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Dealing through NSE trading member/SEBI registered sub-broker
Whom should I approach for buying/selling shares on the
NSE?
To buy or sell securities you could approach either;
1. SEBI registered trading member of the NSE, or
2. SEBI registered sub-broker of a trading member of the NSE
Why should I deal only with a trading member of NSE/SEBI registered sub-broker of NSE trading member?
The Exchange can ensure settlement and handle disputes/claims arising out of only those trades which are executed on NSE through registered trading members /registered sub-brokers. Hence for all trades done on NSE through an entity who is not registered, the investor has no recourse through the Exchange, in case of non settlement or a claim/dispute arising out of the same.
How do I verify whether an entity is a NSE trading member (TM)/SEBI registered sub-broker?
You may ask the
entity to furnish
documents such as
SEBI registration
certificate,
registration with
NSE, etc. to verify
the antecedents of
the entity. You can
also approach the
Exchange to
countercheck whether
the entity holds a
valid registration.
The NSE website also
provides a directory
of NSE trading
members.
Registering as a client
What are the formalities for registering as a client of a NSE trading member/SEBI registered sub-broker?
All investors should register themselves with registered trading members/sub-brokers by:
1. Filling a Client Registration Form and
2. Signing a Member-Constituent Agreement (copy available with all NSE trading members)
The Member-Constituent Agreement contains the terms and conditions for trading and settlement including order/trade confirmation, brokerage charged by a trading member, delivery of securities and funds etc. and therefore helps reduce the chances of disputes in respect of the same. This Agreement is mandatory for all persons registering as a new client of a NSE trading member/SEBI registered sub-broker.
What precautions should I take before signing the Member-Constituent Agreement?
You should read the various terms and conditions carefully and understand their implications before entering into this agreement with your trading member.
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1. |
Check whether it is on a Stamp Paper of requisite value and whether the Stamp Paper is valid (for e.g. validity in Maharashtra is for 6 months from the date of issue of the stamp paper). Ensure that the date of agreement is not prior to the date mentioned on the stamp paper. |
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2. |
Check whether your name and the name of the trading member are clearly mentioned in the agreement. |
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3. |
Ensure that the trading member and you have signed on all the pages of the agreement. Also, check that the witnesses have signed and put their names against their signature. |
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4. |
Check whether the trading member or their representatives have the authority (such as Board Resolution, Power of Attorney, etc.) to sign the Member-Constituent Agreement. |
Trading related Issues
Giving purchase /sale instructions
How should I give my purchase/sale instructions to my trading member/sub-broker?
A trading member/client relationship is one of trust. However, it is very important that all your order instructions are given in writing and are duly acknowledged by the trading member. The order instructions should clearly indicate the scrip name, whether order is for buy or sell, the quantity for each of the scrips, rate specifications if any, and other relevant instructions. This reduces chances of miscommunication between you and your trading member/sub-broker at the time of placing deals on your behalf.
Price at which trade executed
What is price-time priority?
The system arranges all orders in the priority of price and within price by time. You have, let us say, placed a buy order for 100 shares of company A at Rs. 285 and another investor has placed a buy order at Rs.290. So, anyone who places a sell order in company A will be first matched with the buy order of second investor as he has given a better price. This is price priority. Let us say both of you have quoted Rs. 285 as the price at which you want to buy shares of company A, then sell order which comes into the system at this price will be matched against the order which was placed first.
How do I know my trading member has given me the best price?
The NSE trading system matches orders in such a way that the order gets executed at a price which is either equal to or better than the specified price but never worse than it. Therefore, if you have given an order for selling 100 shares at the rate of Rs.50, your order will be traded in the system in such a way that you will get a sale price of Rs.50 or more but never less. Similarly, if you have given an order for buying 100 shares at the rate of Rs.50, your order will be traded in the system in such a way that you will get a buy price of Rs.50 or less but never more.
What are the documents I should receive from my NSE trading member pertaining to my trade and when should I get them?
You should receive a Contract note within 24 hours of the trade being executed.
What is a contract note and why is it essential?
Contract note is a confirmation of trade(s) done on a particular day for and on behalf of a client. It gives various details of the trades executed by you such as name of the security, price, quantity, order number, trade number, time of trade etc. A contract note, issued in the format and manner prescribed by NSE establishes a legally enforceable relationship between the trading member and client in respect of trades executed on the Exchange. The contract notes should be signed by a trading member or by an authorised signatory of the trading member.
Why should I insist on getting contract notes for trades executed?
These documents are very important to enforce the deals transacted through the trading member. In case of disputes/claims/differences, the contract notes would help you to prove that the transactions have been executed on the Exchange through NSE trading member/registered sub-broker.
How do I ensure that the trading member does not give me an incorrect trade price than the actual price at which my trade has been executed on the Exchange?
You can verify your trade details through the website of NSE (www.nse.com) by accessing the Trade Verification facility. This facility provides you with the trade details of your trades which includes the name of the security, price, quantity, order number, trade number, time of trade etc.
What are the points to be checked by an investor to check the validity of a contract note?
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To ensure that the contract note issued to you by the trading member is a valid one, you must verify the following details: |
- The contract note should be in prescribed format
- Name and address of the trading member.
- The SEBI registration number of the trading member
- Details of trade viz. Order number, trade number, trade time, security name, quantity, rate, brokerage, settlement number, details of other levies
- The trade price should be shown separately from the brokerage charged.
- Signature of authorised signatory.
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Brokerage and other charges
What is the maximum brokerage that a NSE trading member/registered sub-broker can charge?
As stipulated by the Exchange, the maximum brokerage that can be charged is 2.5% of the trade value. This maximum brokerage is inclusive of the brokerage charged by the sub-broker (sub-brokerage cannot exceed 1.5% of the trade value).
Clearing and Settlement related Issues
Types of Settlement
What is a Rolling Settlement?
In a Rolling Settlement trades executed during the day are settled based on the net obligations for the day. In NSE, the trades pertaining to the rolling settlement are settled on a T+2 day basis where T stands for the trade day. Hence trades executed on a Monday are typically settled on the following Wednesday (considering 2 working days from the trade day). The funds and securities pay-in and pay-out are carried out on T+2 day.
Pay-in and Pay-out of funds and securities
If I have sold securities when do I deliver them to the trading member?
You have to deliver the securities to the trading member immediately upon getting the contract note for sale but in any case, before the prescribed securities pay-in day.
If I have bought securities when do I pay money to the trading member?
If you have bought securities, you have to pay the amount to the trading member before the funds pay-in day.
When can I expect to receive funds/securities from the trading member?
The securities and the funds are paid out to the trading member on the pay-out day. The NSE regulations stipulate that the trading member should pay the money or securities to the investor within one working day of the pay out.
What are the prescribed pay-in and pay-out days for funds and securities for Normal Settlement?
The pay-in and pay-out days for funds and securities are prescribed as per the Settlement Cycle. A typical Settlement Cycle of Normal Settlement is given below:
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|
Activity |
Day |
|
Trading |
Rolling
Settlement
Trading |
T |
|
Clearing |
Custodial
Confirmation |
T+1 working days |
|
|
Delivery
Generation |
T+1 working days |
|
Settlement |
Securities and
Funds pay in |
T+2 working days |
|
|
Securities and
Funds pay out |
T+2 working
days |
|
|
Valuation Debit |
T+2 working days |
|
Post
Settlement |
Auction |
T+3 working days |
|
|
Auction settlement |
T+4 working days |
Note: The above is a typical settlement cycle for normal (regular) market segment. The days prescribed for the above activities may change in case of factors like holidays, bank closing etc. You may refer to scheduled dates of pay-in/pay-out notified by the Exchange for each settlement from time-to-time.
Demat settlement
How do I pay-in demat shares towards my sale obligation?
You should instruct your Depository Participant (DP) to give ‘Delivery Out’ instructions to transfer the shares from your beneficiary account to the Pool Account of your trading member through whom you have sold the shares. The details of the Pool Account of your trading member to which the shares are to be transferred, scrip quantity etc. should be mentioned in the Delivery Out instructions given by you to your DP. The instructions should be given well before the prescribed securities pay-in day.
Settlement Guarantee Fund
What is a Settlement Guarantee Fund?
A Settlement Guarantee Fund (SGF) is a fund which is utilized in case a trading member fails to meet his settlement obligations. The SGF ensures that the settlement is not held up on account of failure of trading members to meet their obligations and all market participants (trading members, custodians, investors etc.) who have completed their part of the obligations are not affected in any manner whatsoever as a result of a trading member defaulting in meeting his obligation.
Are investors affected, in case a counter trading member fails to pay-in funds as per his settlement obligation?
No, the investor is not affected in case the counter trading member fails to meet his obligation since National Securities Clearing Corporation Limited (NSCCL), the clearing corporation, guarantees the net settlement obligations. The Clearing Corporation guarantees completion of settlement through the Settlement Guarantee Fund.
Auction of shares
What is an Auction?
The securities are put up for auction by the Exchange when there is a non-delivery of the securities by the selling trading member. This is to ensure that the buying trading member receives the securities due to him. The non-delivery by the trading member could arise on account of short delivery. The Exchange purchases the requisite quantity of securities in the Auction Market and gives them to the buying trading member.
If I have shares to deliver, can I take the benefit of the auction mechanism?
Yes, you can ask your trading member to sell your securities in the Auction. However you should ensure that you have the shares readily available for delivery.
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