guidance manual for audit of members of commodity futures exchanges manual-16-12... · audit of...

GUIDANCE MANUAL

FOR

AUDIT OF MEMBERS OF

COMMODITY FUTURES EXCHANGES

FORWARD MARKETS COMMISSION MINISTRY OF CONSUMER AFFAIRS, FOOD AND PUBLIC DISTRIBUTION

DEPARTMENT OF CONSUMER AFFAIRS EVEREST, 3RD FLOOR, MARINE DRIVE

MUMBAI 400 002

FOREWORD

The Commodity futures market has witnessed rapid growth since the setting up of Multi Commodity Electronic Exchanges in 2003.

During the last 8 years, there have been substantial regulatory, structural and operational changes in the commodity futures market. These have

been brought in with the objective of improving market efficiency, enhancing transparency, preventing unfair trade practices and bringing the Indian markets up to International standards. Inspection of members of

Exchanges both by FMC and Exchanges has been one such step which has contributed towards strengthening controls & ensuring transparency.

2. The FMC/ Exchanges have been conducting inspection of members on regular basis. However, a need was felt to ensure that such inspections

are comprehensive and cover all aspects of regulatory regime in place. Therefore, the Forward Markets Commission (FMC) has come out with this Guidance Manual for Audit of Members of Commodity Futures Exchanges.

This Guidance Manual broadly covers various aspects related to trading in Commodity Future Markets including regulatory aspects and provides broad

guidelines for conducting such inspections. 3. I am sure that the Guidance Manual would not only improve the

quality of audit inspection of the members of the Commodity Exchanges and improve compliance of the regulatory regime, but would also be helpful to the professionals as well as to the members of the Exchanges. 8th December, 2011 Ramesh Abhishek Mumbai Chairman

CONTENTS

PART A …………………………………………………………………………………………….. 1 INTRODUCTION.…………………………………………………………………..……...….. 3

1.1 Background ………………………………………………………………………………………..………….……3 1.2 Objectives ………………………………………………………………………………………..…....…..........3 1.3 Provision for Inspection …………..……………………………………..…………………………….......3

PART B .……………………………………………………….……………………………..…….5 METHODOLOGY OF INSPECTION .………………………………………………………5

2.1 Team of Inspecting Officials . ………..………………….…………………………………..…....….….7 2.1.1 Constitution …………………….………………….………………………….……………….…......7

2.1.2 Conduct of Inspecting Officials …………..……………………….………..….….......…..7 2.2 Methodology of Inspection ……………………...……………………..………………….……….......8 2.2.1 Information/Data from Members.…………….………………………....…….......…….8 2.2.2 Coverage of Inspection ……………………..………………………………..………….…......8 2.2.3 Sample Selection …..…………………….………………………………………...........…....11 2.2.4 Use of such selection ….…………….……………………………………….….………….....13 2.3 Requirements from the Inspection Team after completion of Inspection…...........................................................................................................13 2.4 Drafting of Inspection Report .……………….……………………………………….………….…...14

PART C ……………………………………………………………………………………….…. 15 INSPECTION COVERAGE ..…………………………………………………….………… 15 Membership Requirements .……………………………………………….…………. 17

3.1 Membership related requirements to be followed by each Member …..…..……....17 3.2 Appointment of Authorized Person ………………..………………………………………………….18 3.2.1 Eligibility for Authorized Person ………………………..…………………………………………..18

3.2.1.1 For an Individual ……………………………………………………………………….…………19 3.2.1.2 For a Partnership Firm /LLP/Body Corporate ………………………………….…...19 3.2.2 Verification with respect to the Obligations of the Member …………………....19 3.2.3 Trading Terminal to Authorized Person …………………………………………………....21 3.2.4 Points to be considered by the Inspection team for Authorized person .…..21 3.2.5 Verification of Member Authorized person Agreement….………………..….……22 3.2.6 Change in Authorized person status …….…………………………………………………..22

Verification of Books of Accounts and Other Records .……………….....23 4.1 Maintenance of Books of Accounts /Documents / Records……………………..…..….23 4.2 Records in Soft Forms /System ………………………………………………………………….…..25 4.2.1 Register of Transactions ……………………………………………………………………….....25 4.2.2 Client Ledger ……………………………………………………………………………………..…....25 4.2.3 Bank Book .……………………………………………………………………………………………….26

4.2.4 Cash Book ………………………………………………………………………………………….........27 4.2.5 Margin Deposit Book ………………………………………………………………………….….....27 4.2.6 Trade Log and Order Log …………………………………………………………………………...27 4.2.7 Order Book ………………………………………………………………………………………….......27 4.2.8 Trade Files ………………………………………………………………………………………..…......27 4.2.9 Register of Commodity …………………………………………………………………………...28 4.2.10 Register of Complaints …………………………………………………………..……….….……28

Agreements, Documents Authorizations etc. .………………………………..31 5.1 Member- Client Agreement ………………………………………………………………………..…... 31 5.1.1 Execution of Agreement …………………………………………………………………………....…. 31 5.1.1 Format of Agreement ……………………………………………………………………………….… 31 5.2 Know Your Client (KYC) Form / Client Registration Form………………………………...... 32 5.2.1 Format of KYC Form .……………………………………………………………………………….…...32 5.2.2 Documents required from client (s) along with KYC form …………………………... 32 5.3 Risk Disclosure Documents (RDD) and investors’ Rights and Obligations (IR&O).. 33 5.4 Client Account Closure ………………………………………………………………………………………. 34 5.5 List of Do’s and Don’t ………………………………………………………………………………………… 34

Clientele Transactions ……………………………………………………………………35 6.1 Creation and allotment of Unique Client Code (UCC) ……………………………………… 35 6.1.1 UCC Uploading to the Exchange ………………………………………………………………… 35 6.1.2 Verification of the data …………………………………………………………………………….….36 6.1.3 Allotting Single Client Code …………………………………………………………………….…..36 6.2 Modification of Client Code ……………………………………………………………………………..36 6.3 Brokerage ………………………………………………………………………………………………………..38 6.4 Portfolio Advisory and Management Services ………………………………………………...39 6.5 Bank Accounts …………………………………………………………………………………………….…..39 6.6 Handling the Commodities of Clients for Deliveries ………………………………….….….42 6.7 Margin Collection ……………………………………………………..……………………………….…….43 6.8 Cash Dealing.……………………………………………………………………………………………….….. 45 6.9 Issue of Statement of accounts/ funds of Clients ……………………………………….……. 46 6.10 Unutilized Balances …………………………………………………………………………………………. 47 6.11 Inactive Clients …………………………………………………………………………………………………47

Trading System …………………………………….…………………………………………49 7.1 User Id and Approved Users ………………………………………………………………………………49 7.1.1 Approved users ………………………………………………………………………………………....49 7.1.2 User ID …………………………………………………………………………………………………..…..49 7.2 Internet Based Trading (IBT) ……………………………………………………………………….…..….50 7.3 Computer to Computer Link (CTCL) …………………………………………………………………… 50 7.3.1 Development of CTCL Software……………………………………………………………….. 50 7.3.2 Some of the guidelines / requirements for use of CTCL terminals ……….. 50 7.4 Terminal Location ……………………………………………………………………………………………..51 7.5 Antivirus Software ……………………………………………………………………………………………52

7.5.1 Regular backup of important data on the Systems ……………………….………..….52 7.6 Pro- Account Trading Terminals ……………………………………………………………………..…54 7.6.1 No. of Terminals ………………………………………………………….…………………….………54 7.6.2 Approval from Exchange …..…………………………………………………………………….…54

Contract Notes ……………………………………………………………………………….55 8.1 Requirements on Issue of Contract Notes to Client …………………………………………......55

Miscellaneous …………………………………………………………………………………59 9.1 Trading Activity ………………………………………………………………………………………………….. .59 9.2 Internal Review ………………………………………………………………………………………………….. .59 9.3 Notification to the Exchange ………………………………………………………………………………..59 9.4 Display of Notice Board ……………………………………………………………………………………… .59 9.5 Stamp Duty and Service Tax …………………………………………………………………………………60 9.6 Statutory Dues ……………………………………………………………………………………………………. 60 9.7 Exchange LOGO /Emblem …………………………………………………………………………………… 60 9.8 Advertisement..…………………………………………………………………………………………………… 60 9.9 Circular Trading, cross deals, price rigging, price manipulation and other market Abuses ……………………………………………………………………………………………………. 61 9.10 Previous Audit Observation: …………………………………………………… …………………………. 61 9.11 Certified Commodity Professional …………………………………………………………………….… 61 9.12 Code of Conduct for Members ……………………………………………………………………………. 61 9.13 Compliance with Regulatory Directives ………………………………………………………………. 62 9.14 Appointment of Compliance Officer .………………………………………………………………….. 62 9.15 Adherence to Anti Money Laundering norms ……………………………………………………… 62 9.16 Submission of Annual Returns ………………………………………………………………………………63 9.17 Submission of Annual Compliance Report (ACR) …………………………………………………. 63 9.18 BPO / KPO Services – Segregation thereof from Commodity Derivatives Market … 64 9.19 Insurance Policy ………………………………………………………………………………………………….. 64 9.20 Audit reports of corporate member ……………………………………………………………………. 64 9.21 ROC related compliance …………………………………………………………………………………….. 64 9.22 Miscellaneous ………………………………………………………………………………………………………64

Appendix 1. Schedule – I: Pre- Inspection Questionnaire 2. Schedule – II: Format of Inspection Report

Inspection Manual _________________________________________________________________________________

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PART A

INTRODUCTION


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CHAPTER I

INTRODUCTION

1.1 Background

Commodity Futures Exchanges are responsible for ensuring orderly conduct of its Members and also for

ensuring that the relevant Rules, Regulations, Bye-Laws, Business Rules, Circulars and directives given by

FMC and other relevant authorities are being complied with. To perform these functions, the Exchange

conducts inspection of its Members. Inspection of members of Exchanges are also conducted by the

FMC.

The thrust of inspection is on the overall working of the Members gauged from the examination of books

and accounts and other records and through system verification.

1.2 Objectives

The objectives of the inspection of Members of the Exchange are to verify whether:

a) The provisions of Circulars, Rules, Bye-laws and Business Rules of the Exchange are being

complied by such Members;

b) To ascertain as to whether the member has violated any of the requirements of FCRA Act

and / or directives given by FMC from time to time.

c) To ascertain action taken against the Member in the past by FMC/Exchange for deficiencies and

if so, the extent to which such deficiencies have been rectified or still being repeated.

1.3 Provision for Inspection

Bye-Laws, Rules and Regulations/Business Rules of the Exchange provide the scope for the Inspection of

Members .


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PART B

METHODOLOGY OF INSPECTION


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CHAPTER II

INSPECTION PROCEDURE

2.1 Team of Inspecting Officials

2.1.1 Constitution

The team should consist of qualified persons having the necessary skills and knowledge of Commodity

Futures Market and operations of Members of the Exchange. Working knowledge of Rules / Bye-Laws /

Business Rules of the Exchange and FCRA is desirable. The team leader should supervise the conduct of

inspection and ensure that the same is carried out efficiently and with due-diligence.

2.1.2 Conduct of Inspecting Officials

a) The Inspecting officials are considered representatives of the Exchange; hence, a

professional conduct is expected from them while dealing with the Members of the

Exchange.

b) Since, inspecting auditor’s firm, its employees and other personnel are privy to

confidential information during the course of inspection, they shall undertake and

confirm that their partners, employees and other personnel will not divulge any

information that has come to their possession during the course of Inspection to any

persons other than the authorized officials of the concerned Commodity Exchange and /

or FMC or to a statutory authority, under any provisions of law.

c) Auditors should not have any conflict of interest (direct/indirect association with the

member). If the Auditor has any interest in the Member being audited, the assignment

should be avoided and the said details must be disclosed and shared with the concerned

Exchange in writing before commencing the inspection procedure.

d) The auditor should also ensure that they should not have any conflict of interest or

association directly / indirectly with the member, they audited, for a period of 3 years

from the submission of the inspection report to the authority.


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2.2 Methodology of Inspection

The minimal activities to be carried out for an effective inspection of the Members are suggested as

below:

2.2.1. Information/Data from Members

The Inspection team will send a pre-inspection Questionnaire ( The minimum requirement is given in the

model format presented in Schedule-I ) to Member to fill in the answers/ information required.

Inspecting Officials should refer to the same before starting the Inspection of the said member in order

to plan their Inspection procedure. The auditor may seek any additional information as may be desired

for the completion of the inspection besides the ones mentioned in the said format after consulting the

Exchange

2.2.2. Coverage of Inspection

The Inspection team must note that if the Member being inspected is also a Member of any other

Commodity Futures Exchanges, books of accounts and other records related to such other Exchanges

may also be required to be audited. However, the audit report pertaining to each Exchange need to be

prepared separately and should be sent separately to the concerned Exchange alone. Confidentiality

pertaining to audit work of each Exchange needs to be maintained strictly. The need for such reports of

audits, if required, would be specified in the Inspection allotment letter.

The Inspection officials may plan their program in consultation with the Member so as to cover the

entire process right from the receipt of order by the Member from the client(s) to the final settlement in

terms of payment of funds and/or delivery of commodities to respective clients.

2.2.2.1 Regarding Member’s dealing with the Clients -- Refer Chapter 4 to 9:

The main subsets in this entire chain of executing clients’ orders which need verification at each stage

include the following:

a) Obtaining complete clients registration forms/ Know Your Clients (KYC) forms with all

supporting documents, executing agreements with clients (member-client agreements)


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and obtaining Risk Disclosure Document (RDD) / Investors Rights and Obligations (IRO),

client Declaration –cum -undertaking.

b) Upload of Unique Client Code.

c) Receipt of order.

d) Collection of margin money from clients as per Exchange guidelines.

e) Evidence of client placing (modifying/canceling, as the case may be) order.

f) Routing the order through exchange trading mechanism by putting Unique Client Code

(UCC) and execution of order.

g) Issue and delivery of contract notes to clients.

h) Payment of margins by the Member to Clearing House of the Exchange.

i) Receiving money from clients for purchase transactions and receiving commodities in

case of sale transactions for meeting pay in obligations to the Exchange.

j) Routing the clients’ money through a separate bank account.

k) Timely pay-in of fund to clearing house and pay-in of commodity at respective designated

warehouses as per contract specifications of the commodity.

l) Receipt of money/commodity from clearing house/warehouse.

m) Timely delivery of commodities / payment of funds to clients.

n) Issue and delivery of funds and commodities statement to the clients at the intervals as

prescribed by the FMC/Exchanges.

o) Clients’ grievances are attended and resolved in timely manner.

p) Inspect that no unfair trade practice has been carried out by the Member.

q) Inspect whether the member is involved in assuring/providing guaranteed returns to the

investors.

r) Inspect whether the member is involved in any activity that may be termed as Portfolio

Management Services or Portfolio Advisory Services or activities of similar nature.

s) Inspect whether the member has indulged in off-market trading or any activity that may

be termed or included, in the purview of (Illegal) Dabba trading.

t) Inspect whether the member has indulged in payment/receipt of money from the clients

other than through legitimate channels as defined by the Exchanges/FMC from time to

time.


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u) Inspect whether the member is involved in any client code modifications which were not

reported to the Exchange and for which the member is not penalized by the concerned

Exchange.

v) Inspect a) whether the client code modifications done by the member on the Exchange

platform, if any, were genuine punching/data entry error b) whether there are any

instances of proprietary trades being modified as client trades and vice versa and

c) whether there is a pattern in client code modification, any trades of the same client

are modified frequently.

w) Inspect whether the member had traded ahead of client, either directly or indirectly.

x) Inspect whether the trading is circular , artificial or without legitimate economic

purpose.

y) Inspect whether the member is making market, if so, the compensation is as

prescribed, if prescribed.

z) Provisions relating to Guidelines on Anti Money Laundering and KYC norms.

aa) Provisions relating to BPO/KPO Services.

Auditors may also report other discrepancy which may come to their notice.

2.2.2.2 Regarding Member’s Proprietary Trading (i.e., trading in member’s own account) -- Refer

Chapter 4 to 9:

If the member is involved in the proprietary trading, i.e., trading on his/her own account, then the

Inspection team is also required to verify that all trades undertaken in own account are for the member

entity only, and for example, not undertaken on clients behalf either to reduce margin liability or to allow

clients to trade while remaining outside banking channel. The Inspection team is also required to verify

and confirm that there is no irregularity observed in the members trading. Following is also required to

be verified by the Inspection Team:

a) Whether the member has done its trading from more than one location and if so whether the

member has obtained the permission for the proprietary trading from the Exchange for

specified terminals/locations and used them according to the circulars issued by the Exchange

/FMC in this regard from time to time.

b) Inspect whether User IDs are allotted to the employees and Authorised Persons only.

c) Whether the member has issued any contract notes and statement of accounts, if yes to

which entities, verify the purpose and justification for the same.


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d) Verify whether the member has clients in the back-office which are not registered with the

Exchange.

e) If the member is not involved in clientele business, verify whether member has accounted for

any brokerage income. If yes, verify the purpose and justification for the same.

f) Client bank account opened by such members should not be utilized. Verify whether the

member has utilized client bank account and for what purpose.

g) Inspect whether any third party funds have been received in own bank account, if yes for

what purpose.

h) Whether the member is involved in any cash dealings.

i) Inspect whether the trades for directors/partners/sister concerns/family members are

considered as proprietary trades.

j) Whether the member has undertaken any client code modification outside the Exchange

platform.

k) Inspect whether the member has indulged in off-market trading or any activity that may be

termed or included in the purview of (Illegal) Dabba trading.

l) Inspect whether the member has taken any delivery, if yes then was there any transfer of the

same to any other entity.

2.2.2.3. Regarding Membership Requirements -- Refer chapter 3:

The inspection team is required to verify whether the member has complied with all the membership

requirements such as meeting the networth, taking approval from the Exchange and also with the

guidelines for appointment of Authorized Persons.

2.2.3. Sample Selection

The Inspection will be conducted on the basis of data selected on a sample basis unless until it is

specified by the Exchange/FMC. In case of special purpose inspections, The Exchange/FMC will specify

the quantum of the sample to be selected which may even extend to 100% depending on the case.

For the members who are involved in clientele business, there is minimum recommended uniform

criteria for selection of samples as given below. For the members involved in proprietary trading and/or

for proprietary trades, the Exchange/FMC will specify the quantum of the sample to be selected which

may even extend to 100% depending on the case.


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2.2.3.1 Criteria for selection of dates (Applicable in case of clientele business): Certain dates are to be

selected as sample and all the transactions on the said date are to be inspected for compliance.

These dates are selected on the basis of the following guidelines:

1. In each month, the inspection team is required to select at least 3 trading days. It will

include the date on which member has highest turnover date, the next trading date and

the previous trading day as sample dates for inspection.

2. For the last month of the period of audit, if the next trading date falls beyond inspection

period then the second highest turnover date, next trading date and the previous trading

date will be selected as sample dates .

3. Any other dates, over and above the dates as selected above, may be considered on

merit basis.

4. In case of other samples, the Inspection Team should ensure that the selection covers the

various constitutions (i.e. corporate, Partnership, Individuals and LLP) .

5. The selection of dates should be such that the sample is representative of the total trade

of member and also takes into account the exceptional cases.

6. 100% of clients trading on the dates selected should be verified for KYC, client

margining, client ledger accounting, issue of contract notes, deliveries and payment etc.

2.2.3.2 Criteria for selection of sample of clients:

1. From the inspection period, , the inspection team is required to select at least 50 clients

on the basis of the client turnover or 10% of clients registered during the period of

inspection whichever is higher.

2. The inspection team can increase this sample size if they feel so. In case of large firms,

representative sample size needs to be taken.

3. If a member has clients who trade only for a few days in a year, then all such clients

should be covered.

4. In respect of above such clients, all transactions including KYC norms to be verified. In

particular, it should be verified whether the transactions were in illiquid contracts and

with common clients / members.


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2.2.4. Use of such selection :

The inspection team is required to do 100% check of the aforesaid sample selection (dates / clients).

However, the above sample size may be suitably altered where circumstances so require (for eg: if the

total no. of clients with the member are only 25, then 100% selection of clients is warranted). The period

of sample may be such that it represents various market trends and the rationale for the selection of

sample period may also be recorded in writing in the inspection report.

2.3 Requirements from the Inspection Team after completion of Inspection:

a) After successful completion of the inspection, the Inspection Team should obtain a

confirmation from the Members that all the documents/records/registers/ information

provided to the Inspection Team are ‘True and Correct’.

b) All the documentary evidence(s) collected during the course of Inspection, which may be

used by the Inspection Team as Annexure to the Report, should be authenticated by the

Member on each page (to be Stamped & Signed by the Member). It is mandatory that

the documentary evidence(s) is/are authenticated by the Member. In the event of any

non-cooperation from the Member, the Inspection Team may approach the concerned

Exchange with the matter.

c) The Inspection Team should discuss all observations /discrepancies found during the

inspection and obtain the Member’s written acknowledgement on the observations

discussed. The same should be submitted to the Exchange along with the final Inspection

Report (Schedule II ). The Member must provide a written acknowledgement of the list

of observations raised by the Inspection Team. The Member may offer his views,

counter-views and comments on the observations, which may be attached with the

Inspection Report, as an Annexure.

d) The Inspection Team shall also be required to complete the inspection and submit a

report of inspection of the Member within the period as specified in appointment letter.

e) The Inspection Team is required to submit the Inspection Report in the format given

along with appointment letter by the Exchange. Any other information and findings

which the inspection team wishes to provide, may be provided in the end under the head

“Other information, if any” . The Inspection Report would need to be submitted

immediately following the completion of the Inspection, duly signed by the Inspection


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Team (i.e. the CA firm). The Inspection Team must ensure that the Inspection Report is

stamped and signed by the Member (i.e. Authorised Signatory – Designated Director /

Managing Partner etc.)

f) Each observation in the Inspection Report needs to be quantified, supported with

relevant documents which were inspected and should be accompanied with relevant

reference of the Rules, Bye-Laws, Business Rules, Bye-Laws, Circulars of the Exchange,

FCRA and FCRR etc. Wherever the Exchange has provided / prescribed the format, the

Inspection Team is required to use that particular format for providing the number of

instances for the violations observed from the sample selected. This observation does

not pertain only to items to which penalties are leviable. If possible, all quantifiable

violations should be quantified in order to enable the Exchange to take a view.

g) A fortnightly status report is expected from the auditors stating the progress of

inspection of each Member allotted to them.

2.4. Drafting of Inspection Report :

A draft format of Inspection Report is enclosed as schedule-II. The Inspection Report should be

submitted as per the schedule, both in hard copy and in soft copy (compact disk )


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PART C

INSPECTION COVERAGE


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CHAPTER III

Membership Requirements

3.1 Membership related requirements to be followed by each Member:

3.1.1 Networth Requirement:

a) Members are required to ensure that minimum amount of net-worth as prescribed by the

Relevant Authority/Exchange from time to time is maintained throughout the year.

b) In case, the member is having membership of more than one (1) Commodity Exchange and /

or any National Commodity Spot Exchange, the minimum amount of networth as prescribed

by each Exchange from time to time is required to be maintained throughout the year by the

concerned member. This has to be verified during the course of inspection and any violation

noticed should be highlighted.

3.1.2 Approval Requirements:

Every Member of the Exchange is required to take prior approval of the Exchange or will

promptly notify the Exchange in writing (as the case may be) about any change in the

information provided by the Member of the Exchange at the time of admission or at a later

stage to the Exchange as per Rules. Such changes includes:

(i) Change in constitution

(ii) Change in trade name

(iii) Change in share holding pattern / sharing pattern

(iv) Change in Dominant Promoter Group

(v) Change in Directors/ Managing Partners

(vi) Change in address (both registered and correspondence)

(vii) Change in contact details

(viii) Change in Compliance Officer / Principal Officer

Members are required to obtain prior written permission of the Exchange for any change in

shareholding /sharing pattern / Dominant Promoter Group (DPG) except when such change

in shareholding / sharing pattern:


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(i) Does not alter the shareholding /sharing of DPG constituents in percentage

terms

(ii) Does not lead to addition or deletion of a DPG constituent

(iii) Does not result in change in management/ control

3.2 Appointment of Authorized Person

An Authorized Person means and includes any person whether being an individual, (including

proprietors), a partnership firm as defined under the Indian Partnership Act, 1932, a Limited Liability

Partnership (LLP) or a body corporate as defined under the Companies Act, 1956 – who is appointed as

such by a Member of a recognized Commodity Derivative Exchange upon the approval of such

Commodity Exchange, for providing access to the trading platform of a Commodity Derivative Exchange,

an agent of the Member of the Commodity Derivatives Exchange.

It is generally noted that Members attempt to circumvent the requirement of registration of Authorized

Persons by treating Authorized Persons as their clients. The Inspection Team should analyze the accounts

of major clients of the Member to ascertain whether those clients are Authorized Persons which are not

registered with the Exchange as required. It may also be noted that the Members generally undertake

out-station business through Authorized Persons (unless they have branch in that area) and those are

not designated as such.

The Inspection Team may have focus on out-station clients having major business with the Member to

ascertain the violations of the Exchanges/FMC’s requirements. Whenever in doubt, the Inspection Team

should immediately refer to the database of the clients in case the Member claims that a particular

account is that of a client and not of an Authorized Person.

3.2.1 Eligibility for Authorized Person

An Individual (including Proprietors), Partnership Firm as defined under the Indian Partnership Act, 1932,

a Limited Liability Partnership (LLP) or body corporate under the Companies Act 1956 is eligible to be an

Authorized person of the Exchange subject to fulfilling below mentioned criteria:


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3.2.1.1 For an Individual:

a) Is a citizen of India

b) Is not less than 18 years of age

c) Has not been convicted of any offence involving fraud or dishonesty

d) Has not been suspended or barred by any Stock or Commodity Exchange for a period of

more than six continuous calendar months

e) Has a good reputation and character

f) Has passed at least 10th standard or equivalent examination from an Institution

recognized by the State /Central Government

g) Possesses such certification that may be required by the Commodity Derivatives

Exchange, as approved by the Commission from time to time

3.2.1.2 For a Partnership Firm/LLP/Body Corporate:

a) If all partners or directors, as the case may be, comply with the requirements contained

above

b) The object clause of the Partnership Deed or Memorandum of Association contain a

clause permitting the person to deal in commodities derivative contracts

3.2.2 The Inspection Team must also consider the following with respect to the Obligations of the Member:

i. The Member is required to enter into an agreement prescribed by the Exchange with

each of such Authorised Persons after receipt of communication of acceptance of such

Authorised Person by the Exchange.

ii. The Member will permit the Authorised Person to admit or introduce clients and accept

orders from the clients on their behalf only after execution of the agreement as stated

above.

iii. Members are responsible for all acts of omission and commission of his Authorized

Person and /or their employees, including liabilities arising there from.

iv. If any trading terminal is provided by the Member to an ‘Authorized Person’ the place

where such trading terminal is located will be treated as branch office of the Member.

v. The Member will display at each such branch office, additional information such as

particulars of Authorised Person, in-charge of that branch, terms and conditions of his


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appointment, time lines for dealing through Authorised Person etc. as may be specified

by the Exchange.

vi. Members are required to notify changes, if any, in the Authorized Person to all

registered clients of that branch at least thirty days before the change.

vii. In case of any change in partners/ directors, change in shareholding/sharing pattern of

the Authorized Person, Members are required to intimate the Exchange of the details of

the proposed change at least 30 days in advance in the format prescribed by the

Exchange.

viii. In case of any change in status and /or constitution of the Authorized Person, Members

are required to intimate the Exchange of the details of proposed change and submit all

the documents of the proposed change at least 30 days in advance in the format

prescribed by the Exchange.

ix. Members are required to conduct periodic inspection of branches assigned to

Authorized Persons and records of the operations carried out by them. The copies of

such inspection reports will be retained by the Member as a record for inspection of the

Exchange and/or FMC, if required.

x. It is the responsibility of the Member to audit the records of its Authorized Person to

ensure that they comply with the Rules, Bye laws, Business Rules and Circulars of the

Exchange issued from time to time.

xi. The clients dealing through an Authorised Person are required to be registered with the

Member only. The funds, monies, commodities, warehouse receipts etc. of the clients

will be settled directly between the Member and client. No fund/commodities of clients

will be deposited / transferred / credited into any account of Authorized Person.

xii. All documents like contract note, statement of funds and commodities would be issued

to client by the Member. Authorized Person will only provide administrative assistance in

procurement of documents and settlement, but are not allowed to issue any document

to client in its own name.

xiii. On noticing irregularities, if any, in the operations of Authorized Person, the Member will

forthwith seek withdrawal of approval, withhold all moneys due to Authorized Person till

resolution of client grievances, alert clients in the location where Authorized Person

operates, file a complaint with the police, and take all measures required to protect the

interest of clients and market.


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xiv. Members are required to ensure that no orders are executed by Authorized Person

before all documents as prescribed by the Exchange/commission as the case may be,

including Member Constituent Agreement, Client Registration Form and Risk Disclosure

Documents are obtained from each such client.

xv. Uploading of details pertaining to the Unique Client Code (UCC) is the responsibility of

the Member and the Authorized Person cannot create/allot such UCC to any client.

xvi. All documents as mentioned in xiv above should be made available with the Member for

the audit / inspection or as and when required by Exchange or the Commission.

3.2.3 Trading Terminal to Authorized Person

i. If any trading terminal is provided by the Member to the Authorized Person, the place where

such trading terminal is located will be treated as a branch office of the Member

ii. In addition to display of the notice board at the branch offices, members are also required to

display information regarding particulars of the Authorized Person in charge of that branch,

terms and conditions of his appointment, time lines for dealing through Authorized person, etc.,

as may be specified by the Exchange.

3.2.4 At the time of Inspection, the Inspection Team must consider the following points:

a) The system of sub-brokers by whatever name called is discontinued w.e.f from January

31, 2011. Members are allowed to provide access to their clients only through

“Authorised Persons” from the said date.

b) The Inspection Team must verify that the Authorised Persons appointed by the Member

are registered with the Exchange.

c) The Inspection Team must also verify that the Authorised Person(s) are assigned a

Unique Code by the Exchange.

d) The Inspection Team must verify that the Member has entered into an agreement

prescribed by the Exchange with each of the Authorised Persons after receipt of

communication of acceptance of such Authorized Person by the Exchange.

e) It must be verified that the Member has conducted periodic inspection of the branches

assigned to the Authorised Person(s) and records of the operations carried out by them,

as prescribed by the Exchange. It must also be verified that the audit of the Authorised


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Person(s) has been conducted based on the guidelines prescribed by the Exchange and

FMC.

3.2.5 Inspection team should verify the following:

The Inspection Team should verify following requirements with respect to Member Authorised Person

Agreement:

a) The Agreement should be printed on a non-judicial stamp paper of appropriate value and is

dated.

b) The Agreement should be filled completely and properly.

c) Date of Agreement should be after date of stamping and within six months of stamping.

d) The Agreement should be signed by sub broker , Member as well as witnesses.

e) All the pages of the Agreement should be signed.

f) Agreement should contain clauses prescribed by Exchange / FMC from time to time.

g) The Authorised Person is required to inform the Member of any proposed change in

directors, change in its status and constitution, change in shareholding/sharing pattern

along with the details of the proposed changes at least 45 days in advance in the format

prescribed by the Exchange.

3.2.6 Change in Authorised Person status:

The Member is required to intimate the Exchange any change in status and / or constitution, including

change in partners/ directors, change in shareholding / sharing pattern of the Authorized Person along

with the details of the proposed change at least 30 days in advance in the format prescribed by the

Exchange.

Further the Inspection Team must also analyse the accounts of major clients to ascertain that such

clients are not unregistered intermediaries. In the event of any doubt, the Inspection Team may cross-

check with the database of the client. The financial position of such clients vis-à-vis the correlation with

the volume of transactions may establish the claim whether the particular accounts are genuinely that of

a client and not of an unregistered Authorised Person being treated as a client.


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CHAPTER IV

Verification of Books of Accounts and Other Records

4.1 Maintenance of Books of Accounts/Documents/ Records

All Members of the Exchange as well as other market intermediaries are required to maintain such Books

of Accounts, Registers, Statements and other Records, in physical form or electronically, as may be

specified by the Relevant Authority and will be kept in good order and preserved at least for such period

as may be specified.

At the time of Inspection, the Inspection team should verify the following Books of Account / Records /

Registers / details, which are required to be maintained by the Member:

a) Order log /Order Book

b) Trade log

c) Trade File

d) Register of Transactions

e) Complaint / grievance register

f) Margin Deposit Book

g) General Ledger

h) Exchange wise separate client ledger

i) Clients Bills along with bill summary

j) Commodity register/ledger

k) Records in respect of premium/discount

l) Records in respect of brokerage

m) Journals (JVs)

n) Cash Book

o) Bank Book

p) Bank Pass Book/Bank Statements

q) Daily Margin Statement and Client wise Margin reports

r) Records of transaction of all purchases and sales of commodities / contracts


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s) Record of all statement received from the appropriate agencies and record of all

correspondence with them

t) Copies of all instructions obtained in writing from constituents including participants for

order placement, order modification, order cancellation, trade cancellation.(up to June

05, 2008) thereafter evidence of client placing / modifying / cancelling orders in any

form, which may include written or electronic or voice recording instrument, since

September 2009

u) Record of contract-wise Deliveries received / tendered.

v) Duplicate copy of Contract Notes issued to clients

w) Proof of dispatch of contract notes to the clients

x) Proof of receipt / delivery of Contract Notes by clients

y) Evidences of making payment to the clients on account of Mark-To-Market gains by the

clients

z) Any other books of accounts/documents/records as prescribed by the FMC, Exchange

and / or any relevant authority from time to time

The time period prescribed for preserving the above records / details as per applicable laws, rules, bye-

laws, statutory provisions etc. need to be looked into and the above records/ details be verified with

respect to such requirement .

It may be noted that a Member of the Exchange who is also a member on the National Commodity Spot

Exchanges, is required to ensure that separate ledgers are maintained for business done by clients on

Commodity Futures Exchanges and National Commodity Spot Exchanges.

4.1 (a). In case of Corporate Member, Inspection Team can also verify the Statutory Register as required

to be maintained under the Companies Act, 1956

1. Register of Members.

2. Register of Directors.

3. Register of loans

4. Register of Investment.

5. Register of Charges.

6. Register of Director’s Shareholding

7. Minutes of Board / Committee meetings, etc.


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4.2 Records in Soft Forms/ Systems

With computerization of Members' back office operations, some of these accounts and records may be

maintained by the Members in their Systems. Hence, the Inspection Team should confirm reliability of

such system and obtain the access to such system for effective audit.

4.2.1 Register of Transactions

All Members are required to maintain a register of transactions, which contains details of all trades

transacted by them. This is a basic record, which each Member is required to maintain regularly on day-

to-day basis. It contains the details regarding the name of commodity, name of the client on whose

behalf the deals have been done, rate and quantity of commodity bought or sold. These details are

maintained date-wise and include transactions related to both –

i. Member’s own business on the Exchange

ii. Member’s business on the Exchange on behalf of clients

The Inspection team may verify if all the transactions are recorded in the said register. Apart from this,

the transaction statements downloaded by the Members from the Exchange on a daily basis may also be

compared with transactions listed in register. The difference between the two may be on account of

Margin evasion, Open interest violations, Transfer of trades by the Member, which the Inspection Team

may include in the Inspection Report.

4.2.2 Client Ledger

Every Member of the Exchange is required to segregate and maintain exchange-wise client ledger.

This ledger contains the details of the bills raised by the Member on the clients and the payment

received from or made to them for trade executed and /or any other charges debited by Member to

clients. The Inspection Team must ensure that there has been no delay in making payment of funds /

delivering commodities to the clients. Payments / delivery to the clients in certain settlements may be

verified, on a sample basis, to ascertain delays.


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Inspection of this ledger can bring out delay in making payment or delivering commodities to the clients.

In instances wherein the Member offers explanations for delay in payment due to the instructions of the

client; the Inspection Team may verify the written confirmation from the clients to the Member in this

regard.

The Inspection Team may also notice other irregular accounts in this ledger which may be further

inquired. While reviewing clients’ ledger, if a continuous debit balance is observed, the Inspection

officials should ask the reason for the same. If the reply from the Member is not found satisfactory, the

same should be commented in their Inspection Report.

Consider the occurrence of an event wherein a Member happens to have membership of more than one

exchange in the commodity derivatives market. Moreover, the said Member accounts for receipts and

payments from one account and debits from another, solely for the purpose of convenience. In such

circumstances, the following points, with reference to the below mentioned cases, need to be kept in

consideration:

i. Case I: The Member’s Client is also a client of its sister concern which operates in a different

market (for e.g. equities market). In such cases, the balance of that particular Client in the

Member’s sister concern cannot be considered since they are separately regulated entities.

ii. Case II: In the event of the Member having membership in the same market (for e.g.

commodities market) but in different exchanges. In such cases, the Member must provide

evidence to prove the purpose and its necessity for maintaining such positions.

In addition to the above, the Inspection Team must ensure that the Member has passed the required

journal entries. The client ledger should be maintained Exchange-wise by the member. The Inspection

Team is also required to check that if one client account shows a debit balance and the other credit, it

must be verified whether sufficient margin was collected by the Member for the trades executed on the

Exchange.

4.2.3 Bank Book

All Members are required to maintain bank book for different bank accounts including own account,

client account, settlement account as opened by the Member. The inspection team must check the Bank

reconciliation statement of the member.


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4.2.4 Cash Book

All Members are required to maintain cash book for the transaction entered by them in cash.

The Inspection Team must inspect the Bank Book and Cash Book with utmost care as these books

provide an insight into the Member’s fund flow. The team may ask the Member for further details to

verify genuineness in the event of major cash receipt / payments being observed.

It must also be ensured that all client transactions are routed through the separate client bank accounts

and that funds are not intermingled between member’s account and clients account.

4.2.5 Margin Deposit Book

The Members are required to maintain a margin deposit book wherein details of all the margins

collected from the clients are recorded. Margin Deposits received by Members from their clients in any

form are required to be accounted for and maintained separately in segregated accounts and should be

used solely for the benefit of the respective clients’ positions.

4.2.6 Trade Log and Order Log

Members are required to download and save, on a daily basis, the files containing details of the orders

placed and the trades executed by them during the entire trading session of the day, available at their

Trading Work Stations (TWS) through File Transfer Protocol (FTP) at the end of the trading session.

4.2.7 Order Book

The member should also maintain an order book.

4.2.8 Trade Files

Trade file is downloaded by the Member from the Exchange on daily basis. This file shows the details of

all the transactions executed by a Member across all his terminals for a particular trading day. It shows

Trade date, trade no., order no., time of execution of a trade, quantity, rate, commodity code, Client ID

etc.


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4.2.9 Register of Commodity

A Member is also required to maintain a Register of Commodities where delivery taken/received

Commodity wise and client wise is maintained.

The Inspection Team must ensure that the Member has mandatorily complied with the Exchange

requirement of maintaining a Register of Commodities in the event of delivery being given / taken. The

details of delivery taken/received must be reflected as Commodity-wise and Client-wise in the Register

as prescribed by the Exchange. A sample format is furnished below:

Register of Commodity

Commodity

Contract Symbol

Date of receipt from the Exchange

Date of delivery to Client

To Whom delivered

Purpose

Quantity received from the Exchange in lots

Quantity received from the Exchange in Kg

Quantity delivered to the Client in lot

Quantity delivered to the Client in Kg

Balance Quantity

Price at which the commodity received

Whether received at Premium / Discount / or on price

Amount of Premium or Discount

Remarks

While scrutinising this register, the Inspection Team should analyse and verify that the Member has not

used the commodities delivered for the clients to meet its own obligations.

4.2.10 Register of Complaints

Members should maintain a register of complaint where the Member should keep a record of all written

complaints received from clients, showing the name and UCC of the client, date and particulars of the

complaint, action taken by the Member and whether the matter is referred to arbitration of the

Exchange, the particulars thereof must be mentioned as per Bye-laws, Rules, Regulations, Circulars of the

Exchange. The inspection team must investigate into the complaints, received form traders, other


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members of the exchange or any other person on any matter having a bearing on the activities of the

Exchange member.

The Inspection team should -confirm that the Member has maintained a Register of Complaints and that

no complaint in the register is pending for more than such number of days as specified by the Bye-laws,

Rules, Regulations, Circulars of the Exchange. In case the Exchange provide 30 days time line the

Inspection Team must provide the information in the sample format as given below with documentary

evidences / details in separate annexure.

Sr. No.

Client Name

Code

Complaints received on

Complaints Resolved Complaints pending more than

30days

Amount

within 30 days

After 30 days

Besides, the Inspection report must highlight the following points :

1. The Reason for pending complaints for more than 30 days.

2. Complaints which are referred to Arbitration.

3. Minutes of Arbitration hearing of the complaints.


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CHAPTER V

Agreements, Documents, Authorizations, etc.

5.1 Member-Client Agreement

5.1.1 Execution of Agreement

As per Bye-Laws/Rules/Regulations/Business Rules of the Exchange every Member of the Exchange will

enter into an agreement directly with all his clients before accepting/placing orders on behalf of clients.

5.2.1 Format of Agreement

Member-Client agreement must include provisions specified by the Exchange as per Bye-

Laws/Rules/Regulations/Business Rules. Further, it should include all the provisions as decided and

informed by the Exchange / Forward Markets Commission (FMC) from time to time.

As per Bye-Laws/Rules/Regulations/ Business Rules, Members are free to add more clauses in the

specified agreement; however, no additional clause should in any way dilute the content or purpose of

the clause stated in the specified agreement by the Exchange. The responsibility of the Member will not

in any way be reduced due to non-execution of agreement with the Clients.

At times, Member obtains letters from Client(s) to retain the Client’s funds till further instructions from

the said Clients. Blanket confirmations are taken for the purpose of maintaining running accounts, inter-

family account adjustments, and inter-Exchange balance transfers etc. which at times form part of the

KYC. In such circumstances, the Inspection Team must ensure that such documents are taken on

voluntary basis (i.e. non-mandatory) and must not form a part of any mandatory document like

KYC/MCA. No MCA clause should have such requirements.

The Inspection Team should also verify the following requirements with respect to Member Client

Agreement:

a) The Member-Client agreement has to be on a valid non-judicial stamp paper with

adequate value, duly signed by the parties to the agreement and must be complete in all

respects with the date of execution of the agreement.


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b) The Member Client Agreement should be as per format prescribed by the Exchange

c) The Member Client Agreement should be on valid stamp paper of appropriate value (as

per the requirement of the respective state)

d) The Agreement should be filled completely and properly

e) Date of Agreement should be after date of stamping and within six months of stamping

f) The Agreement should be signed by client, Member as well as witnesses

g) All the pages of the Agreement should be signed by the member and client.

5.2 Know Your Client (KYC) Forms / Client Registration Forms

The Members of the Commodity Exchanges have to complete all the details pertaining to the clients in

Know Your Client Forms and obtain all necessary documents in support to information provided by the

clients as prescribed in Bye-Laws/Rules/Regulations/Business Rule.

5.2.1 Format of KYC Form

a) When establishing a relationship with a new Client, Members of the Exchange must take

reasonable steps to assess the background, genuineness, beneficial identity, financial

soundness of such person, and his trading objectives by registering the client with them in the

format prescribed as Client Registration Form as per Bye-Laws/Rules/Regulations/Business

Rule.

b) The KYC form should include all the details as prescribed by the Exchange from time to time.

c) Members are advised to evolve and put in place an appropriate mechanism to assess financial

strength, performance tracking, trading pattern vis-à-vis their clients’ position and dealings in

respect of all clients.

5.2.2 Documents required from client(s) along with KYC form

Inspection Team is required to verify and comment as to whether KYC form has all the documents

(including copy of PAN card) as prescribed by the Exchange / FMC in this regard from time to time.

Further, in the event of Non Resident Indians / foreign nationals / foreign entities / foreign shareholders

trading in the commodity derivatives market; self-certified copies of statutory approvals in compliance


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with FEMA guidelines and by regulatory authorities like FIPB, RBI etc. are required to be available with

the Member.

However Members may exempt prospective individual clients, residing in the state of Sikkim from PAN

requirements. But the Members need to ensure that a system of proper verification exists to verify that

such clients are residents of the state of Sikkim.

The Inspection Team should also verify following requirements with respect to KYC Forms

a) Client registration documents are to be executed with any new client before commencing

transactions with the client.

b) The KYC should be as per format prescribed by the Exchange

c) KYC should be completely filled and signed by client (For example: details such as net worth,

details of introducer etc.)

d) Photograph should be pasted on the KYC forms

e) Photograph should be cross signed

f) It must be ensured that all the documents as mentioned above should be attached along with

KYC forms and should be self-attested by the Clients

g) All the documents must be verified against the original by the Member

h) Trades must not be executed before an account is opened

5.3 Risk Disclosure Document (RDD) and Investors’ Rights and Obligations (IR&O)

The Exchange has specified the format of RDD and IR&O in Bye-Laws/Rules/Regulations/Business Rule

through which the Clients are made aware, the risks associated with business in trading in contracts

listed in the Exchange including any limitations on that liability and the capacity in the Member’s acts and

the Client’s liability thereon.

The Inspection Team must verify that the Member has furnished a copy of these documents to all his

clients.


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The Inspection Team should also check the following requirements with respect to RDD and IR&O:

a. The RDD should be as per format prescribed by the Exchange

b. Date should be mentioned in the RDD

c. The RDD should be signed by the Client and a copy of the same should be maintained

by the Member.

d. IR&O is a part of the RDD and hence, the same should be dated and signed by the

Client and a copy of the same must be maintained by the Member.

5.4 Client Account Closure

In the event of any account being closed by the Member, the Inspection Team must verify that prior

written confirmation of the account closure request had been received from the Client and such written

request has been maintained by the Member in his records.

In the event that the account is closed by the Member, the Inspection Team must ensure that the

Member has maintained documentary proof / evidence of the same.

5.5 List of Do’s and Don’t :

As a part of KYC documents, it is advisable to give list of Do’s and Don’t for investor as prescribed by

the Exchange/ FMC to the new clients.


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CHAPTER VI

Clientele Transactions

6.1 Creation and allotment of Unique Client Code (UCC)

6.1.1 UCC Uploading to the Exchange

The Inspection Team should verify that Member has uploaded UCC details before execution of the trade

whenever a new client is registered, as per the Bye-laws/ Rules/ Regulations/ Circulars as issued by

Exchanges / FMC.

The Members of the Exchange have been informed with regard to uploading of UCC data by them prior

to commencing trading on behalf of a client. The said directives have been made applicable with effect

from October 17, 2011.

The penalty applicable for non-submission of UCC details will be charged on a daily basis. The Inspection

Team must verify that the details uploaded in UCC with Exchange is up to date with respect to address/

PAN details /Contact details and must also do the client verification at least of the top clients.

The Inspection Team may verify the UCC in the following manner: 1. Take the list of the UCC as created and maintained by the Member(s) in the back office

software 2. In case if the Inspection Team has any doubt on the list provided, the same may be sent to

the Exchange for verification 3. Verify the UCC details as per the Back-Office and as per the trade file 4. Report any Client Code(s) not uploaded on the Exchange platform 5. Verify the status of the said code and check trade(s), if any, in that code in the Back-Office 6. Ensure that the UCC must be uploaded in the Exchange before the execution of the trade 7. Verify the list of penalty charge by the Exchange in respect of non-submission of the PAN

or non-uploading of UCC details. The same can be obtained from the FTP 8. The Inspection team may adopt any other authentic method, other than the manner

suggested above, to achieve the desired results 9. The Inspection Team must note that no general remarks would be accepted. In the

event of non-applicability (N.A), specific remarks validating the same are to be mentioned .


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6.1.2 Verification of the data

The Inspection Team may send the details provided to the Exchange for the purpose of verification. In

the event of any violations, the Inspection Team should inquire the same with the Member. The reasons

for such violation(s) should be enquired with the Member and the same must be reported to the

Exchange.

6.1.3 Allotting Single Client Code

Members are not permitted to allot multiple client code to the single client. The Inspection Team should

verify that the Member is not allotting multiple client codes to a single client. In case, such cases of

multiple client code allotment are observed, identify the purpose and check whether the simultaneous

trades are executed in the same code and whether the code, if allotted erroneously, has been marked as

inactive.

6.2 Modification of Client Code

A special facility is provided to Members for client code modification by the Exchange. The same is

presented as below:

a) Member can change client ID of executed trades only in the post-closing session of that

commodity.

b) The system driven restriction has been implemented by the Exchange which do not allow

client code modification during intra-day.

The Inspection Team must check that Members have not indulged in modification of client codes

through their back office software after trading hours. The trade file received from the Exchange should

be compared with Transaction file of the Member. While verifying the client code modification, the

Inspection Team must also ensure the following:

1. The Member has not transferred the trades executed in the Client Code in to PRO code and

vice versa.


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2. In case the client codes have been modified, whether the Member has been involved in

assuring/providing guaranteed returns to the investors or in any activity that may be

termed as Portfolio Management Services or Portfolio Advisory Services

3. The Member was not involved in any client code modification which was not reported to

the Exchange. If modifications were done at the backend and not reported to the Exchange,

then whether the Member has indulged in off-market trading or any activity that may be

termed or included, in the purview of (Illegal) Dabba trading.

4. Modification of client codes, control has been provided in the Admin Terminal of the

member- brokers facilitating the main member broker to control the user who can be

permitted to perform this activity.

5. Inspection team must analyse, that member broker has entered correct client code while

placing the order and the modification of client codes should be used sparingly to rectify

bonafide mistakes or genuine errors and to minimum extent possible.

The Inspection Team must take note of the FMC/Exchanges directives on client code modifications as

may be applicable from time to time. The guidelines on client code modifications provided by FMC are

given as under:

1. The client code modification facility is allowed only for carrying out correction of genuine

punching error(s) in the client code.

2. The facility will be extended only during 5.00pm to 5.15pm in respect of contracts traded upto

5.00pm and during 11.30pm to 11.45pm for contracts traded upto 11.30pm on all trading days

except Saturdays. In respect of the trading days when the trading takes place up to 11.55pm the

client code modifications will be allowed only from 11.45pm upto 11.59pm. On Saturdays, the

same will be allowed between 2.00pm to 2.15pm. In no circumstances, changes in the client

codes will be permitted on the next trading day or thereafter.

3. Intra-day modifications of client codes other than as above will not be allowed.

4. Proprietary trades will not be allowed to be modified as client trade and vice-versa. Any violation

of this provision will lead to disciplinary action against the Member by the Exchange.


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The Inspection Team must take into account the directives issued by FMC in this regard from

time to time.

6.3 Brokerage

The Inspection team should check that Member has ensured that the total brokerage (including the

share of brokerage of the Member) payable by the client to the Member does not exceed the maximum

brokerage as prescribed by the Exchange from time to time exclusive of statutory levies. The Inspection

Team must also verify that no brokerage is shared with any entity other than registered Authorised

Person(s). The member broker shall levy brokerage on all the trades executed on behalf of its clients.

The Inspection team should also check whether the Member has shared brokerage with another

member of the Exchange or, an employee of another member of the Exchange or with whom Members

are forbidden to do business under the Rules, Bye Laws and Business Rules of the Exchange or with any

Member of other Exchange who is suspended or expelled or defaulting. Further if such sharing of

brokerage is found it should be mentioned in the inspection report.

In case the Member has transacted, the aggregate amount of brokerage charged by the Member to his

clients should not exceed the maximum scale of brokerage prescribed by the Exchange. The inspection

team should verify the same.

The Inspection Team should ask for the Brokerage Master from the Member which contains the slab of

brokerage. Records to be maintained in respect of brokerage collected separately from the clients. In

case of the sample Account opening form as inspected check the agreed brokerage slab between the

Member and Client.

Further the Inspection Team must obtain the trade file from the Member software in such a form that it

gives details in respect of the brokerage charged by the Member to the Client on the individual

transaction. On the basis of the same, the brokerage rate can be verified.

In case the Member has not charged the brokerage, though it is not an irregularity, it is suggested that

such transactions should be scrutinized in depth as this may turn out to be fictitious transactions meant


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for tax-planning or like exercises. Member should be asked to comment about the reasons which have

led to non-charging of brokerage.

6.4 Portfolio Advisory and Management Services

The Inspection Team should check that Members should not indulge in any Portfolio Advisory Services

(PAS), Portfolio Management Services (PMS) and such other services directly or indirectly (i.e. any act

of the Member which may be considered as PMS/PAS etc. though not clearly indicated by the Member)

as per the Bye-laws / Rules / Regulations/Circulars as issued by the Exchange / FMC.

Any document (i.e. booklet, leaflet etc.) that forms part of an advertisement is to be approved by the

Exchange.

6.5 Bank Accounts

All Members are required to open following three types of bank accounts.

a) Settlement bank account

As per Bye-Laws/Rules/Regulations/Business Rule , every Member of the Exchange is

required to have designated bank account (called settlement bank account) with any of such

branches of a designated Clearing Bank, which has electronic funds transfer facility.

Members are required to operate the Settlement account only for the purpose of settlement

of deals entered through the Exchange, for the payment of margin money and for any other

purpose as may be specified by the Exchange, where the Member can transfer funds to

Clients account from this account. Apart from such transfer, only the Exchange will have the

power to withdraw money from this account by way of direct debit instruction.

b) Client bank account

As per Bye-Laws/Rules/Regulations/Business Rule , the Member can deposit cheques

received from the Client and he should issue cheque/DD from this account to his Clients

towards their receivable amount in the Client bank account. The Member will have a cheque

book facility in this account and he will also be entitled to issue transfer instructions to the


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bank for transferring money from this account to the Settlement account to meet his pay-in

or margin obligations. Members are not allowed to use Client funds for their own

transactions or for transactions of any other client or for the purpose other than specified by

the Exchange.

c) Business/Own/Expense account

(i) All Members are required to ensure that they have maintained separate bank accounts

for their own account and Clients account.

(ii) As per Bye-Laws/Rules/Business Rule, the Exchange Member will at all times keep the

money of the Constituent in the Member Clients account maintained with the Clearing

bank.

(iii) Client funds should not be deposited in this account.

The Inspection team should verify that the Member has maintained all these accounts as per

requirement of the Exchange.

Review of Client /Own bank

While reviewing the bank accounts, the Inspecting officials should consider the following:

a) As per Bye-Laws/Rules/Regulations/Business Rule, every Member maintains the

Constituent/client funds in the Member Clients’ account maintained with the Clearing bank.

He is not using this money for his own transactions or for transactions of such other client or

for any purpose other than margin and pay in relating to transactions entered into by such

client paying the margin.

b) All monies received from the clients and all the payment made to the clients should be

routed through the clients’ bank accounts. Whenever Member trades as a principal (Pro

trade), he cannot use funds in the client’s account for payment.

c) Every Member who holds or receives money on account of a client is required to forthwith

deposit such money in the designated clients account.

d) No money should be withdrawn from clients account other than money required for

payment towards payments of a debt which is due to the Member from clients or money


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drawn on clients’ authority or money in respect of which there is a liability of clients to the

Member, provided that the money so drawn should not exceed the total of the money so

held for the time being for each such client.

e) Member should not use clients’ money for making payment for office expenses such as

salary, telephone bills, TDS payments, purchase of office equipment etc. It should be noted

that amounts withdrawn from client bank to own bank on account of brokerage, should be

an amount due to the Member towards brokerage receivable from clients on transactions

entered into with clients.

f) Members are required to make all payments towards the office expenses, purchase or sale

of any fixed asset etc. from their own account and not from client account.

g) Ensure that funds are received from respective clients’ accounts only.

h) Authorisation should be obtained from clients for deposit of their collaterals with exchange

/ clearing corporation towards margin.

It is the responsibility of the Members to use clients’ funds only to meet exchange obligation on their

behalf for trading in commodity market. The money collected from clients should be on an ad hoc basis

and not on requirement basis.

Before starting review of client bank account, the Inspection Team should understand the accounting

treatment given by Member for funds related entry in client /own bank account. Further the amount of

money transferred from client account to own account should not be more than total brokerage charged

by the member.

While examining client bank book, if non- segregation of clients funds & own funds and mis-utilisation of

clients’ funds are observed, the reason for the same should be understood from the member and

accordingly the same should be reported in Inspection report. Further in case fund is transferred from

the client fund to the own fund ensure that it should not be higher than the amount of brokerage of the

member.


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6.6 Handling the Commodities of Clients for Deliveries

Type of Demat Account:

All Members are required to open two accounts with their Depository Participants for handling the

receipt and deliveries of commodities in demat form. They are:

a) Beneficiary Owner (BO) Account:

It is opened by an investor or a Member of the Exchange who wants to hold and transact

commodities through dematerialized warehouse receipts. The beneficial owner account can

be opened in the name of Individual, Corporate, and Registered Trusts etc.

b) Pool account:

It is popularly known as CM Pool Account. In CM Pool account clearing Members are

authorised to make pay-in and receive pay-out from a Clearing Corporation / Clearing House

against trades done by them or their clients. This account is meant only to transfer

commodities to and receive delivery of commodities from the clearing corporation/clearing

house and hence, the Member does not have any ownership (beneficiary) rights over the

commodities held in such an account.

A Clearing Member (CM) is required to open both Clearing Member (Pool) Account as well as a BO

Account with each of the depositories (i.e. NSDL and CDSL).

Members are required to maintain a proper record of all commodities received and delivered from their

Pool Account and transferred to BO, if any. Further Member should preserve acknowledged copies of the

Delivery Instruction Slip (DIS) given/to their DP for transferring the commodities from the Pool Account

to the clients’ account after Pay-out from the Exchange. The Inspection Team must also ensure that the

Member has kept the Register of Commodities and details of premium and discount, in case of delivery.


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6.7 Margin Collection

As per Bye-Laws/Rules/Regulation/Business Rule, the Member is required to collect 100% margin from

his client that the member has to provide in respect of the business done by the member for such client

before entertaining any order from him. It must be verified that 100% upfront initial margin has been

collected by the Member from the Client before the execution of the trade. The Inspection Team must

also verify that the margin has been collected in the form prescribed by the Exchange and that the

margin money of a client has not been used for another client. It must be also verified that the margin

collected by the Member from Clients are highly liquid in nature and in the beneficial ownership of the

depositing Client. The clients shall be necessarily required to be the beneficial owner of pledged

securities offered as permissible collaterals. In cases, where the client is not the beneficial owner of the

pledged securities offered as collaterals, the Member is not supposed to utilize such securities for

meeting the obligations of the client without obtaining a written consent for the same from the

holder/owner of those pledged securities offered as collaterals.

It may be noted that a Member of the Exchange who is also a member on the National Commodity Spot

Exchanges, is required to ensure that they should not allow any cross margining between exposure of a

client on Commodity Futures Exchanges and National Commodity Spot Exchanges.

The Inspection Team must also verify the source of the margin. In the event that securities are accepted

from the Client, it should be verified that the securities have been accepted from that particular Client

account itself. In the event that the Member had accepted any third-party collateral, it must be verified

that the same has been obtained along with the authorization letter from the third party.

The Inspection Team may verify the Margin shortfall in the following manner:

1. The Exchange provides Margin files to the Members at the end of each day. These files

contain details of the margin that is needed to be collected from the Client in respect of the

Client’s open position during that day. A sample format of the margin file is furnished on

next page which may be prescribed by the exchange:


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Date Member ID

User ID

Client / Pro

Client / Pro Code

Regular Margin

Additional Margin

Tender Margin

Delivery Margin

Spread Benefit

Total Margin Required

2. The Margin calculation must be made available in the form of ledger balance, securities,

Fixed Deposits etc., as may be prescribed by the Exchange.

Margin has not been collected / partially collected in ---------instances as mentioned below (Annexure 1):

3. The margin short-collection must be reported.

4. In the event that the Client has a debit balance or no balance, in such cases, the shortfall

amount would be the amount of margin required. For example, if the margin requirement of

a particular Client is Rs. 1,000 and the said Client has a debit balance of Rs. 500, the shortfall

amount would be Rs. 1,000/- and not Rs. 1,500/-

Accounting of Margin Deposit

a) Margin deposits received by Members from their Trading Members and clients in any form

will be accounted for and maintained separately in segregated accounts and will be used

solely for the benefit of the respective clients’ positions.

b) As per bye-Laws, Margin accounts of clients of the Members will be marked to market daily

by Trading-cum-Clearing Members and further margin should be collected when necessary

to maintain the appropriate margin.

Sr.

No

Trade

Date

Client

Code

Client

Name

Margin

required

(1)

Client

Ledger

Bal.

(Dr/Cr)

(2)

Margin

Ledger

Bal

(Dr/Cr)

(3)

Non-Cash Collateral (after haircut) Total

Margin

Collected

(5=2+3+4)

Short

Collecti

on (1-5)

BG FDR Securities Others Total

(4)


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Utilization of Margin Amount and Margin Call

The margin account of Trading Members is required to be utilized by clearing Members only for settling

the dues to the clearing Member upon marking-to-market or for fulfilling the obligations resulting from

their open positions.

a) As per Bye-laws, the member may close out an open position of a client when the call for

further margin or any other payment due is not complied with by the client;

b) As per Bye-laws Members are required to furnish their clients in writing such reports and at

such intervals for margin collection and its utilization as may be specified by the Relevant

Authority.

c) As per Bye laws no member will directly or indirectly enter into any arrangement or adopt

any procedure for the purpose of evading or assisting in the evasion of the margin

requirements prescribed under the Bye-Laws, Rules and Regulations or any orders issued

there under.

6.8 Cash Dealings

Member should not accept/give cash from /to clients for their transactions.

All payments will be received/made by the members from/to the clients strictly by account payee

crossed cheques /demand drafts or by way of direct credit into the bank account through EFT, or any

other mode allowed by RBI. The members are required to accept cheques drawn only by the clients and

also issue cheques in favour of the clients only, for their transactions. However, in exceptional

circumstances, a Member may receive/make payments in cash, to the extent permissible under the

Income Tax Laws as may be in force from time to time.

During the inspection, if the Inspection Team observes instances wherein Demand Drafts have been

accepted, then the Inspection Team must check whether the Member has conducted due diligence

while accepting Demand Drafts. In addition, the quantum of the Demand Draft collection needs to be

ascertained and the type of clients who have provided the same. The Inspection Team must provide

comments accordingly.


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Further, the Members of the Exchange were notified that

1. If the aggregate value of the pre-funded instruments like Demand Draft/Pay Order is Rs

50,000 (Fifty Thousand) or more per day per client, the Member may not accept the

instrument unless the same is accompanied by the name of the bank account holder and

number of the bank account debited for the purpose, duly certified by the issuing bank. The

bank certificate will be any one of the following:

a. Issuing bank will certify on its letterhead or on a plain paper with its seal duly affixed;

b. Copy of the requisition slip duly certified by the bank which issues the instrument;

c. Copy of the passbook/bank statement as proof of the account debited to issue the

instrument;

d. On the reverse side of the instrument, the bank account-number debited and name of

the account holder will be authenticated by the issuing bank.

2. In respect of electronic fund transfers, Members are required to maintain an audit trail of

the funds received through such transfers to ensure that the funds are received from their

clients only.

The Inspection Team must ensure that the Members have developed a monitoring

mechanism through internal audit and inspections to ensure compliance with the aforesaid

directions.

The above directives are applicable with effect from October 04, 2011. The Inspection Team must take

note of the same at the time of Inspection and accordingly verify the records.

6.9 Issue of Statement of accounts/funds to Clients

Disputes can arise between the Member and their clients pertaining to payments due to /from the

clients. This may be due to non-submission of statement of accounts / funds by the Member to the

clients on a regular basis.

All Members are required to send statements of funds (with error reporting clause) to all clients, with

periodicity not exceeding three months. Members are required to send a quarterly statement of


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accounts for settlements and margins to all clients containing error reporting clause indicating as

mentioned below:

“Contents of this statement will be considered correct if no error is reported within 30 days of receipt of

statement.”

Further, a detailed statement of account should be sent every month to all the clients in physical form, if

he has entered into a minimum of three transactions in that month. The proof of delivery of the same

should be preserved by the Member. This requirement is applicable wef February 23, 2011.

6.10 Unutilized Balances

The Inspection team should check if there are large unutilized balances over a long period of time for any

clients and should seek proper explanation from member with respect to unutilized balances.

In case of the top 25 clients give the details of the credit or debit in the form of below mention form

Client Code Name of the Client

Credit / (Debit) Balance

O/s Less than 30 days

>30 days and < 60 days

> 60 days and < 90 days

> 90 days

6.11 Inactive Clients

A client is considered as Inactive Client if he / she has not executed any trade during the last 12 months.

Members are required to follow the below mentioned guidelines with respect to inactive clients:

i. The Members should keep close watch on such accounts.

ii. The Members should accept trades in these accounts only on completion of below

mentioned compliances:

a. An undertaking having specific written request from the clients to re-open their

inactive trading account


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b. If there is no material change in KYC information (such as address, bank account,

PAN no. etc.) provided by the client at the time of opening their account with the

member then in such cases instead of taking KYC formalities again, Member may

take undertaking from the client mentioning:

He has already completed KYC formalities at the time of originally

enrolling with the member

There is no material change in respect of the information contained in

the said KYC.

iii. After completion of above mentioned compliances, the Member may execute the orders

on behalf of such clients in the same client code i.e. the client code issued earlier by the

member to the concerned client.

iv. If trade takes place in such inactive account without following the above procedure, the

same would be treated as members‘ proprietary trade for all practical purposes and also as

misuse of client‘s UCC.

The Inspection Team must understand the mechanism of identifying inactive clients from the Member

and should seek proper explanation with respect to inactive clients found with the Member. The

Inspection team may adopt any other authentic method to achieve the desired results The Inspection

Team must note that no general remarks would be accepted. In the event of non-applicability (N.A),

specific remarks validating the same are to be mentioned.


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CHAPTER VII

Trading System

As per Bye-Laws/Rules/Regulations/Business Rule, a Member will not, permit itself or any other

person(s) to:

a) Use the software provided by the Exchange for any purpose other than the purpose as

approved and specified by the Exchange

b) Use the software provided by the Exchange on any equipment other than the

workstation approved by the Exchange

c) Copy, alter, modify or make available to any other person the software provided by the

Exchange

d) Use the software in any manner other than the manner as specified by the Exchange.

e) Attempt directly or indirectly to decompile, dissemble or reverse engineer the same.

7.1 User Id and Approved Users

7.1.1. Approved users

a) For every TWS to be used by a Member, he is required to obtain registration of the

Approved User in the specified format who will be responsible for such TWS.

b) Such Approved Users can be his own employees responsible for such TWS.

c) Before termination of such Approved Users, the Member is required to obtain prior

permission of the Exchange.

7.1.2. User ID

a) No user ID should be given by Members to any persons who have not been registered by the

exchange as approved user so that the risk in the market is reduced.

b) Members may also ensure that no client of the member or an unauthorised user is trading

on behalf of a client.

The Inspection officials may conduct physical verification of terminals and identify that the User IDs

allotted by the Exchange are used by approved users. If any mismatch is found, the same should be

reported to the Exchange.


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7.2 Internet Based Trading (IBT) ( for the Exchanges applicable) :

a) The Members are advised to comply with guidelines such as Network Security, Risk

Management, Order matching etc.

b) The Inspection Team may verify that the Member has installed the necessary safeguards and

access restrictions to prevent unauthorised use of Members computer systems and ensure

that no unauthorised person can gain access to the computer systems.

c) Members are mandatorily required to undertake periodic audit of their Computer to

Computer Link (CTCL) and Internet based Trading systems.

7.3 Computer to Computer Link (CTCL)

7.3.1. Development of CTCL Software

Members of Exchange are allowed to develop their own trading front end (CTCL) software in-house using

the API of the Exchange or procure CTCL software from Non-empanelled vendors. Exchange will provide

the technical specifications (message formats/protocols etc.) i.e. API for the interface with the Exchange

trading system after submission of application form, undertaking and the documents.

The Exchange permits only single CTCL ID per VSAT and Leased Line on which CTCL facility can be used.

Members will not be permitted to use any other user id for the purpose of CTCL.

7.3.2. Some of the guidelines/requirements for use of CTCL terminals

Following are some of the requirements for the use of CTCL terminals:

a) Members developing CTCL software in-house/procuring CTCL software from Non-

empanelled vendors are required to pay prescribed charges to the Exchange from time to

time.

b) Members are required to provide list of approved persons who would handle each CTCL

terminal of the Member. Approved person may be an employee or any Authorised

Person of the Member who has been approved by the Exchange. Members will not


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entrust the CTCL terminals to their clients or to any unregistered intermediary other than

Approved Persons. Necessary written approval of the Exchange is required to be

obtained before CTCL terminal is entrusted to an Authorised Person, failing which it will

be treated as violation.

c) A Member will also ensure to undertake periodic audit of their systems.

7.4 Terminal Location

a) As per Bye-Laws/Rules/Regulations/Business Rule, Trading on the Exchange will be

allowed only through approved Workstation(s) located at approved locations for the

office(s) of a Member.

b) If an approved workstation of a Trading Member is connected by LAN or any other way to

other workstations at any place it will require an approval of the Exchange. For every

TWS, a member will be required to specific permission from the Exchange and obtain

user id in advance.

c) The Inspection Team may verify the trading terminals installed at the places which are

intimated to the Exchange and the Members have ensured compliance with the

guidelines prescribed by the Exchange with regard to installation of trading terminals at

the Member offices. If any mismatch is found, then they should report the same to the

Exchange.

The Member undertakes not to develop or use any software / program which will either directly or

indirectly facilitate orders to cross trades of their clients with each other. All orders will be offered to the

market for matching.

The Inspection Team may verify the CTCL Terminal details in the following manner:

1. Obtain the list of the valid user from the Admin Server of the member.

2. Take the list of the user from the Exchange

3. Verify the below mentioned details:

a. User as per the Exchange and user as per Admin data base

b. CTCL ID as per Exchange and CTCL ID as per the Admin

c. Location of the terminal as uploaded in the Exchange and as per the Admin

d. 12 digit code is formatted as follows for e.g. if the terminal is provided at Borivali (West)

at HO which is the 1st terminal of the member than 12 digit should be like


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6 digit pin: “400092”

3 digit branch code: “001”

3 digit terminal code: “001”

Hence the 12 digit should by “400092001001” . (The sequence of 12 digit code may

differ from Exchange to Exchange). The Inspection team would need to verify that

whether the pin code as per the 12 digit is matching with the location of the terminal or

not.

e. Check the relation as described in the admin data. It should be provided to person to

whom the exchange has granted the permission. For e.g. if on or after abolition of the

Sub-broker the relation specify in the terminal user is sub-broker than same should be

considered as violation.

7.5 Antivirus Software

Members should ensure that:

1. Operating system (Windows) of their respective Desktop/Laptops used for Exchange

trading is updated with the latest security patches released by the operating system

vendor (Microsoft). The members can ask their systems personnel or their hardware

vendor to update the systems with the latest security patches.

i. Standard anti-virus software is loaded on their systems.

ii. Update the antivirus software with the latest virus signatures periodically. The

periodic updates for the antivirus are available on the respective anti-virus vendor

websites.

2. Use good anti-virus software on your systems.

3. Update the antivirus software with the latest virus signatures every week. The weekly

updates for the antivirus are available on the respective anti-virus vendor websites. The

Inspection Team must verify that the antivirus software for the Admin terminal is the

latest and is updated.

7.5.1. Regular backup of important data on the systems.

1. The Inspection Team must verify the backup register of the Member and the periodicity

of the backup.


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2. It must be ensured that Members do not download executable files from non-trusted

sources on the Internet or from emails.

3. Internet users should have desktop firewalls to protect their systems against

unauthorised access from the Internet. Members planning to use personal/desktop

firewalls are requested to contact Exchange systems personnel for the necessary

information required to allow Exchange Trader Workstation to communicate to the

Exchange.

4. Members having corporate internet access like Internet Leased line, Cable Internet, ISDN

or other types of always on Internet connectivity should use firewalls to protect their

networks from malicious and unauthorised access arising from the internet.

Further, the Member is required to ensure that he has installed antivirus software which is capable to

take care of operating systems and in case of members using internet for trading has installed firewalls to

protect their networks.

7.6 Pro-Account Trading Terminals

7.6.1 No. of Terminals

a. The Members will place orders in ‘Pro-Account’ / OWN Account from not more than 2

terminals from one location and details of the terminals will be informed to the Exchange in

the format.

b. Trading terminals other than the above will have a facility to place orders only for and on

behalf of a client by entering client code details as required / specified by the Exchange /

FMC. Further, Member desirous to have facility of placing ‘Pro-Account’ / OWN Account

orders from more than one location, the Member has to submit an undertaking in the

format, to the Exchange stating the reason for use of such facility from multiple locations.

The Exchange may on case to case basis consider extending the facility of allowing use of

‘Pro-Account‘ from more than one location; further, such permission will not be given for

more than 5 terminals for a member across all locations for this purpose.


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c. If any Member, undertaking pro-account trading for arbitrage, desires to place pro-account

trades through more than 2 terminals in one location or more than 5 terminals across all

locations, then he is required to submit a request to the Exchange stating the reasons for

the same.

d. While placing an order on the Exchange platform for purchase / sale of contracts in the

trading system, Members are required to choose the Account type’ option as ‘Own’ while

placing orders for proprietary trades. Members are advised to strictly use ‘Own’ account

facility for trades to be executed for their proprietary account. No client code including

client code styled as OWN / PRO should be allotted for proprietary trading.

e. Members are not allowed to modify proprietary trades into client trade and client trade into

proprietary trades.

7.6.2 Approval from Exchange

a) The Members having CTCL terminals are required to obtain approval from the Exchange for

Pro-Account trade facility.


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CHAPTER VIII

Contract Notes

The Contract note is a document through which a contractual obligation is established between a

Member of the Exchange and its client. This is the prime document on the basis of which all the dispute

between the Member and his clients are settled.

Every Member has to issue contract notes to his clients for the commodities traded by him on behalf of

them in compliance of, Rules, Bye-laws, Regulations, Business Rule and Circulars issued from time to

time.

8.1 Requirements on Issue of Contract Notes to Clients

Following are the some of the requirements from Member of the Exchange to follow on issue of Contract

notes to their clients:

a) Members of the Exchange are required to issue contract note for each of the

transactions done by them for their respective clients on the trading system of the

Exchange. Members are not allowed to issue contract note for any transaction, which has

not been executed through the trading system of the Exchange.

b) Contract notes should be issued strictly as per the format prescribed by the Exchange.

c) The Members are required to issue contract notes to clients, which are serially

numbered. The contract notes issued to the clients are required to be numbered with

unique running serial number commencing from one which will be reset only at the

beginning of every year. The Inspection team should verify that contract notes are not

left blank as the same may be utilized by Members to accommodate certain

malpractices. In such scenarios, the Inspection team should test check the contract notes

for the last one week or so prior to the date of inspection to ascertain such malpractices,

if any, on the part of the Member.

d) Members are required to charge brokerage separately and the same is indicated

separately from the price in the contract note.

e) The Contract notes are required to be signed either by the Member himself or by the

authorised signatory.


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f) Members are required to dispatch contract notes within 24 hours of execution of the

trade.

g) Member may also issue digitally signed contract note / confirmation slip at the request of

his constituents subject to the compliance of all the provision of Information Technology

Act. 2000. If the Member is issuing digital contract notes then it should be authenticated

by digital signatures from certifying authority as per Information Technology Act, 2000.

h) The Member should obtain a written consent from their clients for issue of digital

contract notes to their clients.

i) Member should keep necessary log reports if digital contract note have been issued to

the clients, further, Member should issue physical contract notes at their request.

j) The Member is required to maintain and preserve proper record for dispatch of contract

notes to the clients if the same are dispatched through post, courier etc.

k) Every Member will maintain and preserve counterfoils or duplicate of the contract notes

issued to the clients for a period of three years.

l) The Member should print UMC (Unique Membership Code) on Contract note along with

its Membership no. obtained from the Exchange.

m) The Members are also required to print the Unique Client Code (UCC) allotted to the

client along with name and address of clients on the contract note.

n) Contract Notes must be dispatched within 24 hours of the transactions made by or on

behalf of the client and the proof of delivery of the same needs to be preserved by the

member.

The members are required to comply with the following:

i. Members will dispatch the contract notes within 24 hours of the transaction.

ii. All contract notes issued to the individual investors other than the corporate investors

will be in physical form.

iii. The delivery of the contract notes should be at the address of the client. Delivery of

contract notes to an address (either email or physical address) other than that of the

Client will be deemed to be non delivery of the contract notes.

iv. The proof of the physical delivery of contract note need to be preserved by the Member.


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The Inspection Team must note that w.e.f. July 20, 2011 following revised instructions pertaining to the

delivery of contract notes to clients are applicable:

i. Contract Notes must be dispatched within 24 hours of the transactions made by or on

behalf of the Client and the proof of delivery of the same needs to be preserved by the

Member.

ii. The delivery of contract note to a Client must be in physical form only, unless a Client

specifically indicates his preference for contract notes in electronic form.

iii. If any Client needs electronic contract note (ECN), he has to be provided with an 'ECN

declaration form' via email as per the format and defined procedure.

iv. The ECN declaration form should normally be in English. In case a Client is not conversant

with the English language, the Member has to provide the ECN form which should be bi-

lingual i.e., in English and the local language known to the applicant.

v. The Member is required to obtain the above declaration from the Client afresh before

1st April of every financial year by following the same procedure. Thus, such declaration

would be valid for that financial year only.

vi. Members were required to follow the above process for their existing Clients also and

time of 2 months was provided to them to comply with these directives.

vii. The Client also has the option of revoking the ECN facility and opting for the contract

note in the physical form only by giving 7 working days’ notice to the Member. The copy

of the same is required to be retained by the Client.

It may be noted that, a Member of the Exchange who is also a member on the National Commodity Spot

Exchanges, is required to ensure that they should issue separate contract notes for trades on Commodity

Futures Exchanges and National Commodity Spot Exchanges.

The Inspection team may verify the trade file received from the Exchange and match the same with

Transaction file of the Member and contract notes issued to clients. This will enable the Inspection Team

to check whether the Member has indulged in any modification of client codes through their back office

software after trading hours. Further, the inspection officials can verify the corresponding entries in

client ledgers as per trade files. Any mismatch in trade files and contract notes should be examined

carefully, the reasons for mismatch should be identified and the same should be reported to the


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Exchange. The Inspection Team must also verify that the Member has not been issuing consolidated

contract notes to the clients.

If such practices are observed the detailed working of the same should be mentioned in the Inspection

Report. Further such observations should also be verified with respect to margin evasion practice and if

found so should be reported in the Inspection Report.


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CHAPTER IX

Miscellaneous

Inspection Team is suggested to verify/check the following:

The Inspection Team should check if any disciplinary action has been taken against member and if such

actions are found the details of the same should be mention in the inspection report.

9.1 Trading Activity

Each Member should ensure that they will not undertake their trading activities with /on behalf of any

Member of the, who has been suspended, expelled or declared defaulter by the Exchange / FMC / SEBI /

NSE / BSE or any regulatory body/authority

9.2 Internal Review

Members should ensure that adequate internal review of their business to assist in detecting and

preventing violations of and achieving compliance with Rules, Bye Laws, Regulations, Business Rules and

Circulars of the Exchange.

9.3 Notification to the Exchange

As per Bye-Laws, Members should notify the Exchange of any incident, which may endanger member’s

financial strength or interfere with member’s ability to conduct its business in the best interests of the

Exchange. The Inspection Team should verify and mention in the inspection report if such incidents are

not intimate to the Exchange.

9.4 Display of Notice Board

The Inspection Team must verify the following requirements:

All the Members of the Exchange are required to display Notice board at prominent place in the

prescribed format.

Members are also required to ensure that copy of registration certificate issued by the Exchange is

displayed at the Head office and branch offices.


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The details of the Authorised Person(s) must be duly displayed on the notice board at the branch location

where the Authorised Person is located.

9.5 Stamp Duty and Service Tax

The Inspection Team need to verify and comment on whether the member has paid Stamp Duty (in

accordance with the relevant Stamp Act) and Service Tax to the relevant authorities and whether there

are any pending dues.

9.6 Statutory Dues

The Inspection Team needs to verify and comment on the status of statutory dues and whether there are

any pending dues.

9.7 Exchange LOGO/Emblem

Members should not use logo/emblem of the Exchange in any form while publishing material or

stationery:

Members are also prevented from using the logo or emblem of the Exchange in any of their publicity

materials without express permission of the Exchange.

9.8 Advertisement

a) Member of the Exchange are permitted to issue advertisements to advertise their

products and services offered to their clients.

b) The Exchange has prescribed guidelines for advertisements. Hence, the Inspection Team

should verify whether Members have issued/circulated/published advertisement as per

guidelines prescribed the Exchange or relevant authority from time to time. The

Inspection Team must obtain the details from the Exchange whether any letters of non-

compliance towards the same were issued for publishing an advertisement without

Exchange approval.


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9.9 Circular Trading, cross deals, price rigging, price manipulation and other market Abuses:

As per Bye-Laws/Rules/Regulations/Business Rule, the Inspection team should verify if there is circular

trading, cross deals, price rigging, price manipulation and other market abuses and should mention in the

inspection report with appropriate supporting documents including working on the same in the

Inspection Report.

The Inspection Team should also verify transactions wherein the buyer Member ID and the Seller

Member ID are the same. On a test check basis, verify if any wash trades or cross deals are reported and

ensure that the Member is questioned on the same and the same to be reported.

9.10 Previous Audit Observation:

Check details and status of irregularities/observations of the last inspection / audit conducted and also

whether such violations / irregularities are still continued or have been rectified. Please provide the

details in the following format:

Sr.

No.

Violations / Irregularities

observed in the earlier

inspection (give reference)

Details of the penal action

taken by the

Exchange/FMC

Present Status (whether this

violation/irregularity is still

noticed in this inspection)

9.11 Certified Commodity Professional Courses :

Members are advised to enroll for Certified Commodity Professional examination as may be prescribed

by the Exchange from time to time. The Inspection Team must physically verify the person who has been

Certified and ensure that the Certificate actually is in their name.

9.12 Code of Conduct for Members

All Members are required to at all times abide by CODE OF CONDUCT of the Members as defined in Bye

Laws of the Exchange.


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9.13 Compliance with Regulatory Directives

The Inspection team must verify that Members comply with the directives issued by FMC and the

Exchange from time to time. This inter-alia includes margin requirements, trading restrictions, base

minimum capital etc., Submission of audit reports along with the annual accounts to the Exchange and

payments of transaction charges are other requirements. Further, the Inspection team is suggested to

verify the following:

a) The Member has not transacted with suspended/defaulter/debarred Members or any

other Members by SEBI/BSE/NSE/other stock/commodity exchanges.

b) The Member does not have any dealings with unregistered sub-Members.

c) Real time trading in a commodity by opening the terminals of foreign commodity

exchanges in India without prior approval of the Central Government or FMC, as the case

may be, would be deemed as illegal and persons entering into such contract would be

punishable under Section 21 of the FCR Act, 1952.

d) No Member will trade for the purpose of creating or inducing a false market in

commodity.

e) With respect to the FMC directives on the segregation of BPO/KPO services from the

Commodity Derivatives Market, kindly refer Point 9.18 on the same.

9.14 Appointment of Compliance Officer

a) It is mandatory for every Member to appoint a Compliance Officer who will be responsible

for monitoring the compliance of the member in respect of various circulars, guidelines,

notifications, etc. issued by the Exchange / FMC or any other relevant authority from time to

time and keeps the Exchange informed of the appointment of a Compliance Officer. It is

necessary that the Exchange be also informed for any change in the Compliance Officer.

9.15 Adherence to Anti Money Laundering norms

a) Appointment of Principal Officer: Members / intermediaries are required to designate a

senior management officer as Principal Officer, who will be responsible for monitoring and

reporting of all transactions and sharing of information as required under the law. The name,

designation and address (including e-mail address) of the ‘Principal Officer’ should be


_________________________________________________________________________________

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intimated to the Office of the Director-FIU, 6th Floor, Hotel Samrat, Chanakyapuri, New Delhi

– 110021. The Inspection team must ensure that the Member has appointed a Principal

Officer as prescribed.

b) The Inspection team must ensure that client mapping is done by the Member and is

maintaining a track of suspicious transactions.

c) It must also be ensured that the Member adheres to the Anti Money Laundering norms.

9.16 Submission of Annual Returns

Members activated for trading as on 31st March of any year, are required to submit Annual Returns to

the Exchange for the financial year ending on such 31st March.

Annual Returns are required to be submitted within the due date as prescribed by the Exchange from the

end of respective financial year. Members are required to submit the documents in the format

prescribed by the Exchange as part of Annual Returns; which are indicated by the issuance of a circular

every year.

In case of any incomplete submission/ wrong reporting in AR needs to be reported in the inspection

report.

9.17 Submission of Annual Compliance Report (ACR)

Members activated for trading as on 31st March of any year, are required to submit the Annual

Compliance Report to the Exchange for the financial year ending on such 31st March.

a) ACR is the gist of compliances to be followed by Members which is self-analysed by Members

and submitted to the Exchange annually.

b) All Members are required to submit ACR to the Exchange within the timeline as prescribed by

the Exchange. The Inspection Team can review ACRs submitted by Members and precede their

inspection accordingly.


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9.18 BPO / KPO Services – Segregation thereof from Commodity Derivatives Market

Any entity or any of its subsidiaries/ parent company/ related entities which is providing BPO/ KPO

services to foreign clients trading on foreign commodity exchanges cannot be a member of any of the

Recognized Association, recognized under Section 6 of Forward Contracts (Regulation) Act, 1952.

Any of the member or any of its subsidiaries/ parent company/ related entities of any of Recognized

Association recognized under Section 6 of Forward Contracts Regulation Act, 1952 will not undertake any

kind of BPO/ KPO activities in which services are provided to foreign clients trading on foreign

commodity exchanges.

9.19 Insurance Policy

Members are required to obtain insurance cover at their own cost, as per directions issued by the

Exchange so as to protect themselves from risks and hazards relating to their business operations at the

Exchange.

The Inspection Team should verify that the Member has obtained the same for the financial year during

the period of inspection.

9.20 Internal/ Statutory Audit Reports of the Members in case of Corporate members : Inspection

team can also verify the observations of made in the internal / Statutory audit reports of the members.

9.21 ROC related compliance in case of Corporate/LLP Members : Inspection team can check the ROC

related records of the member like Form 32, 18 etc.(event based forms) and Annual forms

23AC,23ACA,20B.

9.22 Miscellaneous :

The inspection team may also look in the following :

i) Verification of open position at the member level / client level at the back office

with the Data available with the Exchange.

ii) Test checks of comparision between trade files kept by the members and trade files

obtained from the exchange should be carried out in order to ensure that the trade


_________________________________________________________________________________

- 65 -

files kept by the members in soft copy have not been tampered with as the trade

file kept by the members is in modifiable Excel format.

iii) Review of monthly turnover of purchase and sales between the Exchange records

and member’s records and review of closed out transactions, if any.

iv) Transfer of profit or loss in disguise of code modification. Code modification is done

in the back office and not at the exchange platform. Such type of code modification

done either at Own account to Client account or vice-versa to create fictitious

losses/ profits in the books.

v) Change in address of the member to be updated with the Exchange and FMC.

vi) Difference in Brokerage income account in Books as well as service Tax return filed

with the Service Tax department & difference in brokerage income in financial

ledger vis a vis transaction register.

vii) Verification of back up of voice recording of order book

viii) Verification of confirmations of trade send through SMS with back-up data

ix) Brokerage collected at very nominal rate or nil to some clients associated/ related to

member or employees of member as there is no minimum rate is prescribed by the

exchange.

x) Verification of the financial ledger to check whether any Loan/ advance given to any

client with special reference to the Associated or related concerns to bypass the

margin requirement.

xi) Verification of open position at the member level / client level at the back office

with the Data available with the Exchange.

Besides, above areas the Inspection team may also verify and report on any violation which may be

specific to the member to be inspected. Further, the By-laws, Rules, Regulations may vary from

Exchange to Exchange. The By-laws, Rules, Regulations of Exchange whose member is being inspected

need to be complied with and the inspection team should verify on the above areas with respect of the

By-laws, Rules, Regulations of respective Exchange .


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1 of 14

SCHEDULE –I

PRE-INSPECTION QUESTIONNAIRE

2 of 14

3 of 14

SCHEDULE I

Pre-Inspection Questionnaire (To be submitted by the Member to the Inspection Team)

Date:

To Name of the Inspection Audit Firm: Address: Dear Sir, With respect to the Inspection to be conducted by you, we provide the following information: 1. Name/Trade of Member with Membership Number:

2. Name of our officials who will deal with the Inspection Team (along with designation): Name Designation Contact No. E-mail ID

a. _________ ______________ __________ _________ b. _________ ______________ __________ _________

3. Date of Activation for trading :

4. Date of Commencement of trading :

5. Registered Office Address: 6. Designated Email id:

7. Name of the Compliance Officer:

8. (a). Status : Proprietorship/ Corporate, Give names of Proprietor / Partner / Directors as the case may be (b). Type of membership : ( c ). In case of TM, name of the Clearing Member :

9. Shareholding Pattern/Sharing Pattern as on March 31, 20__ : Details of present shareholding pattern/profit sharing pattern is attached as Annexure #.

E.g.: If the period of inspection is April 01 to March 31 of the Financial Year 2010-11; the Member must provide the status / position as on both - March 31, 2011 (i.e. the period of inspection) and March 31, 2010 (i.e. the year preceding the period of inspection).

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10. Details of Dominant Promoters:

a. Name of the present Dominant Promoters Group as on March 31, 20__ : Sr. No. Name Percentage of Holdings/Profit Sharing Ratio

b. Name of the Dominant Promoters Group as on March 31, 20__ :

Sr. No. Name Percentage of Holdings/Profit Sharing Ratio

11. Names of Directors/Partners/Proprietor/Karta:

a. As on March 31, 20__1:

Sr. No. Name of the Directors/Partners/Karta/Proprietor

Whether Designated Director/Managing Partner (Yes/No/NA)

Date of Appointment

b. As on March 31, 20__ :

Sr. No. Name of the Directors/Partners/Karta/Proprietor

Whether Designated Director/Managing Partner (Yes/No/NA)

Date of Appointment

1


5 of 14

12. Membership of other Exchanges, if any:

Sr. No.

Name of the Exchange

Membership

Exchange/Member code

Type UMC Date of Activation of Trading

13. Networth:

Sr. No.

Name of the Exchange

Applicable Networth

Networth of the Member as on March 31, 20__*

Networth of the Member as on March 31, 20__*

Enclose Networth Certificate as per the formats prescribed by the Exchanges. 14. UMC No. given by FMC 15. Registration Number(s) given by Exchanges(s) 16. List of Bank and Demat accounts operated by the Members:

Account No. Name of the Bank/Branch/DP Purpose

Client Bank Account

Own Bank Account

Settlement bank Account

Margin Account (for collateral securities Beneficiary Own Account of clients)

Pool Account

Any Other

17. Details of instances wherein Demand Drafts / Pay Orders have been accepted. 18. a) Details of clients:

Sr. No.

Client Code

Name Status (Active/Inactive)

Whether registered during the inspection period

Traded during the Inspection Period or not

Total Turnover of the Client in the inspection period (in descending order)

6 of 14

b) Details of inactive clients who have re-opened their trading accounts:

Sr. No.

Client Code

Name Material change in KYC information (Yes / No)

Undertaking obtained with specific written request to re-open trading account

c) Details of clients who are permitted to trade through the Member without depositing

initial margins

d) List of all clients where unutilized balance is lying with the Member. Details of such clients to be provided in annexure in the following format:

Client Code Name of the

Client

Credit /

(Debit)

Balance

O/s Less

than 30 days

>30 days and

< 60 days

> 60 days

and < 90

days

> 90 days

e) Particulars of all clients’ code modification detailing the trade date, trade no. client code

from, client code to, commodity/contract specification, quantity, price and reason.

f) List of dealing in top 25 commodities in descending order of volume handled for the period of inspection in the following suggested format:

S. No. Purchase Sale

Client Own Total Client Own Total

g) Business volume/turnover handled by the Member for the period of inspection in the

following suggested format:

S. No. Purchase Sale

Client Own Total Client Own Total

19. Market segment / major commodities traded during last 3 years

20. What is the Margin Collection procedure and accounting procedure adopted by the member

(such as posting of bill, posting of MTM and Margin amount, form of margin accepted from the Client)

21. Details of instances wherein authorization has not been obtained from clients if third-party collateral has been accepted as margin.

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22. Whether proof of dispatch/receipt of contract notes and duplicate copies of contract notes have been maintained?

23. Whether digital Contract Note is issued to the clients? YES/NO (Please Tick) If yes, please

specify:- a) Name of the vendor and certifying entity:-______________ b) Whether consent of the clients are obtained:- ____________ c) Whether logs of bounced back emails are maintained:- ___________

(Sample copy attached as Annexure#) d) Whether physical contract notes in lieu of digital contract notes are issued in

case of bounced back emails: - __________________ e) Whether common contract notes have been issued for trades on Commodity

Futures and Spot Exchanges:- ___________ (attached as Annexure #)

24. List of all entities with whom brokerage is shared along with the copy of ledger A/c showing sharing of brokerage is attached as Annexure#.

25. Sample copy of Statement of Accounts sent to all the clients along with dispatch proof and the acknowledgement obtained from the clients is attached as Annexure#.

26. Details of Cash transactions with the clients. (Copy attached as Annexure#) 27. List of the details of default in payment / delivery of commodities during last 2 years is

attached in Annexure #

28. Whether any Delivery has taken place for any contract during the period of Inspection ? YES/NO (Please Tick) If yes, please specify:-

a) Details of Intention of delivery given to the Exchange. YES/NO (Please Tick) b) Details of Warehouse Receipts and Quality Certification belonging to clients have

been pledged by the Member with the Exchange during the period covered under inspection. YES/NO (Please Tick)

c) Details of Bills received from the Exchange. YES/NO (Please Tick)


8 of 14

29. Details of Pro account trading by the Member: (Names of the personnel operating Pro-Accounts, No. of Terminals/Location, Commodities Traded, Volume and Value, Actual Delivery Taken, details of the permission obtained from the Exchange)

30. Details of Promoter / Partner / Director who have interest in other entity(ies) and details of such entities

31. Details of family members / associates operating on same / other Exchange 32. Whether any audit /inspection carried out by Exchange , if yes, the copy of report /

observations 33. Details of investor grievances/ complaints during last 3 years and action taken thereon. (

year-wise) 34. Name and address of top 50 clients by turnover with commodity-wise breakup 35. Whether any advertisements are issued during the inspection period YES/NO (Please Tick)

(If yes, please provide copy of Advertisements as Annexure#)

36. List of violations of the laws of the Exchange regarding trade restrictions, margin, base capital, open position violations – whether reported and penalties imposed, etc. is attached as Annexure #. (Format of Annexure is given hereunder):

Sr. No. Penalty / Fine / Non-

compliance charge levied by

the Exchange (`)

Nature of Violation Levied on (date) Number of

instances

37. List of CCP certificates held by the Member:-

Sr. No. Name of the Person Certificate No. Validity of Certificate

Relationship with the Member

38. Details of branches and dealing offices:

Sr. No. Address of the Branch

User Id allotted

Mode of connectivity Branch office in-charge

No. of clients

39. Details of Authorized Persons:

Sr. No.

Name Address of the Authorized Person’s office

User Id allotted

Mode of connectivity

Unique Code provided by the Exchange

Date of approval from the Exchange

Date of start of business with the Member

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40. Total Terminals (TWS):

41. List of approved users of TWS (Provide the approval received for Pro trading enablement):

Sr. No.

User Id

Name of The User

Location of Terminal

Relationship With the Member

Whether Still in Employment. (If not name of the user operating the terminal).

Purpose of terminal (Cliental / Pro) Whether Enabled For Pro Trading

Date of Enablement for Pro Trading

42. List of Approved Users terminated

Sr. No.

User Id

Name of The User

Location of Terminal

Relationship With the Member

Date of termination

Purpose of termination

Whether prior permission obtained from the Exchange

43. Whether CTCL / Internet Based Trading facility is availed by the Member, YES/NO (Please

Tick) If yes; please specify a) Whether any system audit is conducted. (CTCL/IBT) b) Whether any different agreement is entered into with the client. (IBT) (If yes,

sample copy is attached as Annexure#) c) List of clients availing the internet trading facility is attached as Annexure#. (IBT) d) If CTCL terminal used for Pro-Account trade facility, whether approval from the

Exchange was obtained for pro trading.

44. Details of Computer To Computer Link (CTCL) terminals: CTCL Server location: CTCL Software:

Sr. No.

User Id

CTCL -Id

Name of the Approved Person [As Appearing In Admin Terminal]

Relationship of the Approved Person with the Member

Location [Address] Of the CTCL Terminal

Mode of Connectivity to the CTCL Terminal

Date of Allotment of CTCL Terminal

Date of Commencement of Trade

Purpose of terminal (View Trading)

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45. Details of Internet Based Trading (IBT):

IBT Server location: IBT Software:-

Sr. No.

User Id IBT -Id Name of the Approved Person [As Appearing In Admin Terminal]

Relationship of the Approved Person with the Member

Mode of Connectivity to the IBT

Date of Allotment of IBT

Date of Commencement of Trade

46. Details of software used for back office and accounting. Whether AMC for the maintenance

of the software is taken and active. (Please specify Name of the Vendor and Version)

47. Calculation of Stamp Duty along with the details of Stamp Duty paid, financial year wise (Copy of Ledger A/c is attached as Annexure#)

48. Calculation of Service Tax along with the details of Service Tax paid financial year wise (Copy of service tax paid challans is attached as Annexure#)

49. Details of Income Tax Liabilities (if any) and copies of the Income Tax Returns for the Inspection Period and the year preceding the Inspection period along with the Assessment Order, if received (copies attached as Annexure#)

50. Details of other Statutory Dues paid. (Copy of relevant challans is attached as Annexure#)

51. List of Arbitration cases and /or Investor Grievances against the Member along with their

status as on March 31, 20__ is attached as Annexure#.

52. Any disputes with clients, dealers / Authorized Persons etc. YES/NO (Please Tick). If yes, please specify:

Sr. No. Name of the Complainant

Nature of Complaints

Amount Involved (Rs.)

FIR lodged Present Status

If the period of inspection is April 01 to March 31 of the Financial Year 2010-11; the Member must provide the status / position as on both - March 31, 2011 (i.e. the period of inspection) and March 31, 2010 (i.e. the year preceding the period of inspection).

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53. Details of other source of income (apart from Brokerage Income) arising from/incidental to futures trading:

Sr. No. Nature of Income Amount during the inspection period

Amount of gross revenue received from the same during the inspection period

1 Interest (Charged for delayed payment)

Client account opening charges

Fixed deposit interest

Charges taken from Authorized Persons

2 Other receipts (please specify)

54. Copy of the Trial Balance as at the end of the period of inspection is attached as Annexure#. 55. Copy of the latest audited Profit and Loss Account and Balance sheet for the last 2 years and

preceding the period of inspection is attached as Annexure#. 56. Have you ever been suspended/ expelled / declared a defaulter on any other Commodity

/Stock Exchange or have been debarred from trading in Commodities / Securities by any regulatory authorities like FMC, RBI, SEBI etc.( If yes, give details)

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57. Documents will be kept ready for the period covered under inspection: a) Copy of first Contract Note as at the beginning and end of the financial year and as on April 01 of the next financial year b) Exchange obligation statements c) Proof of delivery of Contract Note / proof of receipt of Contract Note/ECN log report d) List of Authorized Signatories to sign on the Contract Note/Digital Signature Certificate for ECN e) Register of Transactions f) Transaction/Holding statement of beneficiary and pool account g) Bank ledgers/statements for All Own, Client and Settlement accounts h) Register of Commodities i) Margin Deposit Book j) Register of Complaints k) Bank Pass Book / Bank Statement l) Bank Ledger as per Back Office m) Bank Reconciliation Statement n) Client Ledger o) Cash Ledger p) Copy of Penalty ledger (ledger wherein penalty amounts are debited) q) Copy of the authorization letter, if any, submitted by the client for maintaining of funds and commodities r) Copy of latest Annual Returns submitted to the Exchange s) Copy of latest Annual Compliance Report submitted to the Exchange t) Proof of submission of details of compliance officer to the Exchange/Proof of appointment of Principle Officer under PMLA u) Copy of Trial Balances of client accounts as on the dates selected for sample scrutiny is attached as Annexure# v) List of employees of the Member during the period covered under w) Copy of previous inspection report (if any) x) Details wrt to change in constitution, name, address/contact details (if any) y) List of Authorized Persons registered and cancelled during the inspection period. z) List of Authorized Persons inspected by the Member

The following documents would also be provided to the Inspection Team:

a) Member Constituent Agreement & Know Your Client form / Risk Disclosure Documents / Investors’ Rights and Obligation of the clients selected as sample

b) Order log and Trade files for the sample dates selected

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c) Margin files and margin Collection details (in the following format) for the sample dates selected.

Sr.

N

o

Trade

Date

Clie

nt

Cod

e

Client

Name

Margin

require

d (1)

Client

Ledge

r Bal.

(Dr/Cr

) (2)

Margin

Ledger

Bal

(Dr/Cr

) (3)

Non-Cash Collateral (after haircut) T

o

t

a

l

M

a

r

g

i

n

C

o

l

l

e

c

t

e

d

(

5

=

2

+

3

+

4

)

B

G

FD

R

Securitie

s

Other

s

Tota

l (4)

In addition to the above, I undertake to provide any other records/documents, as may be required by the allotted Inspection Team. Yours faithfully, For (Name of Member) (Signature) (To be signed only by Proprietor/ Karta / Managing Partner/ Designated Director/ authorized

signatory as on the records of the Exchange)

(Whenever required, please provide the details in Annexure)

14 of 14

SCHEDULE-II

FORMAT OF INSPECTION REPORT

INSPECTION REPORT

(Minimum suggested format)

DD/MMM/YYYY to DD/MMM/YYYY

Member Name

(Member ID)

CA Firm Name

Address line 1, Address line 2

City- Pin code

Contact nos.

I N D E X

1. Fact Sheet …………………………………………………………………………………………………………… 5 2. List of Violations ……………………………………………………………………………………………….... 8 3. Membership Requirements ………………………………………………………………………………….. 9 4.Books of Accounts, Records and Registers …………………………………………………………….. 14 5. Dealing with Clients ……………………………………………………………………………………………… 20 6. Handling Funds & Commodities …………………………………………………………………………… 30 7. Contract Notes …………………………………………………………………………………………………….. 39 8. Brokerage …………………………………………………………………………………………………………….. 45 9. Trading System ……………………………………………………………………………………………………… 47 10. Miscellaneous …………………………………………………………………………………………………….. 51 11. List of Annexures .………………………………………………………………………………………………… 59

Member Name Inspection Period

CA Firm Name Page 5 of 60

1. Fact Sheet Particulars Details

Name of Member

Constitution

Exchange Registration No.

FMC allotted Unique Member Code

Date of Activation for trading

Date of Commencement of trading

Name of Designated Director / Managing Partner /

Karta /Proprietor

Name of Compliance Officer Mr. / Ms. ____ / Not appointed

Period covered under inspection From :

To :

Average Daily Turnover for the Inspection period

(Total Turnover/number of trading days)

a) Own Account Turnover:

b) Client Account Turnover:

Date(s) of Inspection

First Visit Date:

Second Visit Date:

(any further visits to be specified)

Registered Office Address of the Member (Address)

Designated e-mail Address

Inspection conducted at (Address)

Details of Officials dealt with the Inspection team

Name:

Designation:

Contact Details

Details of CCP Certificate(s) obtained Name

CCP Reg. No.

Details of previous inspection, if any Name of the CA Firm:



Particulars Details

Period of inspection:

Non-compliance charge levied:

No. of Active clients during the period covered under

Inspection __________(List as per Annexure ___ )

Total no. of clients during the period covered under

Inspection ________(List as per Annexure ___ )

Net worth as on March 31, 20__ (or latest available)

`_____ ________/-(Annexure ___ )

Networth required during the inspection

period:

Membership of any other Exchange(s) (Name of the

Exchange also, if applicable)

Member’s Bank Account

a) Own/ business bank a/c no.:

b) Client bank a/c no.:

c) Settlement bank A/c. no.:

Total no. of terminals

TWS:- ___________

CTCL:-___________

Details of CTCL software

Procured /In-house developed / N.A.

If procured, whether from Empanelled

Vendor: Yes/No

Total no. of Internet Based Trading (IBT) users

Details of IBT software

Procured /In-house developed / N.A.

If procured, whether from Empanelled

Vendor: Yes/No

Details of Back Office software Procured /In-house developed

(If procured, name of the vendor ______)

Total no. of Branch(es) /Authorized Person(s) Branches :- ______________



Particulars Details

(Sub-broker details also to be provided if the

inspection period is prior to January 31, 2011)

Authorized Persons:- _____________

(List as per Annexure _______ )

Sample dates selected for Inspection

Sample selection of Clients ______ (List as per Annexure ____ )



2. List of Violations

Sr. No. Reference to Chapter of manual Violations

Note: Please list all the violations observed during the inspection in the above table.



3. Membership Requirements

3.1 Change in Share Holding /Sharing Pattern

References Compliance

(Y/N/N.A.)

Rules, Bye-Laws, Business Rules and Circular No.

Details of changes effected in shareholding / sharing pattern are as follows.

Sr.

No.

Instances of

change in

shareholding /

sharing pattern

Date of

Board

Resolution

Prior

Permission

Taken

(Y/N/N.A.)

Intimated to the

Exchange within

21 days

(Y/N/N.A.)

Dilution in

DPG

(Y/N/N.A.)

Documentary Evidences: Annexure ____

Observation Description/Remarks:

3.2 Change in Designated Directors/ Managing Partners with Prior Approval of the

Exchange


(Y/N/N.A.)


Name of Designated Directors/ Managing Partners as at the beginning of the Inspection

period:

List as on _____________

Sr. No. Name(s) of Designated Director/Managing Partner



Name of Designated Directors/ Managing Partners as at the end of the Inspection

period:

List as on _____________

Sr. No. Name(s) of Designated Director/Managing Partner



3.3 Change in Constitution with Intimation to the Exchange


(Y/N/N.A.)


Constitution of the member has been changed from ________ to ________



3.4 Change in trade name with Intimation to the Exchange


(Y/N/N.A.)




3.5 Change in address (registered/correspondence) and contact details with

Intimation to the Exchange




(Y/N/N.A.)




3.6 Appointed Compliance Officer*


(Y/N/N.A.)


*Compliance Officer has been appointed and details of the same have been intimated to

the Exchange. Change in compliance officer, if any, has been reported to the Exchange.



3.7 Networth Requirements


(Y/N/N.A.)


Please provide details of shortfall in networth, if any:


Other observation Description/Remarks:

3.8 Registration of Authorized Persons


(Y/N/N.A.)




Authorized Persons have not been registered in ________ instances.

List of unregistered Authorized Persons is given hereunder:

Sr. No. Name of Authorized Person



3.9 Changes in Authorized Person details informed to the Exchange


(Y/N/N.A.)




3.10 Periodic Inspection/Audit of Authorized Persons conducted


(Y/N/N.A.)


Please mention the percentage of Authorized Persons inspected:





3.11 All the sub-brokers have been converted into Authorized Persons by January

2011


(Y/N/N.A.)



3.12 Business stopped as Sub-broker with the entities not converted into Authorized

Person by January 2011


(Y/N/N.A.)





4. Books of Accounts, Records and Registers * If any of the following Books of Accounts, Records and Registers is not maintained / not maintained properly, please specify

4.1 Maintenance of Client Ledger


(Y/N/Not maintained

properly/N.A.)




4.2 Maintenance of Client Ledger Exchange-wise


(Y/N/ Not maintained

properly/N.A.)




4.3 Maintenance of General Ledger



properly/N.A.)






4.4 Maintenance of Journals



properly/N.A.)




4.5 Maintenance of Cash Book



properly/N.A.)




4.6 Maintenance of Bank Book



properly/N.A.)






4.7 Maintenance of Bank Pass Book / Statement



properly/N.A.)




4.8 Maintenance of Margin Deposit Book



properly/N.A.)




4.9 Maintenance of Trade Log



properly/N.A.)






4.10 Maintenance of Order Log



properly/N.A.)




4.11 Maintenance of Register of Commodities



properly/N.A.)




4.12 Maintenance of Records of Deliveries Received/Tendered Contract wise



properly/N.A.)






4.13 Maintenance of Records in Respect to Premium/Discount



properly/N.A.)




4.14 Maintenance of Register of Transactions (Sauda Book)



properly/N.A.)




4.15 Maintenance of evidence of client order placement / modification /

cancellation


(Y/N/N.A.)






4.16 Maintenance of Records in Respect of Brokerage



properly/N.A.)




4.17 Maintenance of Register of Complaints


(Y/N// Not maintained

properly/N.A.)




4.18 Maintenance of separate Ledger for Commodity Futures Exchange(s) and Spot

Exchange(s)



properly/N.A.)






5. Dealing with Clients

5.1 Execution of Member Client Agreement (MCA)


(Y/N/N.A.)


MCA has not been executed in ______ instances, for below mentioned clients:

Sr. No. Name of Clients



5.2 Execution of Member Client Agreement (MCA) without any discrepancy


(Y/N/N.A.)


MCA has been executed with discrepancies in ------- instances as mentioned below:

Client Name

Not stamped/franked

Date of execution prior to date of stamping/franking

Date of execution after 6 months from date of

stamping/ franking

Not in prescribed format



Not filled up completely

Witness signature not obtained

Member signature not found on all the pages

Client signature not obtained on all the pages

Date of agreement after date of first trade

Discrepancies / deviations from the prescribed member

–client agreement, if such discrepancies / deviations are

detrimental to clients.

Any other ( please specify the same)



5.3 Obtaining Client Registration (KYC) Forms


(Y/N/N.A.)


KYC form has not been obtained in ____ instances for below mentioned clients:






5.4 Obtaining Client Registration (KYC) Forms without any discrepancy


(Y/N/N.A.)


KYC form has been obtained with discrepancies in ____ instances as mentioned below:

Client Name

Not in prescribed format

Contain inequitable, onerous or unreasonable conditions

imposed on clients

Not filled up completely

Photograph not affixed

Photograph not signed across

Document not taken * (Proof of identity, address, PAN card

etc.)

Documents wrt to Proof of identity, address, PAN, etc. are

not self-certified.

Client signature not obtained

KYC has been executed before the date of first trade


* Specify which document has not been taken.





5.5 Issuing Risk Disclosure Document (RDD)


(Y/N/N.A.)


RDD has not been issued in ____ instances for below mentioned clients:




5.6 Issuing Risk Disclosure Document (RDD) and Investors’ Rights and Obligation

(IR&O) without any discrepancy


(Y/N/N.A.)


RDD has been issued with discrepancies in ____ instances as mentioned below:

Client Name

Not in prescribed format and dated

Client signature not obtained

RDD and IR&O not issued to the client






5.7 KYC Norms with reference to Anti-money Laundering Guidelines


(Y/N/N.A.)


The required procedure is not followed in below mentioned instances:

Sr. No. Name of Client



5.8 Obtaining Blanket Confirmation from client


(Y/N/N.A.)


Blanket confirmation has obtained in ____ instances as mentioned below:


5.9 Uploading Unique Client Code (UCC)


(Y/N/N.A.)




UCC has not been uploaded in ---------instances for below mentioned clients:

Sr. No. Client Name



5.10 Single ID allotted to a Client (not allotted multiple IDs)


(Y/N/N.A.)


Multiple ID’s have been allotted in ____ instances for below mentioned clients:

Sr. No. Name of Clients List of Id’s allotted to the client



5.11 Collection of Margin from Clients


(Y/N/N.A.)




Margin has not been collected / partially collected in ---------instances as mentioned

below:

Sr.

No

Trade

Date

Client

Code

Client

Name

Margi

n

requir

ed (1)

Client

Ledger

Bal.

(Dr/Cr)

(2)

Margin

Ledger

Bal

(Dr/Cr)

(3)

Non-Cash Collateral (after

haircut)

Total

Margin

Collected

(5=2+3+4)

S

h

o

r

t

C

o

ll

e

c

t

i

o

n

(

1

-

5

)

B

G

FD

R

SECU

RITIE

S

Othe

rs

T

o

t

al

(

4

)





5.12 Segregation of Margin ensured for Commodity Futures and Spot Exchanges


(Y/N/N.A.)




5.13 Client Code Modification / Transfer of Trades not leading to margin evasion


(Y/N/N.A.)


Client code modification has been observed in ______ instances which have been / not

have been reported to the Exchange

Trade

Date

Trade

No.

Original

Code

Modified

Client

Code

Contract

Specification

Buy

/

Sell

Qty Price Amt.





5.14 Client Code Modification / Transfer of Trades leading to margin evasion


(Y/N/N.A.)


Client code modification has been observed in ______ instances which have been / not

have been reported to the Exchange leading to evasion of margin payable to the

Exchange for total amount of `______ as mentioned below:

Trade

Date

Trade

No.

Origi

nal

Code

Modif

ied

Client

Code

Contract

Specifica

tion

Contract

Expiry

Buy /

Sell

Price Qty Amt Offsett

ing

positio

ns

taken

on

**(Dat

e)

No.

of

days

margi

n

evade

d

Total

Applic

able

margin

for

these

days

** In case the carried forward position was off-set by such Client code modification then the date of taking such

position may be provided here.





5.15 Operating inactive client accounts


(Y/N/N.A.)

Circular No.

The required procedure wrt to inactive client accounts is not followed in below

mentioned _____instances:






6. Handling Funds & Commodities

6.1 Maintenance of Separate Client Bank Account


(Y/N/N.A.)




6.2 Segregation of Clients’ and Own Funds


(Y/N/N.A.)


___instances of Credit of Clients’ Funds into Own Account amounting to `______without

appropriate justification are given below:

S. No. Date Source from where clients’ fund

received into own account

(Exchange/Client Name/Clients’

Account)

Amount (`)





6.3 Use of client bank account for the purpose other than specified by the

Exchange


(Y/N/N.A.)


Clients bank account has been utilized for purpose other than specified by the exchange

in ____instances for total amount of `________, as detailed below:

Sr. No. Date when client bank

account is used for purpose

other than specified by the

Exchange

Purpose of utilization Amount (`)



6.4 Utilization of Clients’ Fund for own Purpose


(Y/N/N.A.)




Clients’ funds have been utilized for purpose other than specified by the exchange in

____instances for total amount of `_______, as detailed below:

Sr.

No.

Date of Client Funds Transferred No. of Days of

utilization of

clients’ funds

Purpose of

utilization

A

m

o

u

n

t

(

`

)

Debit to Client

Bank Account

(A)

Credit Back to

Client Bank Account

(B)



6.5 Use of one Client’s Funds for transactions of Other Clients:


(Y/N/N.A.)




One client’s funds have been utilized for other clients’ transactions in ____instances for

total amount of `__________, as detailed below:

Sr.

No

Date of Transfer of Client’s

Funds

No. of

Days of

utilization

of the

client’s

funds

Purpose

of

utilization

A

m

o

u

n

t

(

`

)

Code of the

client whose

funds were

used

Debit to the

Client’s

Account (A)

Credit Back to

the same

Client’s

Account (B)



6.6 Evidence for payment of MTM gain made by clients


(Y/N/N.A.)






6.7 Not Dealing in Cash with Clients


(Y/N/N.A.)


Member has done cash transactions with clients in________ instances for total amount

of `____________ as mentioned below:

Sr. No. Client Name Received/Paid Amount (in Rs.)



6.8 Adhered to the Guidelines on Pre-funded instruments


(Y/N/N.A.)




6.9 Not Delaying Pay Out of Funds


(Y/N/N.A.)


Pay out of funds has been delayed in _____ instances for total amount of ` ______ as

mentioned below:



Sr.

No.

Client

Name

Date of Pay Out from

Exchange

Date of Payment to

Client

Delay

(No. of

Days)

Amount (in

`)



6.10 Not Delaying Payment of Funds to clients beyond 15 days from the date of

receipt of request


(Y/N/N.A.)


Payment of funds has been delayed beyond 15 days from the date of receipt of request

from clients in _______instances for total amount of `________. Details are mentioned

below:

Sr.

No.

Client

Name

Date of receipt of

request for payment

Actual

Payment –

date

No. of Days of

delay in Payment

Amount

(in `)





6.11 Not Delaying transfer of Commodities


(Y/N/N.A.)


Transfer of Commodities has been delayed in ________instances for total amount of

`_____. Details are mentioned below:

Sr. No. Client

Name

Date of Pay Out

from Exchange

Date of transfer

to Client

Delay

(No. of Days)

Amount (in

`)



6.12 Not Delaying transfer of Commodities to clients beyond 15 days from the date

of receipt of request


(Y/N/N.A.)


Transfer of Commodities has been delayed beyond 15 days from the date of receipt of

request from clients in ________ instances for total amount of `_______. Details are

mentioned below:

Sr.

No.

Client

Name

Date of receipt of request for

transfer of commodities

Actual

transfer date

No. of Days of

delay in transfer





6.13 Sending Statement of Accounts to Clients


(Y/N/N.A.)


Statement of accounts has not been sent / has been sent with delay in _________

instances for below mentioned clients:

Sr.

No.

Name of

Client

Period

ending

Statement

sent on (date)

Statement Required

to be sent on (date)

Delay (no of

days)



6.14 Sending Statement of Accounts to Clients without any discrepancies


(Y/N/N.A.)


Statement of accounts has been sent with discrepancy in ______ instances for below

mentioned clients:

Name of Client Period Ending Discrepancy Observed





6.15 Unutilized Balances of the clients


(Y/N/N.A.)


Unutilized balances have been observed in the following _______ instances:

Client Code

Name of the Client

Credit / (Debit) Balance

O/s Less than 30 days

>30 days and < 60 days

> 60 days and < 90 days

> 90 days

Reasons for overdue





7. Contract Notes

7.1 Issue of Contract Notes to Clients


(Y/N/N.A.)


Contract notes have not been issued in _________instances for below mentioned

clients:

Sr. No. Client Code Client Name Trade No. Trade Date



7.2 Issue of Contract Notes to Clients within Prescribed Time Limit


(Y/N/N.A.)


Contract notes have not been issued within prescribed time limit in _____ instances as

mentioned below:

Sr.

No.

Client Code Client

Name

Trade No. Trade Date Issue Date Delay (no of

days)





7.3 Issue of Contract Notes in Prescribed Format


(Y/N/N.A.)


Contract notes are not in format in _____ instances as mentioned below:

Particulars C

o

m

pli

an

ce

Contract Note No.

Contract Note Date

Client Code

All details not printed as per format

Member ID not printed

FMC’s Unique Member Code (UMC)

not printed

Not serially numbered

Serial Number not reset at

beginning of Financial Year

Not signed by authorized signatory






7.4 Adherence to Guidelines on Electronic Contract Notes


(Y/N/N.A.)




7.5 Issue of Electronic Contract Notes with Authenticated Digital Signature


(Y/N/N.A.)


Electronic contract notes have been issued without digital signature certification in

_____ instances as mentioned below:

Sr. No. Contract Note No. Contract Note Date Client Code





7.6 Maintaining Log Reports of Electronic Contract Notes issued


(Y/N/N.A.)


Log reports of issuing electronic contract notes have not been maintained in _____

instances as mentioned below:

Sr. No. Contract Note Date



7.7 Maintaining Duplicate Copy of Contract Notes


(Y/N/N.A.)


Duplicate copies of contract notes are not maintained in _____ instances as mentioned

below:






7.8 Maintaining Proof of Dispatch of Contract Notes


(Y/N/N.A.)


Proof of dispatch of contract notes is not maintained in _____ instances as mentioned

below:




7.9 Maintaining Proof of Receipt of Contract Note


(Y/N/N.A.)


Proof of receipt of contract note is not maintained in _____ instances as mentioned

below:






7.10 Separate contract notes issued for trades on Commodity Futures and Spot

Exchanges


(Y/N/N.A.)




7.11 Consolidated contract notes not issued to clients


(Y/N/N.A.)


Consolidated contract notes are issued in _____ instances as mentioned below:






8. Brokerage

8.1 Mentioning Brokerage separately on the Contract Notes


(Y/N/N.A.)


Brokerage has not been mentioned on the contract notes in ______instances as

mentioned below:

Sr. No. Contract Note No Contract Note Date Client Code



8.2 Charging Brokerage within prescribed limit


(Y/N/N.A.)


Brokerage has been charged in excess of the prescribed limit in ______ instances for

excess amount of `______ as mentioned below:

Sr.

No.

Trade

Date

Trade

No.

Trade

Value

Max.

Permissible

Brokerage (in

Rs.)

Actually

Charged

Brokerage (in

Rs)

Excess Brokerage

Amount (in `)





8.3 Not Sharing Brokerage with employee of another member/another

member/with whom members are forbidden to do business/ suspended

member/expelled member/default member.


(Y/N/N.A.)


Brokerage has been shared with person not allowed by Exchange in _____ instances for

total amount of `______ as mentioned below:

Sr. No. Name of the

Person

Disallowed Category to

which the Person belongs

Amount of Brokerage Shared (in

`)





9. Trading System

9.1 Use of Trading System by Approved Users


(Y/N/N.A.)


Trading terminal has been used by person other than the user approved by Exchange in

______ instances as mentioned below:

Sr. No. User ID Name of Approved User Name of person actually using the

terminal



9.2 Location of Trading Terminals


(Y/N/N.A.)






9.3 Use of Trading Terminals for Pro-Trading


(Y/N/N.A.)


Member has misused the pro trading facility in ___________ instances (please provide

the information as explained under Chapter 2 of the Inspection Manual)



9.4 Use of Software provided by the Exchange in a manner allowed by the

Exchange


(Y/N/N.A.)




9.5 Use of IBT Terminal in a manner allowed by the Exchange


(Y/N/N.A.)






9.6 Use of CTCL Terminal in a manner allowed by the Exchange


(Y/N/N.A.)




9.7 Periodic System Audit of IBT System


(Y/N/N.A.)




9.8 Periodic system audit of CTCL system


(Y/N/N.A.)






9.9 Use of Automated Trading Facility with Prior Approval from the Exchange


(Y/N/N.A.)




9.10 Installed Antivirus Software and Firewalls in the System


(Y/N/N.A.)




9.11 Ensured regular back-up of data


(Y/N/N.A.)






10. Miscellaneous

10.1 Adherence to Anti Money Laundering norms


(Y/N/N.A.)


Documentary Evidences and type of non-compliance: Annexure ____


10.2 Appointed Principal Officer


(Y/N/N.A.)


Principal Officer has been appointed and details of the same has been intimated to the

Financial Intelligence Unit-India



10.3 Undertaken Internal Review of the Business


(Y/N/N.A.)






10.4 Displayed Notice Board


(Y/N/N.A.)




10.5 Not using Exchange logo(s)


(Y/N/N.A.)




10.6 Payment of Stamp Duty


(Y/N/N.A.)


In ________ instances member has not paid / delayed payment of the stamp duty to the

relevant Stamp Office.





10.7 Payment of Service Tax


(Y/N/N.A.)


In ________ instances member has not paid / delayed payment of the Service Tax to the

relevant Tax Authorities.



10.8 Payment of Statutory dues


(Y/N/N.A.)


In ________ instances member has not paid / delayed payment of the Statutory Dues to

the relevant Authorities.



10.9 Not published advertisement without permission of the Exchange


(Y/N/N.A.)


Advertisement has been published without prior approval from the Exchange in ----


Sr. No. Published in Reason for Publishing





10.10 Not involved in unauthorized or illegal trading activities / fictitious transactions

or unfair trade practice including Circular Trading, cross deals, price rigging, price

manipulation and other market Abuses


(Y/N/N.A.)


Member is involved in above mentioned activities in ________ instances. (Please provide

detailed information in this regard)



10.11 Not indulged in Portfolio Advisory Services/Portfolio Management

Services


(Y/N/N.A.)




10.12 Obtained CCP Certification


(Y/N/N.A.)






10.13 Complaint of clients is resolved within prescribed time limit


(Y/N/N.A.)


Details of complaint of the clients are given below;

Sr. No. Particular No. of case Amount

1 Complaints received

2 Complaints resolved within 30 days

3 Complaints resolved after 30 days

4 Complaints pending upto 30 days

5 Complaints pending for more than 30 days.

Documentary Evidences: Annexure*

Sr. No.

Client Name Code

Complaint received on

Complaint Resolved Complaint pending

Amount

within 30 days

After 30 days

Upto 30 days

More than 30 days

* Pleased provide the details in separate annexure


10.14 Submission of the Annual Compliance Report (ACR) to the Exchange for

the FY 20__ - 20__


(Y/N/N.A.)


Documentary Evidences:




10.15 Declarations made in ACR submitted to the Exchange for the FY 20__ -

20__ are in agreement with the findings reported during the inspection


(Y/N/N.A.)


In the following _____ instances the findings of the inspection were not in agreement

with the declaration made in the ACR submitted by the member for the same period.

Sr. No. Violation observed in the inspection Compliance reported in ACR

Documentary Evidences and No. of Instances:


10.16 Segregation of BPO/KPO services from Commodity Derivatives Market


(Y/N/N.A.)


Documentary Evidences and No. of Instances:


10.17 Not dealt with any Broker/Sub-Broker (till January 31, 2011) /Authorized

Person/entity who is Suspended or Debarred by SEBI, any Exchange or any

authority.


(Y/N/N.A.)




Member has dealt with person not allowed to trade as mentioned above, in _____


Sr.

No.

Name of the

Person

Disallowed Category to which the

Person belongs

Dates of dealing /

trading



10.18 Insurance Policy


(Y/N/N.A.)




10.19 Confirmation of Existence of Clients


(Y/N/N.A.)


Observation Description/Remarks: We have verified the ___ clients and found that they

exist and their details are also updated in the Exchange UCC database with respect to

address/PAN details/Contact details. Or

We have verified the ____ clients and found that ____ out of the same do not exist/were

not contactable/ (any other reason, please specify). Further the details of ___ clients

with respect to address/PAN details/Contact details are not updated in the Exchange UCC

database.



10.20 Audit Report of Corporate Member


(Y/N/N.A.)


10.21 ROC related compliance


(Y/N/N.A.)


10.22 List of Client grievances cases which are escalated to arbitration:

10.23 Dues of Leased line, VSAT connectivity etc

10.24 List of cases where post-facto approval is obtained from the Exchange

10.25 Observations with reference to miscellaneous items in the Manual

10.26 Other Information, if any (which the Inspection Team wishes to provide)



10 List of Annexures