This is with reference to SEBI circular dated CIR/DNPD/6/2011 dated July 5, 2011 and CIR/MRD/DP/29/2014 dated October 21, 2014 and further to Exchange notice nos. 20110706-1 dated July 6, 2011, 20110729-24 dated July 29, 2011, 20110826-4 dated August 26, 2011, 20111214-4 dated December 14, 2011, 20111104-16 dated November 4, 2011, 20140625-15 dated June 25, 2014, 20141021-15 dated October 21, 2014, 20160210-23 dated February 10, 2016, 20161102-18 dated November 2, 2016, 20190911-56 dated September 11, 2019, and 20190913-56 dated September 13, 2019, regarding modification of Client Codes.
With an objective to reduce order entry mistakes and to discourage client code modifications, levy of penalty in all cases of client code modification was considered and accordingly a revised penalty structure has been implemented.
The framework for Client Code Modification monitoring and penalty is as under:
1. Penalty on Client Code Modification where either original code or modified client code is non-institutional client category:
1.1. As per Exchange notice nos. 20110729-24 dated July 29, 2011 and 20110826-4 dated August 26, 2011, any client code modification from a non-institutional client category to non-institutional / institutional client category shall be subject to penalty. Further, client code modification from an institutional client category to non-institutional client category shall be subject to penalty:
1.2. The following penalty structure will be applicable:
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‘a’ as % of ‘b’
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Penalty as % of ‘a’
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≤ 5
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1
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> 5
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2
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Where:
“a” = Value (turnover) of non-institutional where client codes have been modified by a trading member in a segment during a calendar month.
“b” = Value (turnover) of non-institutional of the trading member in the segment during the calendar month.
2. Designated ERROR account
2.1. As per Exchange notice no. 20110826-4 dated August 26, 2011 and 20111214-4 dated December 14, 2011, Trading members are required to disclose the client codes which are classified as ‘Error Accounts’ to the Exchange at the time of UCC upload.
2.2. It is proposed to standardize the naming convention of the designated error account. The naming convention w.r.t classification of Error Accounts by the Trading Member will be as under:
2.2.1. The client code of the designated error account should have the nomenclature
as “ERROR” or “ERROR%” where % is a number.
2.2.2. The name of the designated error account should have the nomenclature as “TM
Name - Error Account”.
2.3. In cases where the trading member fails to maintain a single active designated “ERROR” account, a penalty of Rs. 10,000 per month of violation will be applicable. Further, after 3 months disciplinary action shall be initiated.
3. Modification to ERROR client code category and Liquidation of trades transferred to ERROR account.
3.1. As per Exchange notice no. 20110826-4 dated August 26, 2011, shifting of any trade (institutional or non-institutional) to the error account of the trading member shall not be treated as modification of client code provided the positions arising out of trades in error account are subsequently liquidated / closed out in the market and not shifted to some other client code.
3.2. Trading Members will be provided with a timeline of 3 working days (including the day of trade) to square off / liquidate their trades flowing into error account. In case trades / open positions are not liquidated or squared off within the prescribed time limit, a penalty as prescribed in para 1.2 would be applicable. This timeline is subject to availability of liquidity in the scrip/contract. In case the liquidity is not sufficient, the Trading Member should approach the Exchange within one trading day if sufficient liquidity is not available at the Exchange. The square off / liquidation must be done at the earliest. The decision of the Exchange on the question of “Availability of liquidity” will be final and binding.
3.3. In case of modification from original client code to ERROR account and then from ERROR account to some other client code, a penalty at the rate of 2% of traded value will be levied. In case of such repeated instances, in addition to the penalty levied further disciplinary action as deemed fit would be initiated.
3.4. Exchange will periodically review the trades flowing to “error accounts” of the brokers. For suspicious or unusual modifications observed, suitable disciplinary action would be initiated.
3.5. Trading Members are required to implement internal controls to minimize the instance of modifications into Error account to avoid disciplinary action proceedings from the Exchange. Internal controls implemented by brokers will be checked as a part of Inspection.
4. Framework for monitoring and penalty for modification between client codes of two entities classified under the Institutional category will be as under:
4.1. Modification between client codes of two entities which are of the institutional category will be allowed only if the modification from both client codes is from different schemes / sub-accounts of /managed by the same Institution. Such modifications shall not be subject to penalty. For FPIs, the group will be considered as uploaded by Members under “File upload facility on Extranet system for uploading Foreign Portfolio Investors (FPI) allocation details” as provided in ICCL notice no. 20140531-4 dated May 31, 2014, and 20160118-28 and January 18, 2016.
4.2. With respect to trades settled through DVP mechanism, Trading Members would need to report the name of entities to whom the trades were settled. The original client would be the client in whose client code the trades were executed, and the modified client code will be the PAN in whose name trades were settled through DVP mechanism. In the event that, the Exchange finds that modified client code is not of / managed by the same institution, penalty shall be levied.
4.3. Any modification between two client codes which are of institutional category and do not satisfy the criteria mentioned in para 4.1 above i.e., modification between two unrelated institutional clients will be subject to penalty.
For 4.2 and 4.3, the applicable penalty on such modifications will be computed as below:
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‘a’ as % of ‘b’
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Penalty as % of ‘a’
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≤ 5
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1
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> 5
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2
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Where:
“a” = Value (turnover) of institutional trades where client codes (unrelated institutional clients) have been modified by a trading member in a segment during a calendar month.
“b” = Value (turnover) of institutional trades of the trading member in the segment during a calendar month.
5. Reasons for client code modification and error trades.
5.1. As per Exchange notice nos. 20110826-4 dated August 26, 2011, 20190911-56 dated September 11, 2019, and 20190913-56 dated September 13, 2019, Trading members are required to provide the reasons for client code modification. Further, Trading members would also be required to provide the reasons for any transfer of trade (institutional or non-institutional) to ERROR account.
5.2. The facility of providing the reasons based on objective criteria has been provided in BEFS on the Client Code Modification module.
5.3. Trading Members are permitted to modify client codes for the following objective criteria only:
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Description
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Modified to Error
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Error due to communication or Punching / Typing Error such that the original client code / name and the modified client code / name are similar to each other
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Modification with Relatives (as per Companies Act, 2013)
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Allocation to related schemes / sub-accounts
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6. Frequent Client Code Modifications
6.1. In addition to the penalty levied as stated above, Exchange shall undertake disciplinary actions as deemed fit in terms of Rules, Byelaws and Regulations of the Exchange against Trading Members who undertake frequent client code modifications.
6.2. For para 6.1, such instances of client code modification mentioned below shall not be considered while computing the frequency of client code modifications.
6.2.1. Modification to ERROR account which is liquidated within 3 working days.
6.2.2. Modification between two client codes which are of institutional client category
and belong to same group as specified in para 4.1 above.
7. Procedure of waiver of penalty
7.1. With reference to Exchange notice nos.20110729-24 dated July 29, 2011 and 20110826-4 dated August 26, 2011, the following will be classified as genuine errors for the purpose of client code modification:
7.1.1. Error due to communication and / or punching or typing such that the original
client code / name and the modified client code / name are similar to each other.
7.1.2. Modification within relatives (‘Relative’ for this purpose would mean as defined
under Companies Act, 2013).
7.2. Subject to the reasons mentioned above, Trading Members may kindly note that the request for waiver of penalty along with reasons and relevant supporting documents should be submitted to the Exchange within a period of 3 calendar months from the date of levy of penalty failing which request for waiver shall not be accepted.
Trading members are required to take note of the same and take adequate precautions while placing the orders.
The provisions of the notice shall be effective from February 01, 2024.
In case of any clarification, members may contact:
For and on behalf of BSE Ltd.
Hiteshkumar Desai Jyoti Thukral
General Manager Sr. Manager
Inspection Inspection
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