Pursuant to the judgement of the Hon’ble Supreme Court, in SEBI Vs BSE Brokers Forum reported in (2001) 3 SCC 482, SEBI amended the SEBI (Stock Brokers and Sub-Brokers) Regulations 1992 on February 20, 2002 in order to incorporate the direction of the Hon’ble Supreme Court to implement the recommendations of R. S. Bhatt Committee. A circular clarifying various issues raised in the representations received from brokers in their individual and representative capacities was issued on March 28, 2002.

Some further issues involving methodology of computation for purpose of levy of turnover fees on certain type of transactions such as compulsory carry forward transactions, reversal transactions pertaining to institutional trades routed through the custodians as also the methodology for computation of fees for the years for which turnover data is not available with the Exchange etc. which were represented by the Exchanges as well as the brokers in their individual as well as representative capacities were examined by SEBI. The said issues are clarified as under :-

1.      COMPULSORY CARRY FORWARD TRANSACTIONS DURING NO DELIVERY PERIOD

Transactions generated to compulsorily carry forward the transactions done during the no delivery period, if any, from settlement to settlement in any Exchange would not be included in computing the annual turnover of brokers for the purpose of levy of turnover fees.

If such transactions forms part of the member-wise total turnover figures maintained by the Exchanges, then, the same should be excluded from the total turnover by the Exchange concerned while providing turnover figures to SEBI in Annex-C of circular dated March 28, 2002.

  1. REVERSAL TRANSACTIONS PERTAINING TO INSTITUTIONAL TRADES ROUTED THROUGH THE CUSTODIANS

Trades done by Foreign Institutional Investors and other institutional investors are settled through custodians. It was represented that in order to pass the obligation from the broker to the custodians, a reverse transaction is generated by the Exchange system automatically in order to cast the settlement obligation on the custodian

The matter was examined and it has been decided that such reversal entries generated, if any, by the Exchange system automatically in order to cast the settlement obligation on the custodian would not form part of the annual turnover of brokers for the purpose of levy of turnover fees.

If such reversal transactions form part of the member-wise total turnover figures maintained by the Exchanges, then the same should be excluded from the total turnover by the Exchange concerned while providing turnover figures to SEBI in Annex-C of circular dated March 28, 2002.

  1. VYAJ BADLA TRANSACTIONS

The same methodology of computation of fees specified for carry forward / badla transactions in Regulation 10 Schedule III of SEBI (Stock Brokers and Sub-brokers) Rules and Regulations, 1992 amended as on February 20, 2002 is also applicable for vyaj badla transactions. Vyaj badla transactions, if any, shall be included under the head Carry forward transactions in Annex-A (Auditors Certification format) / Annex-C (Exchange Certification format)(as applicable) of circular dated March 28, 2002.

  1. METHODOLOGY FOR CALCULATION OF FEES FOR THOSE YEARS FOR WHICH STOCK EXCHANGES DO NOT HAVE TURNOVER DATA

It was represented by some of the Exchanges that they do not have authentic member-wise turnover data for one or more financial years.

The matter was examined and it has been decided that the following methodology shall be adopted :-

a.      For those financial years for which the Exchanges do not have authentic total turnover details, the total turnover as certified by auditor in conformity with Annexure –A of circular ref SMD/Policy/Cir-07/2002 dated March 28, 2002, if produced by the members, shall be taken on record for the concerned years without Exchange verification in Annexure –C of circular dated March 28, 2002.

  1. If the members are not in a position to furnish auditors certificate, then average total turnover of the members for immediate succeeding two financial years for which turnover data for the entire financial year is available with the Exchange shall be considered as the total turnover of the member for those years for which the turnover data is not available with the Exchange . However, in such cases, the members concerned shall not be eligible to avail of concessional rate of fees as per the SEBI (Stock Brokers & Sub-Brokers) Regulations 1992 amended as on February 20, 2002 based on the certified break-up of turnover of the concerned following years.

in case of (a) and (b) above, the Exchanges concerned would have to additionally certify in Annex-C of circular dated March 28, 2002 to the effect that :-

        i.             the Exchange does not have total turnover details of the members for the particular financial year and hence the same as certified by auditor in Annex-C of circular dated March 28, 2002 has been furnished or

  1. the Exchange does not have total turnover details of the members for the particular financial year and members also are not in a position to furnish the auditors certificate, hence, average total turnover of the members for immediate succeeding two financial years for which total turnover figures for the entire financial year is available with the Exchange has been furnished.

(Whichever clause is applicable may be inserted. )

 1.      FEE CONTINUITY BENEFIT WHERE THE ERSTWHILE INDIVIDUAL/ PARTNER DIES PRIOR TO COMPLETION OF THREE YEAR PERIOD FROM CONVERSION OF MEMBERSHIP

It is clarified that all converted corporate entities which were otherwise eligible for fee continuity benefit under clause 4 of the Part I of the SEBI (Stock Brokers and Sub-Brokers) Regulations 1992 read with circular dated March 28, 2002, are eligible for fee continuity benefit even in case of death of the erstwhile individual/ partner who has been inducted as whole time director in the corporate member after conversion, within a period of three years from date of conversion of membership provided that:-

a.      the erstwhile individual/ partner (member partners in case of Exchanges which admit members as partners but do not admit partnership firms as members of the Exchange) was satisfying the conditions laid down in clause 4 of part I of Schedule III above, till his/ her death and

the legal heirs of such whole time directors of corporate members satisfy the above conditions till the completion of the remaining period.

1.      TRANSFER OF MEMBERSHIP TO 100% SUBSIDIARY, GROUP COMPANY, HOLDING COMPANY, ETC.

Where brokers are forced by compulsion of law to transfer their membership to :-

        i.             100% subsidiary company or

  1. group company or
  2. holding company

they shall not be required to pay fees afresh. In such cases, the Exchange would have to enumerate the circumstances under law resulting in the said transfer to 100% subsidiary/ group/ holding company for consideration by SEBI.

For this purpose,

o        A company would be classified as a group company of another company, if the controlling persons/ entities in both the companies are same i.e. such persons/ entities hold atleast 51% of the paid-up capital (40 % in case of listed company) in both the companies.

    • A company would be classified as a holding company of the trading member corporate, if its shareholding in the member corporate was above 51%.

 MERGERS/ AMALGAMATIONS

Where mergers/ amalgamations are carried out as a result of compulsion of law, fees would not have to be paid afresh by the resultant transferee entity provided that majority shareholders of such transferor entity continue to hold majority shareholding in transferee entity. The Exchange would have to enumerate what constitutes "compulsion of law" resulting in such merger/ amalgamations, for consideration of SEBI.

  1. DEFINITION OF PUBLIC SECTOR UNDERTAKING (PSU) FOR THE PURPOSE OF REGISTRATION FEES PAYABLE BY STOCK BROKERS ON PSU BONDS

SEBI has been receiving queries from brokers as regards definition of PSU bonds for the purpose of registration fees payable as also whether mutual fund units would become eligible for concessional rate of fees under clause (bb) of para I of Part I of SEBI (Stock Brokers and Sub-Brokers) Regulations 1992.

It is clarified that for the purpose of sub-clause (ii) of clause (bb) of paragraph 1 of Schedule III to SEBI (Stock Brokers and Sub-Brokers) Regulations 1992, bonds issued by Public Sector Undertaking would include bonds issued by companies in which Central or State Government holds 50% or more of the equity capital or is in control of the company.

It is further clarified that transactions in units issued by mutual funds whether public or private would not qualify for concessional rate of fees.

The Exchange/ auditor would have to additionally certify in Annex-C/ Annex-A of circular dated March 28, 2002 respectively to the effect that turnover shown under the category of PSU bonds/ Government securities is in conformity with the definition of PSU bonds given as above.

The revised auditors certificate format and revised format of Exchange certification is enclosed.

All Exchanges are advised to forward the turnover details in conformity with the revised certification format and also bring the revised auditors certification format to the notice of members.

Yours faithfully,

P.K.BINDLISH

REVISED FORMAT OF AUDITORS CERTIFICATE FOR REPORTING TURNOVER

ANNEX - A

                                Member’s name :

Member’s trade name :

Member’s SEBI Registration number :

(as appearing on the SEBI Registration certificate)

Name of the Stock Exchange :

TURNOVER TABLE

Financial Year Jobbing turnover (sale side),

if any

 Jobbing turnover (purchase side), if any PSU bonds/ Govt securities turnover (two-side), if any Other debt market turnover(two-side), if any *Carry-forward turnover, if any Carry-forward off-setting entry turnover, if any {to be given only if included in (6) } Off-market turnover (two-side), if any Other turnover

(two-side)

 Total turnover

(1)

(2)

(3)

(4)

(5)

(6)

(7)

(8)

(9)

(10)=(2)+ (3)+(4)+(5)+(6

– (7)+(8)+ (9)

 

 Rs.crore Rs.crore Rs.crore Rs.crore Rs.crore

Rs.crore

 Rs.crore Rs.crore Rs.crore

 

 

 

 

 

 

 

 

 

 

*Carry forward turnover shall include carry forward, renewal, badla, ALBM, BLESS and Vyaj Badla transactions.

FEES COMPUTATION TABLE

Financial Year Fees on Jobbing turnover, if any Fees on PSU bonds/ Govt securities turnover, if any Fees on Other debt market turnover, if any Fees on Carry-forward turnover less off-setting entries(if included), if any Fees on Off-market turnover, if any Fees on Other turnover

turnover, if any

 Fees payable

(1)

(2)

(3)

(4)

(5)

(6)

(7)

(1)+(2)+(3)+(4)+(5)+ (6)+(7)

 

Rs.

Rs.

Rs.

Rs.

Rs.

Rs.

Rs.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Block of 5 yrs

 

 

 

 

 

 

 

 Total Fees Payable Rs.

 

 

 

 

 

 

 

 Less Fees Paid Rs

 

 

 

 

 

 

 

 Balance Fees Payable Rs.

 

 

 

 

 

 

 

 Interest Payable Rs.

 

 

 

 

 

 

 

 Interest Paid Rs.

 

 

 

 

 

 

 

 Balance Interest Rs.

 

Certification by Auditor should also include the following confirmation :-

1.      That the break up into various components of the total turnover is in conformity with Schedule III of SEBI(Stock Brokers and Sub-Brokers) Regulations 1992 as amended on February 20, 2002 and, further,

  1. jobbing transactions reported, are in conformity with Paragraph (1), clause (bb) of Schedule III of SEBI(Stock Brokers and Sub-Brokers) Regulations 1992 as amended on February 20, 2002, i.e. transactions that are reported as jobbing have been squared off during the same day and that such transactions have not been undertaken by the broker on behalf of clients.
  2. # The turnover shown under PSU bonds/ Government securities category is in conformity with circular dated September 30, 2002 issued by SEBI on bonds issued by Public Sector Undertakings eligible for concessional rate of fees.

# The clause to be inserted, if applicable.

ANNEX - C

REVISED FORMAT FOR REPORTING THE TURNOVER FIGURES OF THE MEMBERS BY EXCHANGES TO SEBI

Stock Exchange Code NUMBER(2) e.g.(xx => 01)
SEBI Registration No CHAR(12) e.g. (INB010034314)
Broker Name CHAR(70)
Trade Name CHAR(70)
Jobbing turnover(sale side), if any NUMBER(16, 04) {in Rs. Crore }
Jobbing turnover(purchase side) NUMBER(16,04) {in Rs. Crore }
PSU bonds/ Govt Securities turnover(two sided), if any NUMBER(16,04) {in Rs. Crore }
Other debt market turnover(two sided), if any NUMBER(16,04) {in Rs. Crore }
Carry-forward turnover, if any NUMBER(16,04) {in Rs. Crore }
$ Carry-forward off-settingturnover, if any NUMBER(16,04) {in Rs. Crore }
Off-market transactions(two sided), if any NUMBER(16,04) {in Rs. Crore }
Other turnover (two sided) NUMBER(16,04) {in Rs. Crore }
* Total Turnover NUMBER(16,04) {in Rs. Crore }
Name of the Auditor ( if any) CHAR(70)
Date of Auditors certificate ( if any) DD/MON/YYYY e.g.(20-MAR-2002)
Remarks CHAR(100) {Suggestive Remarks}
From Fin Year NUMBER(4) {e. g. 2000}
To Fin Year NUMBER(4) {e. g. 2001}

$ To be given only if off-setting entries have been included in carry forward turnover

* Total Turnover = Jobbing turnover (sale side) + Jobbing turnover (purchase side) + PSU bonds/ Govt. securities turnover(two-sided) + Other debt market turnover(two sided) + Carry forward turnover - Carry forward off-setting turnover (if included in Carry forward turnover) + Off-market transactions(two-sided) + Other turnover(two-sided)

Certification by Exchange

We have verified and reconciled from our records the total turnover figures as furnished by the member for the concerned financial years along with the auditors certificate and confirm that :-

1.      the break up into various components of the total turnover has been certified by the auditor concerned to be in conformity with Schedule III of SEBI(Stock Brokers and Sub-Brokers) Rules and Regulations 1992 as amended on February 20, 2002 and, further,

  1. in case of jobbing transactions reported, the auditor concerned has certified that the figures for jobbing transactions are in conformity with Paragraph (1), clause (bb) of Schedule III of SEBI(Stock Brokers and Sub-Brokers) Regulations 1992 as amended on February 20, 2002, i.e. transactions that are reported as jobbing are squared off during the same day and have not been undertaken by the broker on behalf of clients.

The turnover data furnished in soft copy is in conformity with the hard copy of turnover data enclosed.

  1. # The Exchange does not have total turnover details of the members for the financial year -------------- and hence the turnover figures for the said financial year as certified by auditor in conformity with Annex-A of circular dated March 28, 2002 has been furnished OR

# The Exchange does not have total turnover details of the members for the financial year -------------- and the members are also not in a position to furnish the auditors certificate, hence, average total turnover of the members for immediate succeeding two financial years for which total turnover figures for the entire financial year is available with the Exchange has been furnished.

( whichever clause applicable, may be inserted)

a.      # The turnover shown under PSU bonds/ Government securities category has been certified by the auditor to be in conformity with clarification issued by SEBI vide circular dated September 30, 2002 on bonds issued by Public Sector Undertakings eligible for concessional rate of fees.

# The concerned clauses to be inserted, if applicable.

For ---------------------- Stock Exchange