative of the securities broker’s promoters, directors or substantial shareholders:

Explanation: close relative means spouse(s), lineal ascendants and descendants and siblings;

(f) he/she holds cross-directorships or has significant links with other directors through involvement in other companies or bodies; or

(g) he/she has served on the board for more than three consecutive terms from the date of his first appointment provided that such person shall be deemed “independent director” after a lapse of one term:

Provided that any person nominated as a director under sections 182 and 183 of the Ordinance shall not be taken to be an "independent director" for the above-mentioned purposes:

Provided further that in case of any ambiguity in determining independence of a person for the purposes of these regulations, the decision of the Commission shall be final and binding upon the securities broker.

8. Grant of licence.- (1) The Commission, while considering the application for granting a licence, shall inter-alia take into account the following matters,-

(a) that the applicant meets the requirements of the Act and these regulations;

(b) that the applicant has the ability to efficiently handle its functions as a securities broker and its obligations under the Act and these regulations;

(c) that the applicant has the necessary infrastructure including but not limited to financial resources, policies, procedures, systems and controls to effectively and efficiently discharge its responsibilities as a securities broker;

(d) that the applicant satisfies the Commission that the reasons for an earlier refusal for grant or renewal of licence, if any, as a securities broker are no longer applicable;

(e) involvement of the applicant, its sponsors, directors or senior management officers in an offence involving fraud or breach of trust; and

(f) history of past regulatory compliance and any pending penal action against the applicant, its sponsors, directors or senior management officers for an offence under the Act, the Securities and Exchange Ordinance, 1969 or the Ordinance.

(2) The Commission, upon being satisfied after conducting such inquiries and obtaining such further information as it deems appropriate that,-

(a) the applicant is eligible for a licence;

(b) the applicant is in compliance with the provisions of the Act, these regulations and any directives/guidelines/codes issued thereunder; and

(c) it is in the public interest and interest of capital market;

may grant a licence to the applicant in Form B for a period of one year under the provisions of the Act and communicate this to the securities exchange, clearing house and central depository:

Provided that while deciding to grant licence to a securities broker, the Commission may seek additional information from other Government agencies/regulatory bodies including obtaining credit information bureau (CIB) reports from the State Bank of Pakistan and may also conduct a pre-licence assessment or a visit of the premises of the applicant to verify the genuineness of information submitted.

(3) Nothing in these regulations shall affect the power of the Commission to restrict, suspend or cancel the licence of a securities broker under the Act if any or all of the events as mentioned therein have occurred or the securities broker fails to comply with any of the requirements of these regulations.

(4) Within three months of the grant of licence, the securities exchange, prior to allowing commencement of business to a securities broker, shall confirm through a visit of such securities broker’s premises that the securities broker has put in place-

(a) adequate professional management including branch heads, system operators and compliance officer, as is necessary to allow the securities broker to carry out its obligations in accordance with the applicable laws, circulars, directives, etc.;

(b) necessary technology, systems and internal procedures;

(c) organizational structure with clear lines of responsibility and authority; and

(d) risk management, supervisory system, infrastructure including but not limited to adequate office space, equipment and technical aspects including appropriate arrangement for clearing, settlement and custodian services, where allowed, to effectively and efficiently discharge its responsibilities as a securities broker with capacity for ongoing maintenance of the same.

9. Renewal of licence.- (1) Subject to the provisions of the Act and these regulations, a securities broker

shall, one month prior to the date of expiry of its licence, apply to the Commission in Form C along with all the documents as specified in Annexure C and receipt evidencing payment of renewal fee of such amount as specified in Schedule I, for renewal of its licence.

(2) A securities broker applying for renewal of licence under sub-regulation (1), shall submit its application along-with supporting documents through the securities exchange to the Commission.

(3) The securities exchange shall scrutinize the application for renewal of licence and the documents submitted by the securities broker prior to submission of the same for consideration of the Commission, along-with a letter of recommendation stating that it has reviewed the contents of the application and the supporting documents and has found the same to be in conformity with the Act and these regulations:

Provided that while submitting the letter of recommendation to the Commission, the securities exchange shall also take into account the securities broker’s outstanding investor complaints and its track record with respect to its compliance with the applicable regulatory requirements:

Provided further that along-with the recommendation letter, the securities exchange shall submit a confirmation to the Commission that it has visited the premises of the securities broker and is satisfied with the infrastructure and human resources deployed by the securities broker to ensure ongoing compliance with these regulations.

(4) The Commission upon being satisfied that the applicant continues to meet the requirements for licensing, is in compliance with the provisions of the Act, rules, regulations and any directives/guidelines/codes issued thereunder and it is in the public interest and interest of the capital market, shall renew the licence for one year and issue a certificate of renewal of licence to the applicant in the Form D.

(5) Where the application for renewal of licence is made within the provided time but has not been decided by the Commission, the licence of the securities broker shall continue to be valid until the application for renewal is decided by the Commission.

(6) While renewing the licence of a securities broker the Commission may, in addition to the criteria laid down for grant of licence, also take into account the past track record and history of regulatory compliance of the securities broker, its sponsors, directors and senior management officers.

(7) The Commission shall send an intimation of renewal of licence of the securities broker to the securities exchange, clearing house and central depository.

10. Procedure where licence is not granted or renewed.- (1) The Commission, after giving a reasonable opportunity of hearing to the applicant, may refuse to grant or renew a licence if in the opinion of the

Commission such applicant does not fulfill the requirements specified under the Act and these regulations and where the Commission after taking into account the facts, is of the view that it is not in the public interest or in the interest of the capital market to grant or renew a licence.

(2) The applicant, if aggrieved by the decision of the Commission under sub-regulation (1), may, within a period of thirty days from the date of receipt of such refusal, prefer an appeal to the appellate bench of the Commission under section 33 of the Securities and Exchange Commission of Pakistan Act, 1997.

(3) A securities broker whose application for renewal of licence is refused shall immediately inform all its existing customers, settle all dues of the customers within fifteen days and shall remain responsible for clearing and settlement of all its obligations up to the date on which it has been working as a securities broker, in the manner specified by the securities exchange with the approval of the Commission.

(4) The Commission shall communicate its decision of refusal to grant or renew the licence to the applicant or securities broker, as the case may be, the securities exchange, central depository and clearing house forthwith and in the case of refusal to renew the licence may also publish such fact in a newspaper of wide circulation in Pakistan.

11. Cancellation of licence.- (1) A securities broker may apply to the Commission for cancellation of its licence along-with a confirmation from the securities exchange that such securities broker has informed all its existing customers, settled all dues and pending claims of the customers and has completed all formalities for closure of business.

(2) The Commission may, after being satisfied that all formalities for closure of business including settlement of customer claims have been completed, cancel the licence of such securities broker:

Provided that the Commission may impose such conditions as it deems appropriate at the time of such cancellation of licence.

(3) The Commission may cancel the licence granted to a securities broker in accordance with the provisions of the Act and/or where-

(a) the TRE certificate of such securities broker is cancelled by the securities exchange; or

(b) the securities broker is declared defaulter by a securities exchange and the reason for such declaration is not removed within a period of six months from such declaration; or

(c) the securities broker surrenders the TRE certificate and the securities exchange cancels such TRE certificate subject to the requirements of regulations of the securities exchange; or

(d) the securities broker is declared insolvent by a Court; or

(e) the securities broker fails to apply for renewal of licence within the specified time; or

(f) the licence is suspended by the Commission and such suspension has not been revoked till the time of expiry of licence issued to the securities broker

(4) A securities broker whose licence is cancelled under sub-regulation (3), shall inform all its existing customers, settle all dues of the customers within fifteen days and shall remain responsible for clearing and settlement of all its obligations up to the date on which it has been working as a securities broker.

(5) The Commission shall send an intimation of cancellation of licence of a securities broker to the securities exchange, clearing house and central depository and may also publish the order of cancellation in a newspaper of wide circulation in Pakistan.

Chapter III

CONDUCT OF A SECURITIES BROKER

12. Invitations and Advertisements.- (1) A securities broker shall not publish, circulate or distribute any advertisement or any information which is false, misleading or deceptive.

(2) A securities broker shall not publish, circulate or distribute any advertisement which:

(a) refers, directly or indirectly, to any past specific recommendations of the securities broker which were or would have been profitable to any person; or

(b) contains any statement that any report, analysis or other service will be furnished free or without charge, unless such report, analysis or service is in fact or will in fact be furnished in its entirety and without any condition or obligation.

(3) The advertisement shall not promise or guarantee any return or make any exaggerated statement or presentation to exploit an individual’s lack of experience and knowledge and should not include any other thing which otherwise is prohibited.

(4) The advertisement shall be legible, written in clear language, and should not be such which may prejudice interest of the investors in general.

(5) In the event of suspension of any TRE certificate holder, the TRE certificate holder so suspended shall not make any advertisement either singly or jointly with any other TRE certificate holder during the period of suspension.

(6) The advertisement shall not have any adverse reference regarding the reputation of any other securities brokers or a participant of the securities market.

(7) A securities broker shall not advertise its business publicly unless it obtains prior clearance from the securities exchange.

13. Disclosure of financial risks.- (1) A securities broker shall not commence business with a customer unless such securities broker provides the customer with a risk disclosure document in accordance with the specimen provided by the securities exchange, inter alia containing the basic risks involved in trading in securities including explanation of the following:

(a) the risk of higher volatility which may affect the complete or partial execution of an order and the price at which it may be executed;

(b) risk of lower liquidity;

(c) speculative trading;

(d) risk of wider spread;

(e) price fluctuations due to corporate announcements;

(f) systemic risk; and

(g) specific risks of trading on leverage markets etc.

(2) The securities broker shall obtain a written acknowledgment duly signed and dated by the customer confirming that such customer has understood the nature and contents of the risk disclosure document.

14. Conflict of interest.- (1) The securities broker shall take all reasonable steps including the framing of appropriate policies and procedures to minimize conflict of interest between such securities broker and its customers.

(2) Subject to the provision of sub-regulation (1), where any conflict of interest arises between the securities broker and its customer, the securities broker shall immediately inform the customer through verifiable means and not gain any direct or indirect advantage from the situation and shall act in the best interests of the customer.

(3) The securities broker must take reasonable steps to ensure that neither such securities broker nor any of its employees or accredited representatives either offers or gives, or solicits or accepts, any inducement that is likely to conflict with any duties owed to the customers.

(4) The securities broker shall put in place a mechanism and take steps to avoid and eliminate the misalignment of incentives due to conflict of interest between the compensation of senior management officers, employees and accredited representatives of the securities broker and interest of the customers.

(5) The securities broker shall disclose the names of such persons to its customers who are working as its accredited representatives.

(6) The securities broker shall put in place a mechanism to resolve any conflict of interest that may arise in the conduct of business and take all reasonable steps to resolve all conflict of interests in an equitable manner.

(7) Where a securities broker has a material interest in a transaction to be entered into with or for a customer, or a relationship which gives rise to a conflict of interest in relation to such a transaction, the securities broker shall not knowingly either advise, or deal in the exercise of discretion, in relation to that transaction unless the securities broker has,

(a) disclosed that material interest or relationship, as the case may be, to the customer; or

(b) taken reasonable steps to ensure that neither the material interest nor the relationship adversely affects the interests of the customer.

(8) The securities broker shall make appropriate disclosure to customers of possible source or potential areas of conflict of interest which could impair its ability to render fair, objective and unbiased service.

(9) In case of any breach of policies by its employees and accredited representatives, the securities broker shall promptly investigate, and take appropriate action against the persons responsible.

15. Confidentiality.- (1) The securities broker must have in place proper systems and controls along with clearly documented policies and procedures reasonably designed, for ensuring confidentiality of information in relation to its business as a securities broker.

(2) The securities broker must establish ‘Chinese walls’ including policies and physical apparatus designed to prevent the improper or unintended dissemination of market sensitive information from one division or department to another.

(3) The securities broker must establish policies and procedures, reasonable under the circumstances, to ensure that individuals making proprietary investment decisions are not trading on the basis of material non-public information obtained from another departments or units of the securities broker.

(4) The securities broker and its employees and accredited representatives shall neither profit nor seek to profit from confidential information, nor provide such information to anyone with the objective of making profit for itself or for its customers.

(5) The securities broker and its employees and accredited representatives shall refrain from trading on the basis of confidential information, and its employees and accredited representatives shall not reveal such information outside the company.

(6) The securities broker and its employees and accredited representatives shall not disclose or discuss with any other person other than normal course of business or make improper use of the details of investments of customers and other information of confidential nature of a customer.

16. Duties and obligations of a securities broker.- (1) In addition to the requirements provided under the Act and any other rules or regulations made thereunder, a securities broker shall:

(a) ensure fair treatment of its customers, not discriminate amongst them, and treat customers instructions and orders in due turn;

(b) prominently display the licence granted by the Commission;

(c) exercise due care and diligence while handling unsubstantiated market information or non-public price sensitive information;

(d) take reasonable steps to ensure that any agreement, written communication, notification or information that such securities broker gives or sends to customers to whom the services are to be provided or are being provided is presented fairly and clearly and adequate details regarding the services to be provided by the securities broker are covered therein;

(e) ensure that it has adequate infrastructural systems with reliable back up procedures;

(f) abide by the Corporate Governance Code provided in Annexure D;

(g) ensure compliance with all legal and regulatory requirements applicable to the conduct of its business activities so as to promote the best interests of customers and the integrity of the securities market;

(h) remain in compliance with the licensing requirements at all times and inform the Commission immediately when it is non-compliant with any of the said requirements;

(i) establish an internal code of practice, aimed at ensuring that members of the board, directors, employees and accredited representatives act in accordance with the best interests of its customers, the integrity of the market and are in compliance of the Act, these regulations and any other applicable laws, guidelines, directives, circulars etc.;

(j) frame policies and procedures to ensure compliance with the regulatory requirements governing prohibition of insider dealing and market abuse;

(k) ensure that Know Your Customer and Customer Due Diligence is being conducted properly in accordance with the relevant regulations/guidelines/circulars etc. issued by the Commission and/or the securities exchange from time to time;

(l) ensure that the credit worthiness of its customers is evaluated through a proper credit risk assessment methodology and trading limits are assigned to each customer beyond which the customer shall not be allowed to take a position;

(m) ensure that its sponsors, directors, accredited representatives and employees exercise due care and responsibility while interacting with the media, and making any statement regarding any regulatory authority, the securities market or any participant thereof on any forum/channel;

(n) maintain membership of an association of securities brokers which is approved by the Commission and abide by the code of conduct specified by such association at all times;

(o) inculcate a culture of compliance of the regulatory requirements through ongoing education and training of its directors, employees and accredited representatives; specify and enforce any appropriate sanctions for breach by its directors, employees and accredited representatives of any policies and procedures regarding market conduct to deter such practices; and

(p) ensure accuracy and completeness of the information shared or submitted by it to the clearing house, central depository, securities exchange, Commission and any other forum.

(2) A securities broker shall not:

(a) in any way contribute to manipulating the demand for or supply of securities in the market or to influence prices of securities, or indulge in any action that can detract from transparent

and standard pricing on the securities markets;

(b) encourage sale or purchase of securities on account of a customer with the sole objective of generating commission or any other financial benefit;

(c) have an incentive structure that encourages dealing in securities not suiting the risk profile of its customers;

(d) maintain anonymous accounts or accounts that are opened or maintained in the name of fictitious persons;

(e) deal in securities while in possession of material non-public information;

(f) deal or transact business directly or indirectly or execute an order for a customer where the name of such customer is appearing on the list of delinquent customers maintained by the securities exchange;

(g) operate and have any branch without registration of the same with the securities exchange and after fulfilling all other applicable requirements;

(h) engage in manipulative or deceptive conduct or any other form of misconduct which would give other users of the securities market a false or misleading impression as to the prevailing market conditions, including but not limited to price, supply or demand;

(i) spread rumors or disseminate false or misleading information;

(j) engage in any investment transactions and activities that would result in manipulation of prices;

(k) accept any money from a customer on a promise of predetermined or guaranteed return; and

(l) appoint an auditor who is an associate of its director or a senior management officer.

(3) A securities broker shall put in place, appropriate policies and procedures which govern trading or investment in securities by its employees, accredited representatives, their spouses and dependent children, and such policies shall at the minimum cover following requirements/principles:

(a) disclosure by its employee and accredited representative of any securities held by him/her, his/her spouse and /or dependent children along with details of their accounts with a

securities broker and such information shall be reported to the compliance officer of the securities broker;

(b) prior written approval for trading by its employees and accredited representatives for their own personal accounts or on behalf of their spouses and/or dependent children;

(c) approval or rejection of an application seeking trading or investment in securities by its employees and accredited representatives;

(d) periodic disclosure of securities held by its employees and accredited representatives and their spouses and dependent children, and reporting of actual transactions, including volume, date and price, in a timely manner;

(e) restriction on employees and accredited representatives from deriving any benefit or personal advantage from information which is generally not available and which is obtained by reason of or in the course of their employment with the securities broker;

(f) prescribing a minimum holding period and discouraging frequent short-term trading or trading for speculative purposes;

(g) prescribing trading windows and blackout periods to restrict the misuse of confidential information; and

(h) compliance of employees and accredited representatives with the requirements specified by the securities exchange and the code of conduct specified by the securities exchange in relation to the trading by employees and accredited representatives of a securities broker.

(4) A securities broker shall not trade through another securities broker of the same securities exchange on its own account or on account of its customers.

(5) Chief executive of the securities broker and his/her immediate family members can only trade through the securities broker which the chief executive is associated with in the said capacity.

(6) A securities broker shall formulate policies and take reasonable measures to restrict its employees and accredited representatives, including employees serving as directors on its board, from trading through another securities broker of the same securities exchange.

(7) Shareholders and other directors of a securities broker shall be allowed to trade through another securities broker of the same securities exchange subject to the condition that the substantial shareholders

and the directors fulfill the following requirements-

(a) a one-time prior written approval is obtained from the securities broker of which such person is a director or substantial shareholder and the said approval shall also be submitted to the securities exchange; and

(b) where any such director or substantial shareholder buys or sells securities through another securities broker of the same securities exchange, he/she shall notify in writing on the same day the following information to the company secretary of the securities broker of which he/she is a director or a substantial shareholder-

(i) name of the securities broker through which the transaction is carried out;

(ii) reason(s) for trading through another securities broker;

(iii) following details of the transaction-

(A) the date of transaction;

(B) the price at which the transaction is executed;

(C) type of security traded

(D) number of securities/contracts/units traded;

(E) form of security i.e., physical or book-entry form in the central depository system;

(F) nature of transaction i.e., on-exchange or off-exchange transaction;

(iv) such director or the substantial shareholder shall also deliver a written record, along with a copy of the contract note issued by another securities broker, of the details mentioned under sub-clause (iii) to the company secretary within two days of effecting the transaction; and

(v) the company secretary shall immediately forward the above information to the securities exchange.

(8) A securities broker shall ensure that it has properly designed internal control policies and framework which are duly approved and periodically reviewed by its board of directors and the same shall be widely disseminated for compliance by all employees and accredited representatives.

(9) The internal control policies and framework to be designed under sub-regulation (8), shall inter alia stipulate the following:

(a) ensure that clear lines of responsibility, authority and tasks are adequately assigned to its employees and accredited representatives;