Saturday, August 20, 2016

Modification of Client Codes post Execution of Trades on Commodity Derivatives Exchanges

Sub: Modification of Client Codes post Execution of Trades on National and Regional Commodity Derivatives Exchanges– Clarification

1. This circular is in reference to the SEBI circular No. SEBI/HO/CDMRD/ DMP/CIR/P/2016/43 dated March 29, 2016 on the captioned subject. In connection with the directives issued under the said circular, following clarifications are issued:

(i) Classification of genuine errors: The following shall be classified as genuine errors for the purpose of client code modification:-

a. 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.


b. Modification within relatives (‘Relative’ for this purpose would mean as defined under Companies Act, 2013)

(ii) Error Account:

a. Shifting of trades to the ‘Error account’ of broker would not be treated as modification of client code, provided that trades in ‘Error account’ are subsequently liquidated in the market and not shifted to some other code.

b. Further, broker shall disclose the codes of accounts which are classified as ‘Error accounts’ to the Exchanges. Each broker should have a well-documented error policy approved by the management of the broker. Exchanges shall periodically review the trades flowing to the error accounts of the brokers.

2. The above clarifications and earlier norms prescribed by SEBI vide Circular dated March 29, 2016 with regard to client code modifications are consolidated and placed as Annexure-A.

3. This circular is issued in exercise of the powers conferred under Section 11(1) of the Securities and Exchange Board of India Act 1992, read with Section 10 of the Securities Contracts (Regulation) Act, 1956 to protect the interests of investors in securities and to promote the development of, and to regulate the securities market.

4. This circular is available on SEBI website at www.sebi.gov.in under the category “Circulars” and “Info for Commodity Derivatives”.

Yours faithfully,

Vikas Sukhwal
Deputy General Manager
Division of Market Policy
Commodity Derivatives Market Regulation Department
vikass@sebi.gov.in
Annexure-A

1. Exchanges may allow modifications of client codes of non-institutional trades only to rectify a genuine error in entry of client code at the time of placing! modifying the related order in all segments.

2. For this purpose the following shall be classified as genuine errors:

a. 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.

b. Modification within relatives (‘Relative’ for this purpose would mean as defined under Companies Act, 2013)

3. Error Account:

a. Shifting of trades to the ‘Error account’ of broker would not be treated as modification of client code, provided that trades in ‘Error account’ are subsequently liquidated in the market and not shifted to some other code.

b. Further, broker shall disclose the codes of accounts which are classified as ‘Error accounts’ to the Exchanges. Each broker should have a well-documented error policy approved by the management of the broker. Exchanges shall periodically review the trades flowing to the error accounts of the brokers.

4. If Exchange wishes to allow trading members to modify client codes of non-institutional trades, it shall

a. lay down strict objective criteria (in line with the Para ‘2’ above), with the approval of its Governing Board, for identification of genuine errors in client codes which may be modified, and disclose the same to market in advance,

b. set up a mechanism to monitor that the trading members modify client codes only as per the strict objective criteria, and

c. ensure that modification of client codes is covered in the internal audit of trading members.

d. shall not allow proprietary trades to be modified as client trades and vice versa.

e. shall levy a penalty and collect from trading members and credit the same to its Investor Protection Fund as under:

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