Dated: 12th September 2005



Re:  Due Diligence in dealings


Members are aware that recently the market has been witnessing increased activity in terms of volumes and various indices have been recording all time highs, which may be due to various underlying factors. There is a concern that the bullish sentiments in the markets could be/are being utilized by manipulators to rig up the price of undeserving scrips. The actions of such manipulators result in price rise in shares of those companies which have weak fundamentals, which are defunct or loss making, which have defaulted to their lenders etc., 


There is also a concern that some of the transactions in the stock exchange are being executed with the sole intent of availing income-tax benefits.  With the introduction of favourable income tax treatment for profit/loss arising from securities transactions done on stock exchanges the manipulators may utilize the smaller/regional stock exchanges that have lesser turnover and lower liquidity as compared to major stock exchange to execute trades in scrips at prices which are different from that prevailing in the major stock exchanges and thereby create arbitrage opportunities.


Members are advised not to trade in scrips away from the prevailing market prices and exercise caution in executing orders on their own behalf and/or on behalf of their clients.  Members are further advised to be more vigilant about the activities of their sub-brokers and clients. Members are also advised to exercise caution while dealing in illiquid, low priced/penny stocks.  Further dealings of sub-brokers/clients should be monitored closely including correlation of clients’ trading activity with the information provided by the clients at the time of registration including financial information or in view of their past trading record, including large concentration in one or few securities, etc. Besides the above, members are advised to put in place appropriate systems and procedures for the above purpose and alert the Exchange in case any unusual activity comes to their notice.


Members are also advised to ensure that they do not deal on behalf of any of the entities that have been restrained by SEBI from dealing in securities. Information of such entities is available on the websites of SEBI (


Members may please note that non-compliance of the above requirement and / or any deviation there from would attract stringent penal/disciplinary action by the Exchange.



Members may also advise their sub-brokers and clients to exercise necessary caution in their dealings and not to get carried away by unsubstantiated news, rumours, tips etc.