Framework for Supervision of Authorised Persons & Branches by Members

• As per SEBI guidelines, TM are required to monitor the trading activities of the APs & Branches, conduct periodic inspection of APs /Branches and must ensure to maintain records of their operations.
• To enhance the effectiveness of supervision and ensure uniformity and standardisation across all Members exchange has revised the Scope /criteria and guidelines of AP Inspections.
• Small summery of revised Scope /criteria and guidelines of AP Inspections are below: –

1. Dealing with clients:-  

a) TM must ensure all clients are registered directly with the  TM by examine the books of account of APs.

b) Must ensure there is no movement of Funds and securities between the clients and AP by examining all demat and bank accounts statements.  Written confirmation that all their demat and bank accounts have been disclosed to the Trading Member needs to be obtained.

c) No fixed payments at regular intervals to the clients mapped to AP by examining all client’s ledger.

d) No cashdealings done with clients by AP by examining all bank accounts of the AP.

e) In addition, involvement of fund-based activities / collecting deposits from investors / unauthorised trading or any other such schemes/Any illegal/dabba/paper trading/ dealing with any unregistered intermediary/ accepting deposits from the public and giving assured returns/ offering any incentives to clients for opening trading accounts/ any authorisation to trade on behalf of its clients needs to be checked by conducting mystery shopping, surprise visits, web searches, and take regular feedback from the clients.

1. Management of branches / AP and internal control :-

1. Non Compliance pertaining to Advertisement/promotions on social media by Scanning all social media accounts, newspapers, and print media platforms etc.
2. Documents such as contract notes, statement of funds, daily margin statement are not generated and issued by the AP/ Branch. The same can be examined by verifying the process followed by the AP.
3. Not dealt with / or associated with any other Trading Member/AP on behalf of its clients/self by verifying all bank accounts of AP and further seek declaration too from requisite AP.
4. Trading activities/Turnover of AP/Clients mapped with the AP by analysis of client trading patterns and detecting unusual activities if any.
5. Necessary infrastructure as per exchange guidelines by physical verification during inspection.
6. Complaints received by and against the APs can be verified by Review of all complaints and their solutions within stipulated TAT.
7. Proper Notice board of the TM with exchange guidelines displayed at the AP’s location and SEBI registration certificate and exchange registration letter/ grievance redressal mechanism notice board is being displayed  in the main office and all branches of the AP.
8. Change/shifting of location of AP/Branch : 

• All clients mapped to the AP/Branch are notified at least thirty days before the change by verifying Maintenance of logs of communication sent to all clients.
• of Notice Board and applicable SEBI registration certificates have been displayed at the new location, and reporting of new location  including details of terminals is being carried out as per Exchange guidleines.
• New Location setup as per exchange guidelines by verifies if the system is installed in the main office & all branches of the AP.

1. Communication of Changes in the AP’s contact details can be examined by verifying Maintenance of communication by AP to Member.
2. Mobile number, and email address of AP’s are not mapped to any of its client in UCC can be verified with the Member database of all the clients of the APs.

1. Terminal operations and related systems :-  

1. All AP terminals are as per the information reported to the Exchange and also are operated by approved and certified users can be verified by ensuring that  all terminals in the main office and all branches of the AP aligns with the details reported to the Exchange.

1. Inspection Criteria :- 

1. As per Exchange guidelines TM are required to inspect at least 50% of their registered APs/Branches every year.
2. Further APs/Branches meeting any of the below criteria shall be inspected annually :- 

1. Top 50% of registered APs/Branches based on AP/Branch turnover for the previous year.
2. One or more grievance pertaining to unauthorised trading have been received.
3. Any inputs or alerts about suspicious transactions, dealing, assured returns, mis-selling etc. by an AP or a Branch.
4. Sudden increase in AP Turnover/clients/commission paid by Member.

1. Inspection Guidelines  :-

1. Member is supposed to conductAP inspections evenly throughout the year to ensure better quality of inspection. Members shall conduct mystery shopping and surprise visits, wherever required.
2. Required to maintain trail of communication with the APs inspected and shall retain the report of the inspection/visit conducted for a period of not less than 5 years.
3. The inspection reports shall be made available for verification by SEBI/Exchanges as and when required.

1. Submission Timelines :- 

1. Inspections undertaken during each quarter shall be reported within one month from end of the respective quarter.
2. Further, in case no inspection is undertaken during a particular quarter, Members will have to mandatorily submit a “Nil” declaration.
3. All reports should be submitted through the online system in ENIT (Electronic NSE Interface Terminal).

• TMs are required to perform enhanced due diligence for suitability of an AP for requisite role such as :-

1. In – person Verification 
2. Site Visits
3. Pan Validation
4. Background Checks
5. Scrutiny of all demat and bank account statements of the APs
6. Continuous screening / verification of APs.

• TMs are required to update details in exchange records on time to time.

1. Address & Contact details
2. Details of Directors/Partners of AP
3. Terminal Allocated & No of clients

• In case, AP are operating from TM office, TM are required to maintain appropriate segregation of the space allocated to such AP.
• TMs are required to observe APs social media profile to examine on whether they are performing any mis-selling/ assured returns or unauthorised schemes operated by AP including loan transactions. In case of non compliances , the same is required to report to the Exchange within one working day. Further TM are also required to take necessary action such as :

1. Withdrawal of approval on disciplinary grounds.
2. Withholding funds due to the APs until investor issues are resolved
3. Sending alert messages to investors in the APs location
4. Filing complaints with the relevant police station.