GUIDANCE MANUAL

FOR
AUDIT OF MEMBERS OF
COMMODITY FUTURES EXCHANGES

FORWARD MARKETS COMMISSION

MINISTRY OF CONSUMER AFFAIRS, FOOD AND PUBLIC DISTRIBUTION
DEPARTMENT OF CONSUMER AFFAIRS
EVEREST, 3RD FLOOR, MARINE DRIVE
MUMBAI 400 002

GUIDANCE MANUAL
FOR
AUDIT OF MEMBERS OF
COMMODITY FUTURES EXCHANGES

FORWARD MARKETS COMMISSION

MINISTRY OF CONSUMER AFFAIRS, FOOD AND PUBLIC DISTRIBUTION
DEPARTMENT OF CONSUMER AFFAIRS
EVEREST, 3RD FLOOR, MARINE DRIVE
MUMBAI 400 002

FOREWORD
The Commodity futures market has witnessed rapid growth
since the setting up of Multi Commodity Electronic Exchanges in 2003.
During the last 8 years, there have been substantial regulatory, structural
and operational changes in the commodity futures market.These have
been brought in with the objective of improving market efficiency, enhancing
transparency, preventing unfair trade practices and bringing the Indian
markets up to International standards.Inspectionof members of
Exchanges both by FMC and Exchanges has been one such step which has
contributed towards strengthening controls & ensuring transparency.

2.The FMC/ Exchanges have been conducting inspection of members

on regular basis. However, a need was felt to ensure that such inspections
are comprehensive and cover all aspects of regulatory regime in place.
Therefore, the Forward Markets Commission (FMC) has come out with this
Guidance Manual for Audit of Members of Commodity Futures Exchanges.
This Guidance Manual broadly covers various aspects related to trading in
Commodity Future Markets including regulatory aspects and provides broad
guidelines for conducting such inspections.

3.I am sure that the Guidance Manual would not only improve the
quality of audit inspection of the members of the Commodity Exchanges and
improve compliance of the regulatory regime, but would also be helpful to
the professionals as well as to the members of the Exchanges.

8th December, 2011

Mumbai

Ramesh Abhishek
Chairman

CONTENTS

PART A
.. 1
INTRODUCTION......
1.1
Background ..
..
1.23 .3
1.3

Objectives ......
..........3
PART BProvision
..
for Inspection ....
...5
.......3
METHODOLOGY
OFOfficials
INSPECTION
.
2.1Team of Inspecting
. ...........7
5
2.1.1 Constitution ....
......7
2.1.2Conduct of Inspecting Officials ...............7
2.2Methodology of Inspection .............8
2.2.1Information/Data from Members..............8
2.2.2Coverage of Inspection ...........8
2.2.3Sample Selection ..................11
2.2.4Use of such selection .........13
2.3Requirements from the Inspection Team after completion of
Inspection...........................................................................................................13
2.4Drafting of Inspection Report .......14

PART C
.. 15
INSPECTION COVERAGE ...
15
3.1 Membership related requirements to be followed by each Member ........17
Membership
Requirements
...
17
3.2 Appointment
of Authorized
Person ...18
3.2.1 Eligibility for Authorized Person ....18
3.2.1.1 For an Individual .
19
3.2.1.2 For a Partnership Firm /LLP/Body Corporate ....19
3.2.2Verification with respect to the Obligations of the Member ....19
3.2.3Trading Terminal to Authorized Person ....21
3.2.4Points to be considered by the Inspection team for Authorized person ...21
3.2.5Verification of Member Authorized person Agreement....22
3.2.6Change in Authorized person status ...22

Verification of Books of Accounts and Other Records ......23

4.1
4.2

Maintenance of Books of Accounts /Documents / Records.....23

Records in Soft Forms /System .
..25
4.2.1 Register of Transactions .....25
4.2.2 Client Ledger ..
....25
4.2.3 Bank Book .
.26

4.2.4
4.2.5
4.2.6
4.2.7
4.2.8
4.2.9
4.2.10

Cash Book
.........27
Margin Deposit Book .
.....27
Trade Log and Order Log
...27
Order Book
.......27
Trade Files
........27
Agreements, Documents
Authorizations etc. ...31
Register of Commodity
5.1 Member- ...28
Client Agreement ..... 31
5.1.1 Execution
of Agreement
.....
Register
of Complaints
....
31
28
5.1.1 Format of Agreement .
31
5.2 Know Your Client (KYC) Form / Client Registration Form...... 32
5.2.1 Format of KYC Form ..
...32
5.2.2 Documents required from client (s) along with KYC form ... 32
5.3 Risk Disclosure Documents (RDD) and investors Rights and Obligations (IR&O).. 33
5.4 Client Account Closure
Clientele
Transactions
.
34
35
6.1Creation
andand
allotment
5.5
List of Dos
Dont of Unique Client Code (UCC) 35
6.1.1 UCC Uploading to the Exchange
35

34
6.1.2 Verification of the data .
.36
6.1.3 Allotting Single Client Code .
..36
6.2Modification of Client Code ..36
6.3Brokerage
..38
6.4Portfolio Advisory and Management Services ...39
6.5Bank Accounts .
..39
6.6Handling the Commodities of Clients for Deliveries ...42
6.7Margin Collection ...
.43
6.8Cash Dealing..
.. 45
Trading
.
6.9IssueSystem
of Statement
of accounts/ funds of Clients .. 46
49
7.1
Id and Approved
6.10User
Unutilized
Balances Users
49
. 47
7.1.1
Approved
users
6.11
Inactive
Clients
....49
47
7.1.2 User ID
....49
7.2 Internet Based Trading (IBT) ...
.50
7.3 Computer to Computer Link (CTCL)
50
7.3.1Development of CTCL Software.. 50
7.3.2Some of the guidelines / requirements for use of CTCL terminals .. 50
7.4Terminal Location
..51
7.5Antivirus Software
52

7.5.1 Regular backup of important data on the Systems ....52

7.6Pro- Account Trading Terminals ..54
7.6.1No. of Terminals ..
54
7.6.2Approval from Exchange ...54

Contract Notes
.55
8.1 Requirements on Issue of Contract Notes to Client ......55
Miscellaneous
59
9.1
Trading Activity
9.2
9.3
9.4
9.5
9.6
9.7
9.8
9.9

.. .59
Internal Review
.. .59
Notification to the Exchange
..59
Display of Notice Board
.59
Stamp Duty and Service Tax
60
Statutory Dues
. 60
9.10 Exchange LOGO /Emblem
9.11 60
9.12 Advertisement..
9.13 60
9.14 Circular Trading, cross deals, price rigging, price manipulation and other
9.15 market Abuses
9.16 . 61
9.17 Previous Audit Observation:
9.18 . 61
9.19 Certified Commodity Professional .
9.20 61
9.21 Code of Conduct for Members
9.22 . 61
Compliance with Regulatory Directives .
62
Appointment of Compliance Officer ...
62
Appendix
Adherence to Anti Money Laundering norms 62
Submission of Annual Returns
1. Schedule
I: Pre- Inspection Questionnaire
63
2. Schedule
II:
Inspection Report
Report (ACR) . 63
Submission
ofFormat
AnnualofCompliance
BPO / KPO Services Segregation thereof from Commodity Derivatives Market 64
Insurance Policy
.. 64
Audit reports of corporate member .
64
ROC related compliance
.. 64
Miscellaneous
64

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PART A
INTRODUCTION

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CHAPTER I

INTRODUCTION
1.1

Background

Commodity Futures Exchanges are responsible for ensuring orderly conduct of its Members and also for
ensuring that the relevant Rules, Regulations, Bye-Laws, Business Rules, Circulars and directives given by
FMC and other relevant authorities are being complied with. To perform these functions, the Exchange
conducts inspection of its Members. Inspection of members of Exchanges are also conducted by the
FMC.

The thrust of inspection is on the overall working of the Members gauged from the examination of books
and accounts and other records and through system verification.

1.2

Objectives

The objectives of the inspection of Members of the Exchange are to verify whether:
a)

The provisions of Circulars, Rules, Bye-laws and Business Rules of the Exchange are being
complied by such Members;

b) To ascertain as to whether the member has violated any of the requirements of FCRA Act
and / or directives given by FMC from time to time.
c)

To ascertain action taken against the Member in the past by FMC/Exchange for deficiencies and
if so, the extent to which such deficiencies have been rectified or still being repeated.

1.3

Provision for Inspection

Bye-Laws, Rules and Regulations/Business Rules of the Exchange provide the scope for the Inspection of
Members .

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PART B
METHODOLOGY OF INSPECTION

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CHAPTER II

INSPECTION PROCEDURE
2.1

Team of Inspecting Officials

2.1.1

Constitution

The team should consist of qualified persons having the necessary skills and knowledge of Commodity
Futures Market and operations of Members of the Exchange. Working knowledge of Rules / Bye-Laws /
Business Rules of the Exchange and FCRA is desirable. The team leader should supervise the conduct of
inspection and ensure that the same is carried out efficiently and with due-diligence.
2.1.2

Conduct of Inspecting Officials

a)

The Inspecting officials are considered representatives of the Exchange; hence, a

professional conduct is expected from them while dealing with the Members of the
Exchange.

b)

Since, inspecting auditors firm, its employees and other personnel are privy to
confidential information during the course of inspection, they shall undertake and
confirm that their partners, employees and other personnel will not divulge any
information that has come to their possession during the course of Inspection to any
persons other than the authorized officials of the concerned Commodity Exchange and /
or FMC or to a statutory authority, under any provisions of law.

c)

Auditors should not have any conflict of interest (direct/indirect association with the
member). If the Auditor has any interest in the Member being audited, the assignment
should be avoided and the said details must be disclosed and shared with the concerned
Exchange in writing before commencing the inspection procedure.

d)

The auditor should also ensure that they should not have any conflict of interest or
association directly / indirectly with the member, they audited, for a period of 3 years
from the submission of the inspection report to the authority.

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2.2

Methodology of Inspection

The minimal activities to be carried out for an effective inspection of the Members are suggested as
below:
2.2.1.

Information/Data from Members

The Inspection team will send a pre-inspection Questionnaire ( The minimum requirement is given in the
model format presented in Schedule-I ) to Member to fill in the answers/ information required.
Inspecting Officials should refer to the same before starting the Inspection of the said member in order
to plan their Inspection procedure. The auditor may seek any additional information as may be desired
for the completion of the inspection besides the ones mentioned in the said format after consulting the
Exchange
2.2.2.

Coverage of Inspection

The Inspection team must note that if the Member being inspected is also a Member of any other
Commodity Futures Exchanges, books of accounts and other records related to such other Exchanges
may also be required to be audited. However, the audit report pertaining to each Exchange need to be
prepared separately and should be sent separately to the concerned Exchange alone. Confidentiality
pertaining to audit work of each Exchange needs to be maintained strictly. The need for such reports of
audits, if required, would be specified in the Inspection allotment letter.

The Inspection officials may plan their program in consultation with the Member so as to cover the
entire process right from the receipt of order by the Member from the client(s) to the final settlement in
terms of payment of funds and/or delivery of commodities to respective clients.

2.2.2.1 Regarding Members dealing with the Clients -- Refer Chapter 4 to 9:

The main subsets in this entire chain of executing clients orders which need verification at each stage
include the following:
a)

Obtaining complete clients registration forms/ Know Your Clients (KYC) forms with all
supporting documents, executing agreements with clients (member-client agreements)

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and obtaining Risk Disclosure Document (RDD) / Investors Rights and Obligations (IRO),
client Declaration cum -undertaking.
b)

Upload of Unique Client Code.

c)

Receipt of order.

d)

Collection of margin money from clients as per Exchange guidelines.

e)

Evidence of client placing (modifying/canceling, as the case may be) order.

f)

Routing the order through exchange trading mechanism by putting Unique Client Code
(UCC) and execution of order.

g)

Issue and delivery of contract notes to clients.

h)

Payment of margins by the Member to Clearing House of the Exchange.

i)

Receiving money from clients for purchase transactions and receiving commodities in
case of sale transactions for meeting pay in obligations to the Exchange.

j)

Routing the clients money through a separate bank account.

k)

Timely pay-in of fund to clearing house and pay-in of commodity at respective designated
warehouses as per contract specifications of the commodity.

l)

Receipt of money/commodity from clearing house/warehouse.

m)

Timely delivery of commodities / payment of funds to clients.

n)

Issue and delivery of funds and commodities statement to the clients at the intervals as
prescribed by the FMC/Exchanges.

o)

Clients grievances are attended and resolved in timely manner.

p)

Inspect that no unfair trade practice has been carried out by the Member.

q)

Inspect whether the member is involved in assuring/providing guaranteed returns to the

investors.

r)

Inspect whether the member is involved in any activity that may be termed as Portfolio
Management Services or Portfolio Advisory Services or activities of similar nature.

s)

Inspect whether the member has indulged in off-market trading or any activity that may
be termed or included, in the purview of (Illegal) Dabba trading.

t)

Inspect whether the member has indulged in payment/receipt of money from the clients
other than through legitimate channels as defined by the Exchanges/FMC from time to
time.

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u)

Inspect whether the member is involved in any client code modifications which were not
reported to the Exchange and for which the member is not penalized by the concerned
Exchange.

v)

Inspect a) whether the client code modifications done by the member on the Exchange
platform, if any, were genuine punching/data entry error b) whether there are any
instances of proprietary trades being modified as client trades and vice versa and
c) whether there is a pattern in client code modification, any trades of the same client
are modified frequently.

w)

Inspect whether the member had traded ahead of client, either directly or indirectly.

x)

Inspect whether the trading is circular , artificial or without legitimate economic

purpose.

y)

Inspect whether

the member

is

making market,

if so, the compensation is as

prescribed, if prescribed.
z)

Provisions relating to Guidelines on Anti Money Laundering and KYC norms.

aa)

Provisions relating to BPO/KPO Services.

Auditors may also report other discrepancy which may come to their notice.

2.2.2.2 Regarding Members Proprietary Trading (i.e., trading in members own account) -- Refer
Chapter 4 to 9:
If the member is involved in the proprietary trading, i.e., trading on his/her own account, then the
Inspection team is also required to verify that all trades undertaken in own account are for the member
entity only, and for example, not undertaken on clients behalf either to reduce margin liability or to allow
clients to trade while remaining outside banking channel. The Inspection team is also required to verify
and confirm that there is no irregularity observed in the members trading. Following is also required to
be verified by the Inspection Team:
a) Whether the member has done its trading from more than one location and if so whether the
member has obtained the permission for the proprietary trading from the Exchange for
specified terminals/locations and used them according to the circulars issued by the Exchange
/FMC in this regard from time to time.
b) Inspect whether User IDs are allotted to the employees and Authorised Persons only.
c) Whether the member has issued any contract notes and statement of accounts, if yes to
which entities, verify the purpose and justification for the same.

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d) Verify whether the member has clients in the back-office which are not registered with the
Exchange.
e) If the member is not involved in clientele business, verify whether member has accounted for
any brokerage income. If yes, verify the purpose and justification for the same.
f)

Client bank account opened by such members should not be utilized. Verify whether the
member has utilized client bank account and for what purpose.

g) Inspect whether any third party funds have been received in own bank account, if yes for
what purpose.
h) Whether the member is involved in any cash dealings.
i)

Inspect whether the trades for directors/partners/sister concerns/family members are

considered as proprietary trades.

j)

Whether the member has undertaken any client code modification outside the Exchange
platform.

k) Inspect whether the member has indulged in off-market trading or any activity that may be
termed or included in the purview of (Illegal) Dabba trading.
l)

Inspect whether the member has taken any delivery, if yes then was there any transfer of the
same to any other entity.

2.2.2.3. Regarding Membership Requirements -- Refer chapter 3:

The inspection team is required to verify whether the member has complied with all the membership
requirements such as meeting the networth, taking approval from the Exchange and also with the
guidelines for appointment of Authorized Persons.
2.2.3.

Sample Selection

The Inspection will be conducted on the basis of data selected on a sample basis unless until it is
specified by the Exchange/FMC. In case of special purpose inspections, The Exchange/FMC will specify
the quantum of the sample to be selected which may even extend to 100% depending on the case.

For the members who are involved in clientele business, there is minimum recommended uniform
criteria for selection of samples as given below. For the members involved in proprietary trading and/or
for proprietary trades, the Exchange/FMC will specify the quantum of the sample to be selected which
may even extend to 100% depending on the case.

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2.2.3.1 Criteria for selection of dates (Applicable in case of clientele business): Certain dates are to be
selected as sample and all the transactions on the said date are to be inspected for compliance.
These dates are selected on the basis of the following guidelines:
1.

In each month, the inspection team is required to select at least 3 trading days. It will
include the date on which member has highest turnover date, the next trading date and
the previous trading day as sample dates for inspection.

2.

For the last month of the period of audit, if the next trading date falls beyond inspection
period then the second highest turnover date, next trading date and the previous trading
date will be selected as sample dates .

3.

Any other dates, over and above the dates as selected above, may be considered on
merit basis.

4.

In case of other samples, the Inspection Team should ensure that the selection covers the
various constitutions (i.e. corporate, Partnership, Individuals and LLP) .

5.

The selection of dates should be such that the sample is representative of the total trade
of member and also takes into account the exceptional cases.

6.

100%

of

clients trading on the dates selected should be verified for KYC, client

margining, client ledger accounting, issue of contract notes, deliveries and payment etc.

2.2.3.2 Criteria for selection of sample of clients:

1.

From the inspection period, , the inspection team is required to select at least 50 clients
on the basis of the client turnover or 10% of clients registered during the period of
inspection whichever is higher.

2.

The inspection team can increase this sample size if they feel so. In case of large firms,
representative sample size needs to be taken.

3.

If a member has clients who trade only for a few days in a year, then all such clients
should be covered.

4.

In respect of above such clients, all transactions including KYC norms to be verified. In
particular, it should be verified whether the transactions were in illiquid contracts and
with common clients / members.

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2.2.4.

Use of such selection :

The inspection team is required to do 100% check of the aforesaid sample selection (dates / clients).
However, the above sample size may be suitably altered where circumstances so require (for eg: if the
total no. of clients with the member are only 25, then 100% selection of clients is warranted). The period
of sample may be such that it represents various market trends and the rationale for the selection of
sample period may also be recorded in writing in the inspection report.
2.3

Requirements from the Inspection Team after completion of Inspection:

a)

After successful completion of the inspection, the Inspection Team should obtain a
confirmation from the Members that all the documents/records/registers/ information
provided to the Inspection Team are True and Correct.

b)

All the documentary evidence(s) collected during the course of Inspection, which may be
used by the Inspection Team as Annexure to the Report, should be authenticated by the
Member on each page (to be Stamped & Signed by the Member). It is mandatory that
the documentary evidence(s) is/are authenticated by the Member. In the event of any
non-cooperation from the Member, the Inspection Team may approach the concerned
Exchange with the matter.

c)

The Inspection Team should discuss all observations /discrepancies found during the
inspection and obtain the Members written acknowledgement on the observations
discussed. The same should be submitted to the Exchange along with the final Inspection
Report (Schedule II ). The Member must provide a written acknowledgement of the list
of observations raised by the Inspection Team. The Member may offer his views,
counter-views and comments on the observations, which may be attached with the
Inspection Report, as an Annexure.

d)

The Inspection Team shall also be required to complete the inspection and submit a
report of inspection of the Member within the period as specified in appointment letter.

e)

The Inspection Team is required to submit the Inspection Report in the format given
along with appointment letter by the Exchange. Any other information and findings
which the inspection team wishes to provide, may be provided in the end under the head
Other information, if any .

The Inspection Report would need to be submitted

immediately following the completion of the Inspection, duly signed by the Inspection

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Team (i.e. the CA firm). The Inspection Team must ensure that the Inspection Report is
stamped and signed by the Member (i.e. Authorised Signatory Designated Director /
Managing Partner etc.)
f)

Each observation in the Inspection Report needs to be quantified, supported with

relevant documents which were inspected and should be accompanied with relevant
reference of the Rules, Bye-Laws, Business Rules, Bye-Laws, Circulars of the Exchange,
FCRA and FCRR etc. Wherever the Exchange has provided / prescribed the format, the
Inspection Team is required to use that particular format for providing the number of
instances for the violations observed from the sample selected. This observation does
not pertain only to items to which penalties are leviable. If possible, all quantifiable
violations should be quantified in order to enable the Exchange to take a view.

g)

A fortnightly status report is expected from the auditors stating the progress of
inspection of each Member allotted to them.

2.4.

Drafting of Inspection Report :

A draft format of Inspection Report is enclosed as schedule-II. The Inspection Report should be
submitted as per the schedule, both in hard copy and in soft copy (compact disk )

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PART C
INSPECTION COVERAGE

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CHAPTER III
Membership Requirements
3.1 Membership related requirements to be followed by each Member:

3.1.1

Networth Requirement:
a) Members are required to ensure that minimum amount of net-worth as prescribed by the
Relevant Authority/Exchange from time to time is maintained throughout the year.
b) In case, the member is having membership of more than one (1) Commodity Exchange and /
or any National Commodity Spot Exchange, the minimum amount of networth as prescribed
by each Exchange from time to time is required to be maintained throughout the year by the
concerned member. This has to be verified during the course of inspection and any violation
noticed should be highlighted.

3.1.2

Approval Requirements:
Every Member of the Exchange is required to take prior approval of the Exchange or will
promptly notify the Exchange in writing (as the case may be) about any change in the
information provided by the Member of the Exchange at the time of admission or at a later
stage to the Exchange as per Rules. Such changes includes:
(i)

Change in constitution

(ii)

Change in trade name

(iii)

Change in share holding pattern / sharing pattern

(iv)

Change in Dominant Promoter Group

(v)

Change in Directors/ Managing Partners

(vi)

Change in address (both registered and correspondence)

(vii)

Change in contact details

(viii)

Change in Compliance Officer / Principal Officer

Members are required to obtain prior written permission of the Exchange for any change in
shareholding /sharing pattern / Dominant Promoter Group (DPG) except when such change
in shareholding / sharing pattern:

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(i)

Does not alter the shareholding /sharing of DPG constituents in percentage

terms

(ii)

Does not lead to addition or deletion of a DPG constituent

(iii)

Does not result in change in management/ control

3.2 Appointment of Authorized Person

An Authorized Person means and includes any person whether being an individual, (including
proprietors), a partnership firm as defined under the Indian Partnership Act, 1932, a Limited Liability
Partnership (LLP) or a body corporate as defined under the Companies Act, 1956 who is appointed as
such by a Member of a recognized Commodity Derivative Exchange upon the approval of such
Commodity Exchange, for providing access to the trading platform of a Commodity Derivative Exchange,
an agent of the Member of the Commodity Derivatives Exchange.

It is generally noted that Members attempt to circumvent the requirement of registration of Authorized
Persons by treating Authorized Persons as their clients. The Inspection Team should analyze the accounts
of major clients of the Member to ascertain whether those clients are Authorized Persons which are not
registered with the Exchange as required. It may also be noted that the Members generally undertake
out-station business through Authorized Persons (unless they have branch in that area) and those are
not designated as such.

The Inspection Team may have focus on out-station clients having major business with the Member to
ascertain the violations of the Exchanges/FMCs requirements. Whenever in doubt, the Inspection Team
should immediately refer to the database of the clients in case the Member claims that a particular
account is that of a client and not of an Authorized Person.
3.2.1

Eligibility for Authorized Person

An Individual (including Proprietors), Partnership Firm as defined under the Indian Partnership Act, 1932,
a Limited Liability Partnership (LLP) or body corporate under the Companies Act 1956 is eligible to be an
Authorized person of the Exchange subject to fulfilling below mentioned criteria:

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3.2.1.1 For an Individual:
a)Is a citizen of India
b)

Is not less than 18 years of age

c)

Has not been convicted of any offence involving fraud or dishonesty

d)

Has not been suspended or barred by any Stock or Commodity Exchange for a period of
more than six continuous calendar months

e)

Has a good reputation and character

f)

Has passed at least 10th standard or equivalent examination from an Institution

recognized by the State /Central Government

g)

Possesses such certification that may be required by the Commodity Derivatives

Exchange, as approved by the Commission from time to time

3.2.1.2 For a Partnership Firm/LLP/Body Corporate:

a)

If all partners or directors, as the case may be, comply with the requirements contained
above

b)

The object clause of the Partnership Deed or Memorandum of Association contain a

clause permitting the person to deal in commodities derivative contracts

3.2.2

The Inspection Team must also consider the following with respect to the Obligations of the
Member:
i.

The Member is required to enter into an agreement prescribed by the Exchange with
each of such Authorised Persons after receipt of communication of acceptance of such
Authorised Person by the Exchange.

ii.

The Member will permit the Authorised Person to admit or introduce clients and accept
orders from the clients on their behalf only after execution of the agreement as stated
above.

iii.

Members are responsible for all acts of omission and commission of his Authorized
Person and /or their employees, including liabilities arising there from.

iv.

If any trading terminal is provided by the Member to an Authorized Person the place
where such trading terminal is located will be treated as branch office of the Member.

v.

The Member will display at each such branch office, additional information such as
particulars of Authorised Person, in-charge of that branch, terms and conditions of his

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appointment, time lines for dealing through Authorised Person etc. as may be specified
by the Exchange.
vi.

Members are required to notify changes, if any, in the Authorized Person to all
registered clients of that branch at least thirty days before the change.

vii.

In case of any change in partners/ directors, change in shareholding/sharing pattern of

the Authorized Person, Members are required to intimate the Exchange of the details of
the proposed change at least 30 days in advance in the format prescribed by the
Exchange.

viii.

In case of any change in status and /or constitution of the Authorized Person, Members
are required to intimate the Exchange of the details of proposed change and submit all
the documents of the proposed change at least 30 days in advance in the format
prescribed by the Exchange.

ix.

Members are required to conduct periodic inspection of branches assigned to

Authorized Persons and records of the operations carried out by them. The copies of
such inspection reports will be retained by the Member as a record for inspection of the
Exchange and/or FMC, if required.

x.

It is the responsibility of the Member to audit the records of its Authorized Person to
ensure that they comply with the Rules, Bye laws, Business Rules and Circulars of the
Exchange issued from time to time.

xi.

The clients dealing through an Authorised Person are required to be registered with the
Member only. The funds, monies, commodities, warehouse receipts etc. of the clients
will be settled directly between the Member and client. No fund/commodities of clients
will be deposited / transferred / credited into any account of Authorized Person.

xii.

All documents like contract note, statement of funds and commodities would be issued
to client by the Member. Authorized Person will only provide administrative assistance in
procurement of documents and settlement, but are not allowed to issue any document
to client in its own name.

xiii.

On noticing irregularities, if any, in the operations of Authorized Person, the Member will
forthwith seek withdrawal of approval, withhold all moneys due to Authorized Person till
resolution of client grievances, alert clients in the location where Authorized Person
operates, file a complaint with the police, and take all measures required to protect the

interest of clients and market.

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xiv.

Members are required to ensure that no orders are executed by Authorized Person
before all documents as prescribed by the Exchange/commission as the case may be,
including Member Constituent Agreement, Client Registration Form and Risk Disclosure
Documents are obtained from each such client.

xv.

Uploading of details pertaining to the Unique Client Code (UCC) is the responsibility of
the Member and the Authorized Person cannot create/allot such UCC to any client.

xvi.

All documents as mentioned in xiv above should be made available with the Member for
the audit / inspection or as and when required by Exchange or the Commission.

3.2.3
i.

Trading Terminal to Authorized Person

If any trading terminal is provided by the Member to the Authorized Person, the place where
such trading terminal is located will be treated as a branch office of the Member

ii.

In addition to display of the notice board at the branch offices, members are also required to
display information regarding particulars of the Authorized Person in charge of that branch,
terms and conditions of his appointment, time lines for dealing through Authorized person, etc.,
as may be specified by the Exchange.

3.2.4

At the time of Inspection, the Inspection Team must consider the following points:
a)The system of sub-brokers by whatever name called is discontinued w.e.f from January
31, 2011.

Members are allowed to provide access to their clients only through

Authorised Persons from the said date.

b)

The Inspection Team must verify that the Authorised Persons appointed by the Member
are registered with the Exchange.

c)

The Inspection Team must also verify that the Authorised Person(s) are assigned a
Unique Code by the Exchange.

d)

The Inspection Team must verify that the Member has entered into an agreement
prescribed by the Exchange with each of the Authorised Persons after receipt of
communication of acceptance of such Authorized Person by the Exchange.

e)

It must be verified that the Member has conducted periodic inspection of the branches
assigned to the Authorised Person(s) and records of the operations carried out by them,
as prescribed by the Exchange. It must also be verified that the audit of the Authorised

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Person(s) has been conducted based on the guidelines prescribed by the Exchange and
FMC.
3.2.5 Inspection team should verify the following:
The Inspection Team should verify following requirements with respect to Member Authorised Person
Agreement:
a)

The Agreement should be printed on a non-judicial stamp paper of appropriate value and is
dated.

b)

The Agreement should be filled completely and properly.

c)

Date of Agreement should be after date of stamping and within six months of stamping.

d)

The Agreement should be signed by sub broker , Member as well as witnesses.

e)

All the pages of the Agreement should be signed.

f)

Agreement should contain clauses prescribed by Exchange / FMC from time to time.

g)

The Authorised Person is required to inform the Member of any proposed change in
directors, change in its status and constitution, change in shareholding/sharing pattern
along with the details of the proposed changes at least 45 days in advance in the format
prescribed by the Exchange.

3.2.6

Change in Authorised Person status:

The Member is required to intimate the Exchange any change in status and / or constitution, including
change in partners/ directors, change in shareholding / sharing pattern of the Authorized Person along
with the details of the proposed change at least 30 days in advance in the format prescribed by the
Exchange.

Further the Inspection Team must also analyse the accounts of major clients to ascertain that such
clients are not unregistered intermediaries. In the event of any doubt, the Inspection Team may crosscheck with the database of the client. The financial position of such clients vis--vis the correlation with
the volume of transactions may establish the claim whether the particular accounts are genuinely that of
a client and not of an unregistered Authorised Person being treated as a client.

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CHAPTER IV
Verification of Books of Accounts and Other Records
4.1

Maintenance of Books of Accounts/Documents/ Records

All Members of the Exchange as well as other market intermediaries are required to maintain such Books
of Accounts, Registers, Statements and other Records, in physical form or electronically, as may be
specified by the Relevant Authority and will be kept in good order and preserved at least for such period
as may be specified.

At the time of Inspection, the Inspection team should verify the following Books of Account / Records /
Registers / details, which are required to be maintained by the Member:
a)

Order log /Order Book

b)

Trade log

c)

Trade File

d)

Register of Transactions

e)

Complaint / grievance register

f)

Margin Deposit Book

g)

General Ledger

h)

Exchange wise separate client ledger

i)

Clients Bills along with bill summary

j)

Commodity register/ledger

k)

Records in respect of premium/discount

l)

Records in respect of brokerage

m)

Journals (JVs)

n)

Cash Book

o)

Bank Book

p)

Bank Pass Book/Bank Statements

q)

Daily Margin Statement and Client wise Margin reports

r)

Records of transaction of all purchases and sales of commodities / contracts

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s)

Record of all statement received from the appropriate agencies and record of all
correspondence with them

t)

Copies of all instructions obtained in writing from constituents including participants for
order placement, order modification, order cancellation, trade cancellation.(up to June
05, 2008) thereafter evidence of client placing / modifying / cancelling orders in any
form, which may include written or electronic or voice recording instrument, since
September 2009

u)

Record of contract-wise Deliveries received / tendered.

v)

Duplicate copy of Contract Notes issued to clients

w)

Proof of dispatch of contract notes to the clients

x)

Proof of receipt / delivery of Contract Notes by clients

y)

Evidences of making payment to the clients on account of Mark-To-Market gains by the

clients

z)

Any other books of accounts/documents/records as prescribed by the FMC, Exchange

and / or any relevant authority from time to time

The time period prescribed for preserving the above records / details as per applicable laws, rules, byelaws, statutory provisions etc. need to be looked into and the above records/ details be verified with
respect to such requirement .
It may be noted that a Member of the Exchange who is also a member on the National Commodity Spot
Exchanges, is required to ensure that separate ledgers are maintained for business done by clients on
Commodity Futures Exchanges and National Commodity Spot Exchanges.
4.1 (a). In case of Corporate Member, Inspection Team can also verify the Statutory Register as required
to be maintained under the Companies Act, 1956
1.

Register of Members.

2.

Register of Directors.

3. Register of loans
4. Register of Investment.
5. Register of Charges.
6. Register of Directors Shareholding
7.

Minutes of Board / Committee meetings, etc.

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4.2

Records in Soft Forms/ Systems

With computerization of Members' back office operations, some of these accounts and records may be
maintained by the Members in their Systems. Hence, the Inspection Team should confirm reliability of
such system and obtain the access to such system for effective audit.
4.2.1

Register of Transactions

All Members are required to maintain a register of transactions, which contains details of all trades
transacted by them. This is a basic record, which each Member is required to maintain regularly on dayto-day basis. It contains the details regarding the name of commodity, name of the client on whose
behalf the deals have been done, rate and quantity of commodity bought or sold. These details are
maintained date-wise and include transactions related to both
i.

Members own business on the Exchange

ii.

Members business on the Exchange on behalf of clients

The Inspection team may verify if all the transactions are recorded in the said register. Apart from this,
the transaction statements downloaded by the Members from the Exchange on a daily basis may also be
compared with transactions listed in register. The difference between the two may be on account of
Margin evasion, Open interest violations, Transfer of trades by the Member, which the Inspection Team
may include in the Inspection Report.
4.2.2

Client Ledger

Every Member of the Exchange is required to segregate and maintain exchange-wise client ledger.

This ledger contains the details of the bills raised by the Member on the clients and the payment
received from or made to them for trade executed and /or any other charges debited by Member to
clients. The Inspection Team must ensure that there has been no delay in making payment of funds /
delivering commodities to the clients. Payments / delivery to the clients in certain settlements may be
verified, on a sample basis, to ascertain delays.

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Inspection of this ledger can bring out delay in making payment or delivering commodities to the clients.
In instances wherein the Member offers explanations for delay in payment due to the instructions of the
client; the Inspection Team may verify the written confirmation from the clients to the Member in this
regard.

The Inspection Team may also notice other irregular accounts in this ledger which may be further
inquired. While reviewing clients ledger, if a continuous debit balance is observed, the Inspection
officials should ask the reason for the same. If the reply from the Member is not found satisfactory, the
same should be commented in their Inspection Report.

Consider the occurrence of an event wherein a Member happens to have membership of more than one
exchange in the commodity derivatives market. Moreover, the said Member accounts for receipts and
payments from one account and debits from another, solely for the purpose of convenience. In such
circumstances, the following points, with reference to the below mentioned cases, need to be kept in
consideration:
i.

Case I: The Members Client is also a client of its sister concern which operates in a different
market (for e.g. equities market). In such cases, the balance of that particular Client in the
Members sister concern cannot be considered since they are separately regulated entities.

ii.

Case II: In the event of the Member having membership in the same market (for e.g.
commodities market) but in different exchanges. In such cases, the Member must provide
evidence to prove the purpose and its necessity for maintaining such positions.

In addition to the above, the Inspection Team must ensure that the Member has passed the required
journal entries. The client ledger should be maintained Exchange-wise by the member. The Inspection
Team is also required to check that if one client account shows a debit balance and the other credit, it
must be verified whether sufficient margin was collected by the Member for the trades executed on the
Exchange.
4.2.3

Bank Book

All Members are required to maintain bank book for different bank accounts including own account,
client account, settlement account as opened by the Member. The inspection team must check the Bank
reconciliation statement of the member.

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4.2.4

Cash Book

All Members are required to maintain cash book for the transaction entered by them in cash.

The Inspection Team must inspect the Bank Book and Cash Book with utmost care as these books
provide an insight into the Members fund flow. The team may ask the Member for further details to
verify genuineness in the event of major cash receipt / payments being observed.
It must also be ensured that all client transactions are routed through the separate client bank accounts
and that funds are not intermingled between members account and clients account.
4.2.5

Margin Deposit Book

The Members are required to maintain a margin deposit book wherein details of all the margins
collected from the clients are recorded. Margin Deposits received by Members from their clients in any
form are required to be accounted for and maintained separately in segregated accounts and should be
used solely for the benefit of the respective clients positions.
4.2.6

Trade Log and Order Log

Members are required to download and save, on a daily basis, the files containing details of the orders
placed and the trades executed by them during the entire trading session of the day, available at their
Trading Work Stations (TWS) through File Transfer Protocol (FTP) at the end of the trading session.
4.2.7

Order Book

The member should also maintain an order book.

4.2.8

Trade Files

Trade file is downloaded by the Member from the Exchange on daily basis. This file shows the details of
all the transactions executed by a Member across all his terminals for a particular trading day. It shows
Trade date, trade no., order no., time of execution of a trade, quantity, rate, commodity code, Client ID
etc.

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4.2.9

Register of Commodity

A Member is also required to maintain a Register of Commodities where delivery taken/received

Commodity wise and client wise is maintained.
The Inspection Team must ensure that the Member has mandatorily complied with the Exchange
requirement of maintaining a Register of Commodities in the event of delivery being given / taken. The
details of delivery taken/received must be reflected as Commodity-wise and Client-wise in the Register
as prescribed by the Exchange. A sample format is furnished below:
Register of Commodity
Com
modit
y

Con
trac
t
Sym
bol

Date
of
recei
pt
from
the
Exch
ange

Dat
e of
deli
very
to
Clie
nt

To
Who
m
deliv
ered

Pur
pos
e

Qua
ntity
recei
ved
from
the
Exch
ange
in
lots

Qua
ntity
recei
ved
from
the
Exch
ange
in
Kg

Qua
ntity
deliv
ered
to
the
Clien
t in
lot

Qua
ntity
deliv
ered
to
the
Clien
t in
Kg

Bala
nce
Qua
ntity

Price
at
which
the
com
modit
y
receiv
ed

Whet
her
receiv
ed at
Premi
um /
Discou
nt / or
on
price

Amount
of
Premium
or
Discount

While scrutinising this register, the Inspection Team should analyse and verify that the Member has not
used the commodities delivered for the clients to meet its own obligations.
4.2.10 Register of Complaints

Members should maintain a register of complaint where the Member should keep a record of all written
complaints received from clients, showing the name and UCC of the client, date and particulars of the
complaint, action taken by the Member and whether the matter is referred to arbitration of the
Exchange, the particulars thereof must be mentioned as per Bye-laws, Rules, Regulations, Circulars of the
Exchange. The inspection team must investigate into the complaints, received form traders, other

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members of the exchange or any other person on any matter having a bearing on the activities of the
Exchange member.

The Inspection team should -confirm that the Member has maintained a Register of Complaints and that
no complaint in the register is pending for more than such number of days as specified by the Bye-laws,
Rules, Regulations, Circulars of the Exchange. In case the Exchange provide 30 days time line the
Inspection Team must provide the information in the sample format as given below with documentary
evidences / details in separate annexure.
Sr.
No.

Client
Name

Code

Complaints
received on

Complaints Resolved
within 30After 30
daysdays

Complaints
pending more than
30days

Besides, the Inspection report must highlight the following points :

1. The Reason for pending complaints for more than 30 days.
2. Complaints which are referred to Arbitration.
3. Minutes of Arbitration hearing of the complaints.

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CHAPTER V
Agreements, Documents, Authorizations, etc.
5.1

Member-Client Agreement

5.1.1

Execution of Agreement

As per Bye-Laws/Rules/Regulations/Business Rules of the Exchange every Member of the Exchange will
enter into an agreement directly with all his clients before accepting/placing orders on behalf of clients.
5.2.1

Format of Agreement

Member-Client agreement must include provisions specified by the Exchange as per ByeLaws/Rules/Regulations/Business Rules. Further, it should include all the provisions as decided and
informed by the Exchange / Forward Markets Commission (FMC) from time to time.

As per Bye-Laws/Rules/Regulations/ Business Rules, Members are free to add more clauses in the
specified agreement; however, no additional clause should in any way dilute the content or purpose of
the clause stated in the specified agreement by the Exchange. The responsibility of the Member will not
in any way be reduced due to non-execution of agreement with the Clients.

At times, Member obtains letters from Client(s) to retain the Clients funds till further instructions from
the said Clients. Blanket confirmations are taken for the purpose of maintaining running accounts, interfamily account adjustments, and inter-Exchange balance transfers etc. which at times form part of the
KYC. In such circumstances, the Inspection Team must ensure that such documents are taken on
voluntary basis (i.e. non-mandatory) and must not form a part of any mandatory document like
KYC/MCA. No MCA clause should have such requirements.

The Inspection Team should also verify the following requirements with respect to Member Client
Agreement:
a) The Member-Client agreement has to be on a valid non-judicial stamp paper with
adequate value, duly signed by the parties to the agreement and must be complete in all
respects with the date of execution of the agreement.

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b) The Member Client Agreement should be as per format prescribed by the Exchange
c) The Member Client Agreement should be on valid stamp paper of appropriate value (as
per the requirement of the respective state)
d) The Agreement should be filled completely and properly
e) Date of Agreement should be after date of stamping and within six months of stamping
f)

The Agreement should be signed by client, Member as well as witnesses

g) All the pages of the Agreement should be signed by the member and client.
5.2

Know Your Client (KYC) Forms / Client Registration Forms

The Members of the Commodity Exchanges have to complete all the details pertaining to the clients in
Know Your Client Forms and obtain all necessary documents in support to information provided by the
clients as prescribed in Bye-Laws/Rules/Regulations/Business Rule.
5.2.1

Format of KYC Form

a) When establishing a relationship with a new Client, Members of the Exchange must take
reasonable steps to assess the background, genuineness, beneficial identity, financial
soundness of such person, and his trading objectives by registering the client with them in the
format prescribed as Client Registration Form as per Bye-Laws/Rules/Regulations/Business
Rule.

b) The KYC form should include all the details as prescribed by the Exchange from time to time.

c) Members are advised to evolve and put in place an appropriate mechanism to assess financial
strength, performance tracking, trading pattern vis--vis their clients position and dealings in
respect of all clients.
5.2.2

Documents required from client(s) along with KYC form

Inspection Team is required to verify and comment as to whether KYC form has all the documents
(including copy of PAN card) as prescribed by the Exchange / FMC in this regard from time to time.
Further, in the event of Non Resident Indians / foreign nationals / foreign entities / foreign shareholders
trading in the commodity derivatives market; self-certified copies of statutory approvals in compliance

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with FEMA guidelines and by regulatory authorities like FIPB, RBI etc. are required to be available with
the Member.

However Members may exempt prospective individual clients, residing in the state of Sikkim from PAN
requirements. But the Members need to ensure that a system of proper verification exists to verify that
such clients are residents of the state of Sikkim.

The Inspection Team should also verify following requirements with respect to KYC Forms
a) Client registration documents are to be executed with any new client before commencing
transactions with the client.
b) The KYC should be as per format prescribed by the Exchange
c) KYC should be completely filled and signed by client (For example: details such as net worth,
details of introducer etc.)
d) Photograph should be pasted on the KYC forms
e) Photograph should be cross signed
f)

It must be ensured that all the documents as mentioned above should be attached along with
KYC forms and should be self-attested by the Clients

g) All the documents must be verified against the original by the Member
h) Trades must not be executed before an account is opened
5.3

Risk Disclosure Document (RDD) and Investors Rights and Obligations (IR&O)

The Exchange has specified the format of RDD and IR&O in Bye-Laws/Rules/Regulations/Business Rule
through which the Clients are made aware, the risks associated with business in trading in contracts
listed in the Exchange including any limitations on that liability and the capacity in the Members acts and
the Clients liability thereon.

The Inspection Team must verify that the Member has furnished a copy of these documents to all his
clients.

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The Inspection Team should also check the following requirements with respect to RDD and IR&O:
a. The RDD should be as per format prescribed by the Exchange
b. Date should be mentioned in the RDD
c. The RDD should be signed by the Client and a copy of the same should be maintained
by the Member.
d. IR&O is a part of the RDD and hence, the same should be dated and signed by the
Client and a copy of the same must be maintained by the Member.
5.4

Client Account Closure

In the event of any account being closed by the Member, the Inspection Team must verify that prior
written confirmation of the account closure request had been received from the Client and such written
request has been maintained by the Member in his records.

In the event that the account is closed by the Member, the Inspection Team must ensure that the
Member has maintained documentary proof / evidence of the same.

5.5 List of Dos and Dont :

As a part of KYC documents, it is advisable to give list of Dos and Dont for investor as prescribed by
the Exchange/ FMC to the new clients.

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CHAPTER VI

Clientele Transactions
6.1

Creation and allotment of Unique Client Code (UCC)

6.1.1

UCC Uploading to the Exchange

The Inspection Team should verify that Member has uploaded UCC details before execution of the trade
whenever a new client is registered, as per the Bye-laws/ Rules/ Regulations/ Circulars as issued by
Exchanges / FMC.
The Inspection Team may verify the UCC in the following manner:
1. Take the list of the UCC as created and maintained by the Member(s) in the back office
software
2. In case if the Inspection Team has any doubt on the list provided, the same may be sent to
the Exchange for verification
3. Verify the UCC details as per the Back-Office and as per the trade file
4. Report any Client Code(s) not uploaded on the Exchange platform
5. Verify the status of the said code and check trade(s), if any, in that code in the Back-Office
6. Ensure that the UCC must be uploaded in the Exchange before the execution of the trade
7. Verify the list of penalty charge by the Exchange in respect of non-submission of the PAN
or non-uploading of UCC details. The same can be obtained from the FTP
8. The Inspection team may adopt any other authentic method, other than the manner
suggested above, to achieve the desired results
9. The Inspection Team must note that no general remarks would be accepted. In the
event of non-applicability (N.A), specific remarks validating the same are to be
mentioned .

The Members of the Exchange have been informed with regard to uploading of UCC data by them prior
to commencing trading on behalf of a client. The said directives have been made applicable with effect
from October 17, 2011.
The penalty applicable for non-submission of UCC details will be charged on a daily basis. The Inspection
Team must verify that the details uploaded in UCC with Exchange is up to date with respect to address/
PAN details /Contact details and must also do the client verification at least of the top clients.

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6.1.2

Verification of the data

The Inspection Team may send the details provided to the Exchange for the purpose of verification. In
the event of any violations, the Inspection Team should inquire the same with the Member. The reasons
for such violation(s) should be enquired with the Member and the same must be reported to the
Exchange.
6.1.3

Allotting Single Client Code

Members are not permitted to allot multiple client code to the single client. The Inspection Team should
verify that the Member is not allotting multiple client codes to a single client. In case, such cases of
multiple client code allotment are observed, identify the purpose and check whether the simultaneous
trades are executed in the same code and whether the code, if allotted erroneously, has been marked as
inactive.
6.2

Modification of Client Code

A special facility is provided to Members for client code modification by the Exchange. The same is
presented as below:

a)

Member can change client ID of executed trades only in the post-closing session of that
commodity.

b)

The system driven restriction has been implemented by the Exchange which do not allow
client code modification during intra-day.

The Inspection Team must check that Members have not indulged in modification of client codes
through their back office software after trading hours. The trade file received from the Exchange should
be compared with Transaction file of the Member. While verifying the client code modification, the
Inspection Team must also ensure the following:

1. The Member has not transferred the trades executed in the Client Code in to PRO code and
vice versa.

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2. In case the client codes have been modified, whether the Member has been involved in
assuring/providing guaranteed returns to the investors or in any activity that may be
termed as Portfolio Management Services or Portfolio Advisory Services

3. The Member was not involved in any client code modification which was not reported to
the Exchange. If modifications were done at the backend and not reported to the Exchange,
then whether the Member has indulged in off-market trading or any activity that may be
termed or included, in the purview of (Illegal) Dabba trading.

4. Modification of client codes, control has been provided in the Admin Terminal of the
member- brokers facilitating the main member broker to control the user who can be
permitted to perform this activity.

5. Inspection team must analyse, that member broker has entered correct client code while
placing the order and the modification of client codes should be used sparingly to rectify
bonafide mistakes or genuine errors and to minimum extent possible.

The Inspection Team must take note of the FMC/Exchanges directives on client code modifications as
may be applicable from time to time. The guidelines on client code modifications provided by FMC are
given as under:

1. The client code modification facility is allowed only for carrying out correction of genuine
punching error(s) in the client code.
2. The facility will be extended only during 5.00pm to 5.15pm in respect of contracts traded upto
5.00pm and during 11.30pm to 11.45pm for contracts traded upto 11.30pm on all trading days
except Saturdays. In respect of the trading days when the trading takes place up to 11.55pm the
client code modifications will be allowed only from 11.45pm upto 11.59pm. On Saturdays, the
same will be allowed between 2.00pm to 2.15pm. In no circumstances, changes in the client
codes will be permitted on the next trading day or thereafter.
3. Intra-day modifications of client codes other than as above will not be allowed.
4. Proprietary trades will not be allowed to be modified as client trade and vice-versa. Any violation
of this provision will lead to disciplinary action against the Member by the Exchange.

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The Inspection Team must take into account the directives issued by FMC in this regard from
time to time.
6.3

Brokerage

The Inspection team should check that Member has ensured that the total brokerage (including the
share of brokerage of the Member) payable by the client to the Member does not exceed the maximum
brokerage as prescribed by the Exchange from time to time exclusive of statutory levies. The Inspection
Team must also verify that no brokerage is shared with any entity other than registered Authorised
Person(s). The member broker shall levy brokerage on all the trades executed on behalf of its clients.

The Inspection team should also check whether the Member has shared brokerage with another
member of the Exchange or, an employee of another member of the Exchange or with whom Members
are forbidden to do business under the Rules, Bye Laws and Business Rules of the Exchange or with any
Member of other Exchange who is suspended or expelled or defaulting. Further if such sharing of
brokerage is found it should be mentioned in the inspection report.

In case the Member has transacted, the aggregate amount of brokerage charged by the Member to his
clients should not exceed the maximum scale of brokerage prescribed by the Exchange. The inspection
team should verify the same.

The Inspection Team should ask for the Brokerage Master from the Member which contains the slab of
brokerage. Records to be maintained in respect of brokerage collected separately from the clients. In
case of the sample Account opening form as inspected check the agreed brokerage slab between the
Member and Client.

Further the Inspection Team must obtain the trade file from the Member software in such a form that it
gives details in respect of the brokerage charged by the Member to the Client on the individual
transaction. On the basis of the same, the brokerage rate can be verified.
In case the Member has not charged the brokerage, though it is not an irregularity, it is suggested that
such transactions should be scrutinized in depth as this may turn out to be fictitious transactions meant

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for tax-planning or like exercises. Member should be asked to comment about the reasons which have
led to non-charging of brokerage.
6.4

Portfolio Advisory and Management Services

The Inspection Team should check that Members should not indulge in any Portfolio Advisory Services
(PAS), Portfolio Management Services (PMS) and such other services directly or indirectly (i.e. any act
of the Member which may be considered as PMS/PAS etc. though not clearly indicated by the Member)
as per the Bye-laws / Rules / Regulations/Circulars as issued by the Exchange / FMC.

Any document (i.e. booklet, leaflet etc.) that forms part of an advertisement is to be approved by the
Exchange.
6.5

Bank Accounts

All Members are required to open following three types of bank accounts.

a) Settlement bank account

As per Bye-Laws/Rules/Regulations/Business Rule , every Member of the Exchange is
required to have designated bank account (called settlement bank account) with any of such
branches of a designated Clearing Bank, which has electronic funds transfer facility.
Members are required to operate the Settlement account only for the purpose of settlement
of deals entered through the Exchange, for the payment of margin money and for any other
purpose as may be specified by the Exchange, where the Member can transfer funds to
Clients account from this account. Apart from such transfer, only the Exchange will have the
power to withdraw money from this account by way of direct debit instruction.

b) Client bank account

As per Bye-Laws/Rules/Regulations/Business Rule , the Member can deposit cheques

received from the Client and he should issue cheque/DD from this account to his Clients
towards their receivable amount in the Client bank account. The Member will have a cheque
book facility in this account and he will also be entitled to issue transfer instructions to the

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bank for transferring money from this account to the Settlement account to meet his pay-in
or margin obligations. Members are not allowed to use Client funds for their own
transactions or for transactions of any other client or for the purpose other than specified by
the Exchange.

c)

Business/Own/Expense account

(i) All Members are required to ensure that they have maintained separate bank accounts
for their own account and Clients account.
(ii) As per Bye-Laws/Rules/Business Rule, the Exchange Member will at all times keep the
money of the Constituent in the Member Clients account maintained with the Clearing
bank.
(iii) Client funds should not be deposited in this account.

The Inspection team should verify that the Member has maintained all these accounts as per
requirement of the Exchange.

Review of Client /Own bank

While reviewing the bank accounts, the Inspecting officials should consider the following:
a) As per Bye-Laws/Rules/Regulations/Business Rule, every Member maintains the
Constituent/client funds in the Member Clients account maintained with the Clearing bank.
He is not using this money for his own transactions or for transactions of such other client or
for any purpose other than margin and pay in relating to transactions entered into by such
client paying the margin.
b) All monies received from the clients and all the payment made to the clients should be
routed through the clients bank accounts. Whenever Member trades as a principal (Pro
trade), he cannot use funds in the clients account for payment.
c) Every Member who holds or receives money on account of a client is required to forthwith
deposit such money in the designated clients account.
d) No money should be withdrawn from clients account other than money required for
payment towards payments of a debt which is due to the Member from clients or money

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drawn on clients authority or money in respect of which there is a liability of clients to the
Member, provided that the money so drawn should not exceed the total of the money so
held for the time being for each such client.
e) Member should not use clients money for making payment for office expenses such as
salary, telephone bills, TDS payments, purchase of office equipment etc. It should be noted
that amounts withdrawn from client bank to own bank on account of brokerage, should be
an amount due to the Member towards brokerage receivable from clients on transactions
entered into with clients.
f)

Members are required to make all payments towards the office expenses, purchase or sale
of any fixed asset etc. from their own account and not from client account.

g) Ensure that funds are received from respective clients accounts only.
h)

Authorisation should be obtained from clients for deposit of their collaterals with exchange
/ clearing corporation towards margin.

It is the responsibility of the Members to use clients funds only to meet exchange obligation on their
behalf for trading in commodity market. The money collected from clients should be on an ad hoc basis
and not on requirement basis.

Before starting review of client bank account, the Inspection Team should understand the accounting
treatment given by Member for funds related entry in client /own bank account. Further the amount of
money transferred from client account to own account should not be more than total brokerage charged
by the member.

While examining client bank book, if non- segregation of clients funds & own funds and mis-utilisation of
clients funds are observed, the reason for the same should be understood from the member and
accordingly the same should be reported in Inspection report. Further in case fund is transferred from
the client fund to the own fund ensure that it should not be higher than the amount of brokerage of the
member.

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6.6

Handling the Commodities of Clients for Deliveries

Type of Demat Account:

All Members are required to open two accounts with their Depository Participants for handling the
receipt and deliveries of commodities in demat form. They are:

a) Beneficiary Owner (BO) Account:

It is opened by an investor or a Member of the Exchange who wants to hold and transact
commodities through dematerialized warehouse receipts. The beneficial owner account can
be opened in the name of Individual, Corporate, and Registered Trusts etc.

b) Pool account:
It is popularly known as CM Pool Account. In CM Pool account clearing Members are
authorised to make pay-in and receive pay-out from a Clearing Corporation / Clearing House
against trades done by them or their clients. This account is meant only to transfer
commodities to and receive delivery of commodities from the clearing corporation/clearing
house and hence, the Member does not have any ownership (beneficiary) rights over the
commodities held in such an account.

A Clearing Member (CM) is required to open both Clearing Member (Pool) Account as well as a BO
Account with each of the depositories (i.e. NSDL and CDSL).

Members are required to maintain a proper record of all commodities received and delivered from their
Pool Account and transferred to BO, if any. Further Member should preserve acknowledged copies of the
Delivery Instruction Slip (DIS) given/to their DP for transferring the commodities from the Pool Account
to the clients account after Pay-out from the Exchange. The Inspection Team must also ensure that the
Member has kept the Register of Commodities and details of premium and discount, in case of delivery.

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6.7

Margin Collection

As per Bye-Laws/Rules/Regulation/Business Rule, the Member is required to collect 100% margin from
his client that the member has to provide in respect of the business done by the member for such client
before entertaining any order from him. It must be verified that 100% upfront initial margin has been
collected by the Member from the Client before the execution of the trade. The Inspection Team must
also verify that the margin has been collected in the form prescribed by the Exchange and that the
margin money of a client has not been used for another client. It must be also verified that the margin
collected by the Member from Clients are highly liquid in nature and in the beneficial ownership of the
depositing Client. The clients shall be necessarily required to be the beneficial owner of pledged
securities offered as permissible collaterals. In cases, where the client is not the beneficial owner of the
pledged securities offered as collaterals, the Member is not supposed to utilize such securities for
meeting the obligations of the client without obtaining a written consent for the same from the
holder/owner of those pledged securities offered as collaterals.

It may be noted that a Member of the Exchange who is also a member on the National Commodity Spot
Exchanges, is required to ensure that they should not allow any cross margining between exposure of a
client on Commodity Futures Exchanges and National Commodity Spot Exchanges.

The Inspection Team must also verify the source of the margin. In the event that securities are accepted
from the Client, it should be verified that the securities have been accepted from that particular Client
account itself. In the event that the Member had accepted any third-party collateral, it must be verified
that the same has been obtained along with the authorization letter from the third party.

The Inspection Team may verify the Margin shortfall in the following manner:
1. The Exchange provides Margin files to the Members at the end of each day. These files
contain details of the margin that is needed to be collected from the Client in respect of the
Clients open position during that day. A sample format of the margin file is furnished on
next page which may be prescribed by the exchange:

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ClientTotal
Member User ClientRegular Additional Tender Delivery Spread
Date/ ProMargin
IDID/ ProMargin MarginMargin Margin Benefit
CodeRequired

2. The Margin calculation must be made available in the form of ledger balance, securities,
Fixed Deposits etc., as may be prescribed by the Exchange.

Margin has not been collected / partially collected in ---------instances as mentioned below (Annexure 1):
Sr.

Trade Client Client

No Date

Margin

Client

Code Name required Ledger

(1)

Margin Non-Cash Collateral (after haircut)

Total

Ledger BG FDR Securities Others Total Margin

Bal.

Bal

Collecti
(4)

(Dr/Cr) (Dr/Cr)
(2)

Short

Collected
(5=2+3+4)

(3)

3. The margin short-collection must be reported.

4. In the event that the Client has a debit balance or no balance, in such cases, the shortfall
amount would be the amount of margin required. For example, if the margin requirement of
a particular Client is Rs. 1,000 and the said Client has a debit balance of Rs. 500, the shortfall
amount would be Rs. 1,000/- and not Rs. 1,500/-

Accounting of Margin Deposit

a) Margin deposits received by Members from their Trading Members and clients in any form
will be accounted for and maintained separately in segregated accounts and will be used
solely for the benefit of the respective clients positions.
b) As per bye-Laws, Margin accounts of clients of the Members will be marked to market daily
by Trading-cum-Clearing Members and further margin should be collected when necessary
to maintain the appropriate margin.

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Utilization of Margin Amount and Margin Call

The margin account of Trading Members is required to be utilized by clearing Members only for settling
the dues to the clearing Member upon marking-to-market or for fulfilling the obligations resulting from
their open positions.

a) As per Bye-laws, the member may close out an open position of a client when the call for
further margin or any other payment due is not complied with by the client;

b) As per Bye-laws Members are required to furnish their clients in writing such reports and at
such intervals for margin collection and its utilization as may be specified by the Relevant
Authority.
c) As per Bye laws no member will directly or indirectly enter into any arrangement or adopt
any procedure for the purpose of evading or assisting in the evasion of the margin
requirements prescribed under the Bye-Laws, Rules and Regulations or any orders issued
there under.
6.8

Cash Dealings

Member should not accept/give cash from /to clients for their transactions.
All payments will be received/made by the members from/to the clients strictly by account payee
crossed cheques /demand drafts or by way of direct credit into the bank account through EFT, or any
other mode allowed by RBI. The members are required to accept cheques drawn only by the clients and
also issue cheques in favour of the clients only, for their transactions. However, in exceptional
circumstances, a Member may receive/make payments in cash, to the extent permissible under the
Income Tax Laws as may be in force from time to time.

During the inspection, if the Inspection Team observes instances wherein Demand Drafts have been
accepted, then the Inspection Team must check whether the Member has conducted due diligence
while accepting Demand Drafts. In addition, the quantum of the Demand Draft collection needs to be
ascertained and the type of clients who have provided the same. The Inspection Team must provide
comments accordingly.

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Further, the Members of the Exchange were notified that

1. If the aggregate value of the pre-funded instruments like Demand Draft/Pay Order is Rs
50,000 (Fifty Thousand) or more per day per client, the Member may not accept the
instrument unless the same is accompanied by the name of the bank account holder and
number of the bank account debited for the purpose, duly certified by the issuing bank. The
bank certificate will be any one of the following:
a. Issuing bank will certify on its letterhead or on a plain paper with its seal duly affixed;
b. Copy of the requisition slip duly certified by the bank which issues the instrument;
c. Copy of the passbook/bank statement as proof of the account debited to issue the
instrument;
d. On the reverse side of the instrument, the bank account-number debited and name of
the account holder will be authenticated by the issuing bank.

2. In respect of electronic fund transfers, Members are required to maintain an audit trail of
the funds received through such transfers to ensure that the funds are received from their
clients only.
The Inspection Team must ensure that the Members have developed a monitoring
mechanism through internal audit and inspections to ensure compliance with the aforesaid
directions.

The above directives are applicable with effect from October 04, 2011. The Inspection Team must take
note of the same at the time of Inspection and accordingly verify the records.

6.9

Issue of Statement of accounts/funds to Clients

Disputes can arise between the Member and their clients pertaining to payments due to /from the
clients. This may be due to non-submission of statement of accounts / funds by the Member to the
clients on a regular basis.

All Members are required to send statements of funds (with error reporting clause) to all clients, with
periodicity not exceeding three months. Members are required to send a quarterly statement of

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accounts for settlements and margins to all clients containing error reporting clause indicating as
mentioned below:
Contents of this statement will be considered correct if no error is reported within 30 days of receipt of
statement.

Further, a detailed statement of account should be sent every month to all the clients in physical form, if
he has entered into a minimum of three transactions in that month. The proof of delivery of the same
should be preserved by the Member. This requirement is applicable wef February 23, 2011.

6.10

Unutilized Balances

The Inspection team should check if there are large unutilized balances over a long period of time for any
clients and should seek proper explanation from member with respect to unutilized balances.
In case of the top 25 clients give the details of the credit or debit in the form of below mention form

Client Code

6.11

Name of
the Client

Credit /
(Debit)
Balance

O/s Less
than 30
days

>30 days
and < 60
days

> 60 days
and < 90
days

> 90 days

Inactive Clients

A client is considered as Inactive Client if he / she has not executed any trade during the last 12 months.
Members are required to follow the below mentioned guidelines with respect to inactive clients:
i.

The Members should keep close watch on such accounts.

ii.

The Members should accept trades in these accounts only on completion of below
mentioned compliances:
a.

An undertaking having specific written request from the clients to re-open their
inactive trading account

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b.

If there is no material change in KYC information (such as address, bank account,

PAN no. etc.) provided by the client at the time of opening their account with the
member then in such cases instead of taking KYC formalities again, Member may
take undertaking from the client mentioning:
x

He has already completed KYC formalities at the time of originally

enrolling with the member

There is no material change in respect of the information contained in

the said KYC.

iii.

After completion of above mentioned compliances, the Member may execute the orders
on behalf of such clients in the same client code i.e. the client code issued earlier by the
member to the concerned client.

iv.

If trade takes place in such inactive account without following the above procedure, the
same would be treated as members proprietary trade for all practical purposes and also as
misuse of clients UCC.

The Inspection Team must understand the mechanism of identifying inactive clients from the Member
and should seek proper explanation with respect to inactive clients found with the Member. The
Inspection team may adopt any other authentic method to achieve the desired results The Inspection
Team must note that no general remarks would be accepted. In the event of non-applicability (N.A),
specific remarks validating the same are to be mentioned.

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CHAPTER VII
Trading System

As per Bye-Laws/Rules/Regulations/Business Rule, a Member will not, permit itself or any other
person(s) to:
a)

Use the software provided by the Exchange for any purpose other than the purpose as
approved and specified by the Exchange

b)

Use the software provided by the Exchange on any equipment other than the
workstation approved by the Exchange

c)

Copy, alter, modify or make available to any other person the software provided by the
Exchange

7.1

d)

Use the software in any manner other than the manner as specified by the Exchange.

e)

Attempt directly or indirectly to decompile, dissemble or reverse engineer the same.

User Id and Approved Users

7.1.1. Approved users

a) For every TWS to be used by a Member, he is required to obtain registration of the
Approved User in the specified format who will be responsible for such TWS.
b) Such Approved Users can be his own employees responsible for such TWS.
c)

Before termination of such Approved Users, the Member is required to obtain prior
permission of the Exchange.

7.1.2. User ID
a) No user ID should be given by Members to any persons who have not been registered by the
exchange as approved user so that the risk in the market is reduced.
b) Members may also ensure that no client of the member or an unauthorised user is trading
on behalf of a client.

The Inspection officials may conduct physical verification of terminals and identify that the User IDs
allotted by the Exchange are used by approved users. If any mismatch is found, the same should be
reported to the Exchange.

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7.2

Internet Based Trading (IBT) ( for the Exchanges applicable) :

a) The Members are advised to comply with guidelines such as Network Security, Risk
Management, Order matching etc.

b) The Inspection Team may verify that the Member has installed the necessary safeguards and
access restrictions to prevent unauthorised use of Members computer systems and ensure
that no unauthorised person can gain access to the computer systems.

c) Members are mandatorily required to undertake periodic audit of their Computer to

Computer Link (CTCL) and Internet based Trading systems.

7.3

Computer to Computer Link (CTCL)

7.3.1. Development of CTCL Software

Members of Exchange are allowed to develop their own trading front end (CTCL) software in-house using
the API of the Exchange or procure CTCL software from Non-empanelled vendors. Exchange will provide
the technical specifications (message formats/protocols etc.) i.e. API for the interface with the Exchange
trading system after submission of application form, undertaking and the documents.

The Exchange permits only single CTCL ID per VSAT and Leased Line on which CTCL facility can be used.
Members will not be permitted to use any other user id for the purpose of CTCL.
7.3.2. Some of the guidelines/requirements for use of CTCL terminals

Following are some of the requirements for the use of CTCL terminals:
a)

Members developing CTCL software in-house/procuring CTCL software from Nonempanelled vendors are required to pay prescribed charges to the Exchange from time to
time.

b)

Members are required to provide list of approved persons who would handle each CTCL
terminal of the Member. Approved person may be an employee or any Authorised
Person of the Member who has been approved by the Exchange. Members will not

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entrust the CTCL terminals to their clients or to any unregistered intermediary other than
Approved Persons. Necessary written approval of the Exchange is required to be
obtained before CTCL terminal is entrusted to an Authorised Person, failing which it will
be treated as violation.
c)
7.4

A Member will also ensure to undertake periodic audit of their systems.

Terminal Location
a)As per Bye-Laws/Rules/Regulations/Business Rule, Trading on the Exchange will be
allowed only through approved Workstation(s) located at approved locations for the
office(s) of a Member.
b)

If an approved workstation of a Trading Member is connected by LAN or any other way to

other workstations at any place it will require an approval of the Exchange. For every
TWS, a member will be required to specific permission from the Exchange and obtain
user id in advance.

c)

The Inspection Team may verify the trading terminals installed at the places which are
intimated to the Exchange and the Members have ensured compliance with the
guidelines prescribed by the Exchange with regard to installation of trading terminals at
the Member offices. If any mismatch is found, then they should report the same to the
Exchange.

The Member undertakes not to develop or use any software / program which will either directly or
indirectly facilitate orders to cross trades of their clients with each other. All orders will be offered to the
market for matching.
The Inspection Team may verify the CTCL Terminal details in the following manner:
1. Obtain the list of the valid user from the Admin Server of the member.
2. Take the list of the user from the Exchange
3. Verify the below mentioned details:
a. User as per the Exchange and user as per Admin data base
b. CTCL ID as per Exchange and CTCL ID as per the Admin
c. Location of the terminal as uploaded in the Exchange and as per the Admin
d. 12 digit code is formatted as follows for e.g. if the terminal is provided at Borivali (West)
at HO which is the 1st terminal of the member than 12 digit should be like

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6 digit pin: 400092
3 digit branch code: 001
3 digit terminal code: 001
Hence the 12 digit should by 400092001001 . (The sequence of 12 digit code may
differ from Exchange to Exchange). The Inspection team would need to verify that
whether the pin code as per the 12 digit is matching with the location of the terminal or
not.
e. Check the relation as described in the admin data. It should be provided to person to
whom the exchange has granted the permission. For e.g. if on or after abolition of the
Sub-broker the relation specify in the terminal user is sub-broker than same should be
considered as violation.
7.5

Antivirus Software

Members should ensure that:

1.

Operating system (Windows) of their

respective Desktop/Laptops used for Exchange

trading is updated with the latest security patches released by the operating system
vendor (Microsoft). The members can ask their systems personnel or their hardware
vendor to update the systems with the latest security patches.
i.

Standard anti-virus software is loaded on their systems.

ii.

Update the antivirus software with the latest virus signatures periodically. The
periodic updates for the antivirus are available on the respective anti-virus vendor
websites.

2.

Use good anti-virus software on your systems.

3.

Update the antivirus software with the latest virus signatures every week. The weekly
updates for the antivirus are available on the respective anti-virus vendor websites. The
Inspection Team must verify that the antivirus software for the Admin terminal is the
latest and is updated.

7.5.1. Regular backup of important data on the systems.

1.

The Inspection Team must verify the backup register of the Member and the periodicity
of the backup.

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2.

It must be ensured that Members do not download executable files from non-trusted
sources on the Internet or from emails.

3.

Internet users should have desktop firewalls to protect their systems against
unauthorised access from the Internet. Members planning to use personal/desktop
firewalls are requested to contact Exchange systems personnel for the necessary
information required to allow Exchange Trader Workstation to communicate to the
Exchange.

4.

Members having corporate internet access like Internet Leased line, Cable Internet, ISDN
or other types of always on Internet connectivity should use firewalls to protect their
networks from malicious and unauthorised access arising from the internet.

Further, the Member is required to ensure that he has installed antivirus software which is capable to
take care of operating systems and in case of members using internet for trading has installed firewalls to
protect their networks.
7.6

Pro-Account Trading Terminals

7.6.1

No. of Terminals

a. The Members will place orders in Pro-Account / OWN Account from not more than 2
terminals from one location and details of the terminals will be informed to the Exchange in
the format.
b. Trading terminals other than the above will have a facility to place orders only for and on
behalf of a client by entering client code details as required / specified by the Exchange /
FMC. Further, Member desirous to have facility of placing Pro-Account / OWN Account
orders from more than one location, the Member has to submit an undertaking in the
format, to the Exchange stating the reason for use of such facility from multiple locations.
The Exchange may on case to case basis consider extending the facility of allowing use of
Pro-Account from more than one location; further, such permission will not be given for
more than 5 terminals for a member across all locations for this purpose.

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c. If any Member, undertaking pro-account trading for arbitrage, desires to place pro-account
trades through more than 2 terminals in one location or more than 5 terminals across all
locations, then he is required to submit a request to the Exchange stating the reasons for
the same.
d. While placing an order on the Exchange platform for purchase / sale of contracts in the
trading system, Members are required to choose the Account type option as Own while
placing orders for proprietary trades. Members are advised to strictly use Own account
facility for trades to be executed for their proprietary account. No client code including
client code styled as OWN / PRO should be allotted for proprietary trading.
e. Members are not allowed to modify proprietary trades into client trade and client trade into
proprietary trades.

7.6.2

Approval from Exchange

a) The Members having CTCL terminals are required to obtain approval from the Exchange for
Pro-Account trade facility.

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CHAPTER VIII
Contract Notes

The Contract note is a document through which a contractual obligation is established between a
Member of the Exchange and its client. This is the prime document on the basis of which all the dispute
between the Member and his clients are settled.

Every Member has to issue contract notes to his clients for the commodities traded by him on behalf of
them in compliance of, Rules, Bye-laws, Regulations, Business Rule and Circulars issued from time to
time.
8.1Requirements on Issue of Contract Notes to Clients
Following are the some of the requirements from Member of the Exchange to follow on issue of Contract
notes to their clients:
a)

Members of the Exchange are required to issue contract note for each of the
transactions done by them for their respective clients on the trading system of the
Exchange. Members are not allowed to issue contract note for any transaction, which has
not been executed through the trading system of the Exchange.

b)

Contract notes should be issued strictly as per the format prescribed by the Exchange.

c)

The Members are required to issue contract notes to clients, which are serially
numbered. The contract notes issued to the clients are required to be numbered with
unique running serial number commencing from one which will be reset only at the
beginning of every year. The Inspection team should verify that contract notes are not
left blank as the same may be utilized by Members to accommodate certain
malpractices. In such scenarios, the Inspection team should test check the contract notes
for the last one week or so prior to the date of inspection to ascertain such malpractices,
if any, on the part of the Member.

d)

Members are required to charge brokerage separately and the same is indicated
separately from the price in the contract note.

e)

The Contract notes are required to be signed either by the Member himself or by the
authorised signatory.

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f)

Members are required to dispatch contract notes within 24 hours of execution of the
trade.

g)

Member may also issue digitally signed contract note / confirmation slip at the request of
his constituents subject to the compliance of all the provision of Information Technology
Act. 2000. If the Member is issuing digital contract notes then it should be authenticated
by digital signatures from certifying authority as per Information Technology Act, 2000.

h)

The Member should obtain a written consent from their clients for issue of digital
contract notes to their clients.

i)

Member should keep necessary log reports if digital contract note have been issued to
the clients, further, Member should issue physical contract notes at their request.

j)

The Member is required to maintain and preserve proper record for dispatch of contract
notes to the clients if the same are dispatched through post, courier etc.

k)

Every Member will maintain and preserve counterfoils or duplicate of the contract notes
issued to the clients for a period of three years.

l)

The Member should print UMC (Unique Membership Code) on Contract note along with
its Membership no. obtained from the Exchange.

m)

The Members are also required to print the Unique Client Code (UCC) allotted to the
client along with name and address of clients on the contract note.

n)

Contract Notes must be dispatched within 24 hours of the transactions made by or on

behalf of the client and the proof of delivery of the same needs to be preserved by the
member.

The members are required to comply with the following:

i.

Members will dispatch the contract notes within 24 hours of the transaction.

ii.

All contract notes issued to the individual investors other than the corporate investors
will be in physical form.

iii.

The delivery of the contract notes should be at the address of the client. Delivery of
contract notes to an address (either email or physical address) other than that of the
Client will be deemed to be non delivery of the contract notes.

iv.

The proof of the physical delivery of contract note need to be preserved by the Member.

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The Inspection Team must note that w.e.f. July 20, 2011 following revised instructions pertaining to the
delivery of contract notes to clients are applicable:
i.

Contract Notes must be dispatched within 24 hours of the transactions made by or on

behalf of the Client and the proof of delivery of the same needs to be preserved by the
Member.

ii.

The delivery of contract note to a Client must be in physical form only, unless a Client
specifically indicates his preference for contract notes in electronic form.

iii.

If any Client needs electronic contract note (ECN), he has to be provided with an 'ECN
declaration form' via email as per the format and defined procedure.

iv.

The ECN declaration form should normally be in English. In case a Client is not conversant
with the English language, the Member has to provide the ECN form which should be bilingual i.e., in English and the local language known to the applicant.

v.

The Member is required to obtain the above declaration from the Client afresh before
1st April of every financial year by following the same procedure. Thus, such declaration
would be valid for that financial year only.

vi.

Members were required to follow the above process for their existing Clients also and
time of 2 months was provided to them to comply with these directives.

vii.

The Client also has the option of revoking the ECN facility and opting for the contract
note in the physical form only by giving 7 working days notice to the Member. The copy
of the same is required to be retained by the Client.

It may be noted that, a Member of the Exchange who is also a member on the National Commodity Spot
Exchanges, is required to ensure that they should issue separate contract notes for trades on Commodity
Futures Exchanges and National Commodity Spot Exchanges.

The Inspection team may verify the trade file received from the Exchange and match the same with
Transaction file of the Member and contract notes issued to clients. This will enable the Inspection Team
to check whether the Member has indulged in any modification of client codes through their back office
software after trading hours. Further, the inspection officials can verify the corresponding entries in
client ledgers as per trade files. Any mismatch in trade files and contract notes should be examined
carefully, the reasons for mismatch should be identified and the same should be reported to the

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Exchange. The Inspection Team must also verify that the Member has not been issuing consolidated
contract notes to the clients.

If such practices are observed the detailed working of the same should be mentioned in the Inspection
Report. Further such observations should also be verified with respect to margin evasion practice and if
found so should be reported in the Inspection Report.

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CHAPTER IX
Miscellaneous
Inspection Team is suggested to verify/check the following:

The Inspection Team should check if any disciplinary action has been taken against member and if such
actions are found the details of the same should be mention in the inspection report.
9.1

Trading Activity

Each Member should ensure that they will not undertake their trading activities with /on behalf of any
Member of the, who has been suspended, expelled or declared defaulter by the Exchange / FMC / SEBI /
NSE / BSE or any regulatory body/authority
9.2

Internal Review

Members should ensure that adequate internal review of their business to assist in detecting and
preventing violations of and achieving compliance with Rules, Bye Laws, Regulations, Business Rules and
Circulars of the Exchange.
9.3

Notification to the Exchange

As per Bye-Laws, Members should notify the Exchange of any incident, which may endanger members
financial strength or interfere with members ability to conduct its business in the best interests of the
Exchange. The Inspection Team should verify and mention in the inspection report if such incidents are
not intimate to the Exchange.
9.4Display of Notice Board
The Inspection Team must verify the following requirements:

All the Members of the Exchange are required to display Notice board at prominent place in the
prescribed format.

Members are also required to ensure that copy of registration certificate issued by the Exchange is
displayed at the Head office and branch offices.

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The details of the Authorised Person(s) must be duly displayed on the notice board at the branch location
where the Authorised Person is located.
9.5

Stamp Duty and Service Tax

The Inspection Team need to verify and comment on whether the member has paid Stamp Duty (in
accordance with the relevant Stamp Act) and Service Tax to the relevant authorities and whether there
are any pending dues.
9.6

Statutory Dues

The Inspection Team needs to verify and comment on the status of statutory dues and whether there are
any pending dues.
9.7

Exchange LOGO/Emblem

Members should not use logo/emblem of the Exchange in any form while publishing material or
stationery:

Members are also prevented from using the logo or emblem of the Exchange in any of their publicity
materials without express permission of the Exchange.
9.8

Advertisement

a)

Member of the Exchange are permitted to issue advertisements to advertise their

products and services offered to their clients.

b)

The Exchange has prescribed guidelines for advertisements. Hence, the Inspection Team
should verify whether Members have issued/circulated/published advertisement as per
guidelines prescribed the Exchange or relevant authority from time to time. The
Inspection Team must obtain the details from the Exchange whether any letters of noncompliance towards the same were issued for publishing an advertisement without
Exchange approval.

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9.9

Circular Trading, cross deals, price rigging, price manipulation and other market Abuses:

As per Bye-Laws/Rules/Regulations/Business Rule, the Inspection team should verify if there is circular
trading, cross deals, price rigging, price manipulation and other market abuses and should mention in the
inspection report with appropriate supporting documents including working on the same in the
Inspection Report.

The Inspection Team should also verify transactions wherein the buyer Member ID and the Seller
Member ID are the same. On a test check basis, verify if any wash trades or cross deals are reported and
ensure that the Member is questioned on the same and the same to be reported.

9.10

Previous Audit Observation:

Check details and status of irregularities/observations of the last inspection / audit conducted and also
whether such violations / irregularities are still continued or have been rectified. Please provide the
details in the following format:
Sr.

Violations

No.

observed

in

Irregularities Details of the penal action Present Status (whether this

the

earlier taken

inspection (give reference)

9.11

by

Exchange/FMC

the violation/irregularity is still

noticed in this inspection)

Certified Commodity Professional Courses :

Members are advised to enroll for Certified Commodity Professional examination as may be prescribed
by the Exchange from time to time. The Inspection Team must physically verify the person who has been
Certified and ensure that the Certificate actually is in their name.
9.12

Code of Conduct for Members

All Members are required to at all times abide by CODE OF CONDUCT of the Members as defined in Bye
Laws of the Exchange.

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9.13

Compliance with Regulatory Directives

The Inspection team must verify that Members comply with the directives issued by FMC and the
Exchange from time to time. This inter-alia includes margin requirements, trading restrictions, base
minimum capital etc., Submission of audit reports along with the annual accounts to the Exchange and
payments of transaction charges are other requirements. Further, the Inspection team is suggested to
verify the following:
a)

The Member has not transacted with suspended/defaulter/debarred Members or any

other Members by SEBI/BSE/NSE/other stock/commodity exchanges.

b)

The Member does not have any dealings with unregistered sub-Members.

c)

Real time trading in a commodity by opening the terminals of foreign commodity

exchanges in India without prior approval of the Central Government or FMC, as the case
may be, would be deemed as illegal and persons entering into such contract would be
punishable under Section 21 of the FCR Act, 1952.

d)

No Member will trade for the purpose of creating or inducing a false market in
commodity.

e)

With respect to the FMC directives on the segregation of BPO/KPO services from the
Commodity Derivatives Market, kindly refer Point 9.18 on the same.

9.14

Appointment of Compliance Officer

a) It is mandatory for every Member to appoint a Compliance Officer who will be responsible
for monitoring the compliance of the member in respect of various circulars, guidelines,
notifications, etc. issued by the Exchange / FMC or any other relevant authority from time to
time and keeps the Exchange informed of the appointment of a Compliance Officer. It is
necessary that the Exchange be also informed for any change in the Compliance Officer.
9.15

Adherence to Anti Money Laundering norms

a) Appointment of Principal Officer: Members / intermediaries are required to designate a
senior management officer as Principal Officer, who will be responsible for monitoring and
reporting of all transactions and sharing of information as required under the law. The name,
designation and address (including e-mail address) of the Principal Officer should be

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intimated to the Office of the Director-FIU, 6th Floor, Hotel Samrat, Chanakyapuri, New Delhi
110021. The Inspection team must ensure that the Member has appointed a Principal
Officer as prescribed.
b) The Inspection team must ensure that client mapping is done by the Member and is
maintaining a track of suspicious transactions.
c) It must also be ensured that the Member adheres to the Anti Money Laundering norms.

9.16

Submission of Annual Returns

Members activated for trading as on 31st March of any year, are required to submit Annual Returns to
the Exchange for the financial year ending on such 31st March.

Annual Returns are required to be submitted within the due date as prescribed by the Exchange from the
end of respective financial year. Members are required to submit the documents in the format
prescribed by the Exchange as part of Annual Returns; which are indicated by the issuance of a circular
every year.
In case of any incomplete submission/ wrong reporting in AR needs to be reported in the inspection
report.

9.17

Submission of Annual Compliance Report (ACR)

Members activated for trading as on 31st March of any year, are required to submit the Annual
Compliance Report to the Exchange for the financial year ending on such 31st March.

a) ACR is the gist of compliances to be followed by Members which is self-analysed by Members

and submitted to the Exchange annually.
b) All Members are required to submit ACR to the Exchange within the timeline as prescribed by
the Exchange. The Inspection Team can review ACRs submitted by Members and precede their
inspection accordingly.

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9.18

BPO / KPO Services Segregation thereof from Commodity Derivatives Market

Any entity or any of its subsidiaries/ parent company/ related entities which is providing BPO/ KPO
services to foreign clients trading on foreign commodity exchanges cannot be a member of any of the
Recognized Association, recognized under Section 6 of Forward Contracts (Regulation) Act, 1952.

Any of the member or any of its subsidiaries/ parent company/ related entities of any of Recognized
Association recognized under Section 6 of Forward Contracts Regulation Act, 1952 will not undertake any
kind of BPO/ KPO activities in which services are provided to foreign clients trading on foreign
commodity exchanges.
9.19

Insurance Policy

Members are required to obtain insurance cover at their own cost, as per directions issued by the
Exchange so as to protect themselves from risks and hazards relating to their business operations at the
Exchange.
The Inspection Team should verify that the Member has obtained the same for the financial year during
the period of inspection.

9.20

Internal/ Statutory Audit Reports of the Members in case of Corporate members : Inspection

team can also verify the observations of made in the internal / Statutory audit reports of the members.

9.21

ROC related compliance in case of Corporate/LLP Members : Inspection team can check the ROC

related records of the member like Form 32, 18 etc.(event based forms) and Annual forms
23AC,23ACA,20B.

9.22

Miscellaneous :

The inspection team may also look in the following :

i)

Verification of open position at the member level / client level at the back office
with the Data available with the Exchange.

ii)

Test checks of comparision between trade files kept by the members and trade files
obtained from the exchange should be carried out in order to ensure that the trade

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files kept by the members in soft copy have not been tampered with as the trade
file kept by the members is in modifiable Excel format.
iii)

Review of monthly turnover of purchase and sales between the Exchange records
and members records and review of closed out transactions, if any.

iv)

Transfer of profit or loss in disguise of code modification. Code modification is done

in the back office and not at the exchange platform. Such type of code modification
done either at Own account to Client account or vice-versa to create fictitious
losses/ profits in the books.

v)

Change in address of the member to be updated with the Exchange and FMC.

vi)

Difference in Brokerage income account in Books as well as service Tax return filed
with the Service Tax department & difference in brokerage income in financial
ledger vis a vis transaction register.

vii)

Verification of back up of voice recording of order book

viii)

Verification of confirmations of trade send through SMS with back-up data

ix)

Brokerage collected at very nominal rate or nil to some clients associated/ related to
member or employees of member as there is no minimum rate is prescribed by the
exchange.

x)

Verification of the financial ledger to check whether any Loan/ advance given to any
client with special reference to the Associated or related concerns to bypass the
margin requirement.

xi)

Verification of open position at the member level / client level at the back office
with the Data available with the Exchange.

Besides, above areas the Inspection team may also verify and report on any violation which may be
specific to the member to be inspected. Further, the By-laws, Rules, Regulations may vary from
Exchange to Exchange. The By-laws, Rules, Regulations of Exchange whose member is being inspected
need to be complied with and the inspection team should verify on the above areas with respect of the
By-laws, Rules, Regulations of respective Exchange .

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SCHEDULE I
PRE-INSPECTION QUESTIONNAIRE

1 of 14

2 of 14

SCHEDULE I
Pre-Inspection Questionnaire
(To be submitted by the Member to the Inspection Team)
Date:
To
Name of the Inspection Audit Firm:
Address:
Dear Sir,
With respect to the Inspection to be conducted by you, we provide the following information:
1. Name/Trade of Member with Membership Number:
2. Name of our officials who will deal with the Inspection Team (along with designation):

a.
b.

Name
_________
_________

Designation
______________
______________

Contact No.
__________
__________

E-mail ID
_________
_________

3. Date of Activation for trading :

4. Date of Commencement of trading :
5. Registered Office Address:
6. Designated Email id:
7. Name of the Compliance Officer:
8. (a). Status : Proprietorship/ Corporate, Give names of Proprietor / Partner /
Directors as the case may be
(b). Type of membership :
( c ). In case of TM, name of the Clearing Member :
9. Shareholding Pattern/Sharing Pattern as on March 31, 20__ :
Details of present shareholding pattern/profit sharing pattern is attached as Annexure #.

E.g.: If the period of inspection is April 01 to March 31 of the Financial Year 2010-11; the Member must provide
the status / position as on both - March 31, 2011 (i.e. the period of inspection) and March 31, 2010 (i.e. the year
preceding the period of inspection).

3 of 14

10. Details of Dominant Promoters:

a.Name of the present Dominant Promoters Group as on March 31, 20__ :
Sr. No.NamePercentage of Holdings/Profit Sharing Ratio

b.Name of the Dominant Promoters Group as on March 31, 20__ :

Sr. No.NamePercentage of Holdings/Profit Sharing Ratio
11. Names of Directors/Partners/Proprietor/Karta:
a.
Sr. No.

b.
Sr. No.

As on March 31, 20__1:

Nameofthe Whether
Directors/Partners/Karta/Prop Director/Managing
rietor(Yes/No/NA)

Designated Date of Appointment

Partner

As on March 31, 20__ :

Nameofthe Whether
Directors/Partners/Karta/Prop Director/Managing
rietor(Yes/No/NA)

Designated Date of Appointment

Partner

E.g.: If the period of inspection is April 01 to March 31 of the Financial Year 2010-11; the Member must provide
the status / position as on both - March 31, 2011 (i.e. the period of inspection) and March 31, 2010 (i.e. the year
preceding the period of inspection).

4 of 14

12. Membership of other Exchanges, if any:

Sr.
No.

Name of the
Exchange

Membership

Exchange/Member
code

13. Networth:
Sr.Name of the
No.Exchange

Applicable
Networth

Type

UMC

Date of Activation of
Trading

Networth of the Member

as on March 31, 20__*

Networth of the Member as

on March 31, 20__*

Enclose Networth Certificate as per the formats prescribed by the Exchanges.

14. UMC No. given by FMC
15. Registration Number(s) given by Exchanges(s)
16. List of Bank and Demat accounts operated by the Members:
Account No.

Name of the Bank/Branch/DP

Purpose
Client Bank Account
Own Bank Account
Settlement bank Account
Margin Account (for collateral
securities Beneficiary Own Account
of clients)
Pool Account
Any Other

17. Details of instances wherein Demand Drafts / Pay Orders have been accepted.

18. a) Details of clients:

Sr.Client Name Status
No. Code(Active/Inactive)

Whether
registered
during the
inspection
period

Traded
during the
Inspection
Period or
not

Total Turnover of the Client in

the inspection period (in
descending order)

5 of 14

b) Details of inactive clients who have re-opened their trading accounts:

Sr.ClientNameMaterial change in KYCUndertaking obtained with specific written
No.Codeinformation (Yes / No)request to re-open trading account

c) Details of clients who are permitted to trade through the Member without depositing
initial margins
d) List of all clients where unutilized balance is lying with the Member. Details of such
clients to be provided in annexure in the following format:
Client Code

Name of the
Client

Credit
(Debit)
Balance

O/sLess
than 30 days

>30 days and

< 60 days

> 60 days
and < 90
days

> 90 days

e) Particulars of all clients code modification detailing the trade date, trade no. client code
from, client code to, commodity/contract specification, quantity, price and reason.
List
f) of dealing in top 25 commodities in descending order of volume handled for the
period of inspection in the following suggested format:
S. No.PurchaseS
a
l
e
ClientOwnTotalClientOwnTotal

g) Business volume/turnover handled by the Member for the period of inspection in the
following suggested format:
S. No.PurchaseS
a
l
e
ClientOwnTotalClientOwnTotal

19. Market segment / major commodities traded during last 3 years

20. What is the Margin Collection procedure and accounting procedure adopted by the member
(such as posting of bill, posting of MTM and Margin amount, form of margin accepted from
the Client)
21. Details of instances wherein authorization has not been obtained from clients if third-party
collateral has been accepted as margin.

6 of 14

22. Whether proof of dispatch/receipt of contract notes and duplicate copies of contract notes
have been maintained?
23. Whether digital Contract Note is issued to the clients? YES/NO (Please Tick) If yes, please
specify:a) Name of the vendor and certifying entity:-______________
b) Whether consent of the clients are obtained:- ____________
c) Whether logs of bounced back emails are maintained:- ___________
(Sample copy attached as Annexure#)
d) Whether physical contract notes in lieu of digital contract notes are issued in
case of bounced back emails: - __________________
e) Whether common contract notes have been issued for trades on Commodity
Futures and Spot Exchanges:- ___________
(attached as Annexure #)

24. List of all entities with whom brokerage is shared along with the copy of ledger A/c showing
sharing of brokerage is attached as Annexure#.
25. Sample copy of Statement of Accounts sent to all the clients along with dispatch proof and
the acknowledgement obtained from the clients is attached as Annexure#.
26. Details of Cash transactions with the clients. (Copy attached as Annexure#)
27. List of the details of default in payment / delivery of commodities during last 2 years is
attached in Annexure #
28. Whether any Delivery has taken place for any contract during the period of Inspection ?
YES/NO (Please Tick) If yes, please specify:a) Details of Intention of delivery given to the Exchange. YES/NO (Please Tick)
b) Details of Warehouse Receipts and Quality Certification belonging to clients have
been pledged by the Member with the Exchange during the period covered
under inspection. YES/NO (Please Tick)
c) Details of Bills received from the Exchange. YES/NO (Please Tick)

E.g.: If the period of inspection is April 01 to March 31 of the Financial Year 2010-11; the Member must provide
the status / position as on both - March 31, 2011 (i.e. the period of inspection) and March 31, 2010 (i.e. the year
preceding the period of inspection).

7 of 14

29. Details of Pro account trading by the Member:

(Names of the personnel operating Pro-Accounts, No. of Terminals/Location, Commodities
Traded, Volume and Value, Actual Delivery Taken, details of the permission obtained from
the Exchange)
30. Details of Promoter / Partner / Director who have interest in other entity(ies) and details of
such entities
31. Details of family members / associates operating on same / other Exchange
32. Whether any audit /inspection carried out by Exchange , if yes, the copy of report /
observations
33. Details of investor grievances/ complaints during last 3 years and action taken thereon. (
year-wise)
34. Name and address of top 50 clients by turnover with commodity-wise breakup
35. Whether any advertisements are issued during the inspection period YES/NO (Please Tick)
(If yes, please provide copy of Advertisements as Annexure#)
36. List of violations of the laws of the Exchange regarding trade restrictions, margin, base
capital, open position violations whether reported and penalties imposed, etc. is attached
as Annexure #. (Format of Annexure is given hereunder):
Sr. No.

Penalty / Fine /Noncompliance charge levied by

the Exchange (`)

Nature of Violation

Levied on (date)

37. List of CCP certificates held by the Member:Sr. No. Name of the PersonCertificate No.

38. Details of branches and dealing offices:

Sr. No. Address of theUser Id
Branchallotted

39. Details of Authorized Persons:

Sr. NameAddress ofUser Id
Notheallotted
.Authorized
Persons
office

Number
instances

Validity of
Certificate

Mode of connectivity

Mode ofUnique Code

connectivity provided by
the Exchange

of

Relationship
with the
Member

Branch office incharge

Date of
approval
from the
Exchange

No. of
clients

Date of
start of
business
with the
Member

8 of 14

40. Total Terminals (TWS):

41. List of approved users of TWS (Provide the approval received for Pro trading enablement):
Sr.UserNameLocation of RelationshipWhether Still in Purpose of Date of
No. Idof TheTerminalWith theEmployment.terminalEnablement
UserMember(If not name of (Cliental /for Pro
the userPro)Trading
operating theWhether
terminal).Enabled
For Pro
Trading

42. List of Approved Users terminated

Sr.User NameLocation of Relationship
No. Idof TheTerminalWith the
UserMember

Date of
termination

Purpose of Whether
termination prior
permission
obtained
from the
Exchange

43. Whether CTCL / Internet Based Trading facility is availed by the Member, YES/NO (Please
Tick) If yes; please specify
a) Whether any system audit is conducted. (CTCL/IBT)
b) Whether any different agreement is entered into with the client. (IBT) (If yes,
sample copy is attached as Annexure#)
c) List of clients availing the internet trading facility is attached as Annexure#. (IBT)
d) If CTCL terminal used for Pro-Account trade facility, whether approval from the
Exchange was obtained for pro trading.

44. Details of Computer To Computer Link (CTCL) terminals:

CTCL Server location:
CTCL Software:
Sr. User CTCL Name ofRelationshi Location Mode of
No Id-Idthep of the[Address] Connectivit
.Approved ApprovedOf they to the
PersonPersonCTCLCTCL
[Aswith theTerminal Terminal
Appearing Member
In Admin
Terminal]

Date of
Allotmen
t of CTCL
Terminal

Date of
Commence
ment of
Trade

9 of 14

Purpose
of
terminal
(View
Trading)

45. Details of Internet Based Trading (IBT):

IBT Server location:
IBT Software:Sr.User Id IBT -Id Name ofRelationship
No.theof the
ApprovedApproved
Person [AsPerson with
Appearingthe Member
In Admin
Terminal]

Mode of
Connectivity
to the IBT

Date of
Allotment
of IBT

Date of
Commencement
of Trade

46. Details of software used for back office and accounting. Whether AMC for the maintenance
of the software is taken and active. (Please specify Name of the Vendor and Version)
47. Calculation of Stamp Duty along with the details of Stamp Duty paid, financial year wise
(Copy of Ledger A/c is attached as Annexure#)
48. Calculation of Service Tax along with the details of Service Tax paid financial year wise (Copy
of service tax paid challans is attached as Annexure#)
49. Details of Income Tax Liabilities (if any) and copies of the Income Tax Returns for the
Inspection Period and the year preceding the Inspection period along with the Assessment
Order, if received (copies attached as Annexure#)
50. Details of other Statutory Dues paid. (Copy of relevant challans is attached as Annexure#)
51. List of Arbitration cases and /or Investor Grievances against the Member along with their
status as on March 31, 20__ is attached as Annexure#.
52. Any disputes with clients, dealers / Authorized Persons etc. YES/NO (Please Tick). If yes,
please specify:
Sr. No.Nameofthe Natureof AmountFIR lodgedPresent Status
ComplainantComplaintsInvolved (Rs.)

If the period of inspection is April 01 to March 31 of the Financial Year 2010-11; the Member must provide the
status / position as on both - March 31, 2011 (i.e. the period of inspection) and March 31, 2010 (i.e. the year
preceding the period of inspection).

10 of 14

53. Details of other source of income (apart from Brokerage Income) arising from/incidental to
futures trading:
Sr. No. Nature of IncomeAmount during theAmount of gross revenue
inspection periodreceived from the same
during the inspection
period
1Interest (Charged for delayed
payment)
Client account opening charges
Fixed deposit interest
Charges taken from Authorized
Persons
2Other receipts (please specify)

54. Copy of the Trial Balance as at the end of the period of inspection is attached as Annexure#.
55. Copy of the latest audited Profit and Loss Account and Balance sheet for the last 2 years and
preceding the period of inspection is attached as Annexure#.
56. Have you ever been suspended/ expelled / declared a defaulter on any other Commodity
/Stock Exchange or have been debarred from trading in Commodities / Securities by any
regulatory authorities like FMC, RBI, SEBI etc.( If yes, give details)

11 of 14

57. Documents will be kept ready for the period covered under inspection:
a) Copy of first Contract Note as at the beginning and end of the financial year and
as on April 01 of the next financial year
b) Exchange obligation statements
c) Proof of delivery of Contract Note / proof of receipt of Contract Note/ECN log
report
d) List of Authorized Signatories to sign on the Contract Note/Digital Signature
Certificate for ECN
e) Register of Transactions
f) Transaction/Holding statement of beneficiary and pool account
g) Bank ledgers/statements for All Own, Client and Settlement accounts
h) Register of Commodities
i) Margin Deposit Book
j) Register of Complaints
k) Bank Pass Book / Bank Statement
l) Bank Ledger as per Back Office
m) Bank Reconciliation Statement
n) Client Ledger
o) Cash Ledger
p) Copy of Penalty ledger (ledger wherein penalty amounts are debited)
q) Copy of the authorization letter, if any, submitted by the client for maintaining of
funds and commodities
r) Copy of latest Annual Returns submitted to the Exchange
s) Copy of latest Annual Compliance Report submitted to the Exchange
t) Proof of submission of details of compliance officer to the Exchange/Proof of
appointment of Principle Officer under PMLA
u) Copy of Trial Balances of client accounts as on the dates selected for sample
scrutiny is attached as Annexure#
v) List of employees of the Member during the period covered under
w) Copy of previous inspection report (if any)
x) Details wrt to change in constitution, name, address/contact details (if any)
y) List of Authorized Persons registered and cancelled during the inspection period.
z) List of Authorized Persons inspected by the Member

The following documents would also be provided to the Inspection Team:

a) Member Constituent Agreement & Know Your Client form / Risk Disclosure Documents /
Investors Rights and Obligation of the clients selected as sample
b) Order log and Trade files for the sample dates selected

12 of 14

c) Margin files and margin Collection details (in the following format) for the sample dates
selected.
Sr.
N
o

Trade
Date

Clie
nt
Cod
e

Client
Name

Margin
require
d (1)

Client
Ledge
r Bal.
(Dr/Cr
) (2)

Margin Non-Cash Collateral (after haircut)

Ledger
Bal
(Dr/Cr
) (3)

T
o
t
a
l
M
a
r
g
i
n
C
o
l
l
e
c
t
e
d

(
5
=
2
+
3
+
4
)
B
G

FD
R

Securitie
s

Other
s

Tota
l (4)

In addition to the above, I undertake to provide any other records/documents, as may be

required by the allotted Inspection Team.
Yours faithfully,
For (Name of Member)

(Signature)
(To be signed only by Proprietor/ Karta / Managing Partner/ Designated Director/ authorized
signatory as on the records of the Exchange)

(Whenever required, please provide the details in Annexure)

13 of 14

14 of 14

SCHEDULE-II
FORMAT OF INSPECTION REPORT

INSPECTION REPORT
(Minimum suggested format)
DD/MMM/YYYY to DD/MMM/YYYY

Member Name
(Member ID)

CA Firm Name
Address line 1, Address line 2
City- Pin code
Contact nos.

INDEX
1. Fact Sheet
5

2. List of Violations
....

3. Membership Requirements
..

4.Books of Accounts, Records and Registers .. 14

5. Dealing with Clients
20
6. Handling Funds & Commodities
30
7. Contract Notes
.. 39
8. Brokerage
.. 45
9. Trading System
47
10. Miscellaneous
.. 51
11. List of Annexures .
59

Member Name

Inspection Period

1. Fact Sheet
Particulars

Details

Name of Member
Constitution
Exchange Registration No.
FMC allotted Unique Member Code
Date of Activation for trading
Date of Commencement of trading
Name of Designated Director / Managing Partner /
Karta /Proprietor
Name of Compliance Officer
Period covered under inspection

Mr. / Ms. ____ / Not appointed

From :
To :

Average Daily Turnover for the Inspection period

a) Own Account Turnover:

(Total Turnover/number of trading days)

b) Client Account Turnover:

First Visit Date:

Date(s) of Inspection

Second Visit Date:

(any further visits to be specified)

Registered Office Address of the Member

(Address)

Designated e-mail Address

Inspection conducted at

(Address)
Name:

Details of Officials dealt with the Inspection team

Designation:
Contact Details

Details of CCP Certificate(s) obtained

Details of previous inspection, if any

CA Firm Name

Name
CCP Reg. No.
Name of the CA Firm:

Page 5 of 60

Member Name

Inspection Period
Particulars

Details
Period of inspection:
Non-compliance charge levied:

No. of Active clients during the period covered under

Inspection
Total no. of clients during the period covered under
Inspection

__________(List as per Annexure ___ )

________(List as per Annexure ___ )

`_____ ________/-(Annexure ___ )

Net worth as on March 31, 20__ (or latest available)

Networth required during the inspection

period:

Membership of any other Exchange(s) (Name of the

Exchange also, if applicable)
a) Own/ business bank a/c no.:
Members Bank Account

b) Client bank a/c no.:

c) Settlement bank A/c. no.:
TWS:- ___________

Total no. of terminals

CTCL:-___________

Procured /In-house developed / N.A.

Details of CTCL software

If procured, whether from Empanelled

Vendor: Yes/No

Total no. of Internet Based Trading (IBT) users

Procured /In-house developed / N.A.
Details of IBT software

If procured, whether from Empanelled

Vendor: Yes/No

Details of Back Office software

Total no. of Branch(es) /Authorized Person(s)

CA Firm Name

Procured /In-house developed

(If procured, name of the vendor ______)
Branches :- ______________

Page 6 of 60

Member Name

Inspection Period
Particulars

Details

(Sub-broker details also to be provided if the

Authorized Persons:- _____________

inspection period is prior to January 31, 2011)

(List as per Annexure _______ )

Sample dates selected for Inspection

Sample selection of Clients

CA Firm Name

______ (List as per Annexure ____ )

Page 7 of 60

Member Name

Inspection Period

2. List of Violations
Sr. No.

Reference to Chapter of manual

Violations

Note: Please list all the violations observed during the inspection in the above table.

CA Firm Name

Page 8 of 60

Member Name

Inspection Period

3. Membership Requirements
3.1

Change in Share Holding /Sharing Pattern

References

Compliance
(Y/N/N.A.)

Rules, Bye-Laws, Business Rules and Circular No.

Details of changes effected in shareholding / sharing pattern are as follows.

Sr.

Instances of

No. change in
shareholding /

Date of

Prior

Intimated to the

Dilution in

Board

Permission

Exchange within

DPG

Resolution

Taken

21 days

(Y/N/N.A.)

(Y/N/N.A.)

(Y/N/N.A.)

sharing pattern

Documentary Evidences: Annexure ____

Observation Description/Remarks:
3.2

Change in Designated Directors/ Managing Partners with Prior Approval of the

Exchange
References

Compliance
(Y/N/N.A.)

Rules, Bye-Laws, Business Rules and Circular No.

Name of Designated Directors/ Managing Partners as at the beginning of the Inspection
period:
List as on _____________
Sr. No.

Name(s) of Designated Director/Managing Partner

CA Firm Name

Page 9 of 60

Member Name

Inspection Period

Name of Designated Directors/ Managing Partners as at the end of the Inspection

period:

List as on _____________
Sr. No.

Name(s) of Designated Director/Managing Partner

Documentary Evidences: Annexure ____

Observation Description/Remarks:
3.3

Change in Constitution with Intimation to the Exchange

References

Compliance
(Y/N/N.A.)

Rules, Bye-Laws, Business Rules and Circular No.

Constitution of the member has been changed from ________ to ________

Documentary Evidences: Annexure ____
Observation Description/Remarks:
3.4

Change in trade name with Intimation to the Exchange

References

Compliance
(Y/N/N.A.)

Rules, Bye-Laws, Business Rules and Circular No.

Documentary Evidences: Annexure ____

Observation Description/Remarks:

3.5

Change in address (registered/correspondence) and contact details with

Intimation to the Exchange

CA Firm Name

Page 10 of 60

Member Name

Inspection Period
References

Compliance
(Y/N/N.A.)

Rules, Bye-Laws, Business Rules and Circular No.

Documentary Evidences: Annexure ____

Observation Description/Remarks:
3.6

Appointed Compliance Officer*

References

Compliance
(Y/N/N.A.)

Rules, Bye-Laws, Business Rules and Circular No.

*Compliance Officer has been appointed and details of the same have been intimated to
the Exchange. Change in compliance officer, if any, has been reported to the Exchange.
Documentary Evidences: Annexure ____
Observation Description/Remarks:
3.7

Networth Requirements
References

Compliance
(Y/N/N.A.)

Rules, Bye-Laws, Business Rules and Circular No.

Please provide details of shortfall in networth, if any:

Documentary Evidences: Annexure ____
Other observation Description/Remarks:

3.8

Registration of Authorized Persons

References

Compliance
(Y/N/N.A.)

CA Firm Name

Page 11 of 60

Member Name

Inspection Period

Rules, Bye-Laws, Business Rules and Circular No.

Authorized Persons have not been registered in ________ instances.

List of unregistered Authorized Persons is given hereunder:

Sr. No. Name of Authorized Person

Documentary Evidences: Annexure ____

Observation Description/Remarks:

3.9

Changes in Authorized Person details informed to the Exchange

References

Compliance
(Y/N/N.A.)

Rules, Bye-Laws, Business Rules and Circular No.

Documentary Evidences: Annexure ____
Observation Description/Remarks:

3.10 Periodic Inspection/Audit of Authorized Persons conducted

References

Compliance
(Y/N/N.A.)

Rules, Bye-Laws, Business Rules and Circular No.

Please mention the percentage of Authorized Persons inspected:

Documentary Evidences: Annexure ____
Observation Description/Remarks:

CA Firm Name

Page 12 of 60

Member Name

Inspection Period

3.11 All the sub-brokers have been converted into Authorized Persons by January
2011
References

Compliance
(Y/N/N.A.)

Rules, Bye-Laws, Business Rules and Circular No.

Observation Description/Remarks:

3.12 Business stopped as Sub-broker with the entities not converted into Authorized
Person by January 2011
References

Compliance
(Y/N/N.A.)

Rules, Bye-Laws, Business Rules and Circular No.

Observation Description/Remarks:

CA Firm Name

Page 13 of 60

Member Name

Inspection Period

4. Books of Accounts, Records and Registers

* If any of the following Books of Accounts, Records and Registers is not maintained / not
maintained properly, please specify

4.1 Maintenance of Client Ledger

References

Compliance
(Y/N/Not maintained
properly/N.A.)

Rules, Bye-Laws, Business Rules and Circular No.

Documentary Evidences: Annexure ____

Observation Description/Remarks:

4.2 Maintenance of Client Ledger Exchange-wise

References

Compliance
(Y/N/ Not maintained
properly/N.A.)

Rules, Bye-Laws, Business Rules and Circular No.

Documentary Evidences: Annexure ____

Observation Description/Remarks:

4.3 Maintenance of General Ledger

References

Compliance
(Y/N/ Not maintained
properly/N.A.)

Rules, Bye-Laws, Business Rules and Circular No.

Documentary Evidences: Annexure ____

CA Firm Name

Page 14 of 60

Member Name

Inspection Period

Observation Description/Remarks:
4.4 Maintenance of Journals
References

Compliance
(Y/N/ Not maintained
properly/N.A.)

Rules, Bye-Laws, Business Rules and Circular No.

Documentary Evidences: Annexure ____

Observation Description/Remarks:

4.5 Maintenance of Cash Book

References

Compliance
(Y/N/ Not maintained
properly/N.A.)

Rules, Bye-Laws, Business Rules and Circular No.

Documentary Evidences: Annexure ____

Observation Description/Remarks:

4.6 Maintenance of Bank Book

References

Compliance
(Y/N/ Not maintained
properly/N.A.)

Rules, Bye-Laws, Business Rules and Circular No.

Documentary Evidences: Annexure ____

Observation Description/Remarks:

CA Firm Name

Page 15 of 60

Member Name

Inspection Period

4.7 Maintenance of Bank Pass Book / Statement

References

Compliance
(Y/N/ Not maintained
properly/N.A.)

Rules, Bye-Laws, Business Rules and Circular No.

Documentary Evidences: Annexure ____

Observation Description/Remarks:

4.8 Maintenance of Margin Deposit Book

References

Compliance
(Y/N/ Not maintained
properly/N.A.)

Rules, Bye-Laws, Business Rules and Circular No.

Documentary Evidences: Annexure ____

Observation Description/Remarks:

4.9 Maintenance of Trade Log

References

Compliance
(Y/N/ Not maintained
properly/N.A.)

Rules, Bye-Laws, Business Rules and Circular No.

Documentary Evidences: Annexure ____

Observation Description/Remarks:

CA Firm Name

Page 16 of 60

Member Name

Inspection Period

4.10 Maintenance of Order Log

References

Compliance
(Y/N/ Not maintained
properly/N.A.)

Rules, Bye-Laws, Business Rules and Circular No.

Documentary Evidences: Annexure ____

Observation Description/Remarks:

4.11 Maintenance of Register of Commodities

References

Compliance
(Y/N/ Not maintained
properly/N.A.)

Rules, Bye-Laws, Business Rules and Circular No.

Documentary Evidences: Annexure ____

Observation Description/Remarks:

4.12 Maintenance of Records of Deliveries Received/Tendered Contract wise

References

Compliance
(Y/N/ Not maintained
properly/N.A.)

Rules, Bye-Laws, Business Rules and Circular No.

Documentary Evidences: Annexure ____

Observation Description/Remarks:

CA Firm Name

Page 17 of 60

Member Name

Inspection Period

4.13 Maintenance of Records in Respect to Premium/Discount

References

Compliance
(Y/N/ Not maintained
properly/N.A.)

Rules, Bye-Laws, Business Rules and Circular No.

Documentary Evidences: Annexure ____

Observation Description/Remarks:

4.14 Maintenance of Register of Transactions (Sauda Book)

References

Compliance
(Y/N/ Not maintained
properly/N.A.)

Rules, Bye-Laws, Business Rules and Circular No.

Documentary Evidences: Annexure ____

Observation Description/Remarks:

4.15 Maintenance of evidence of client order placement / modification /

cancellation
References

Compliance
(Y/N/N.A.)

Rules, Bye-Laws, Business Rules and Circular No.

Documentary Evidences: Annexure ____

Observation Description/Remarks:

CA Firm Name

Page 18 of 60

Member Name

Inspection Period

4.16 Maintenance of Records in Respect of Brokerage

References

Compliance
(Y/N/ Not maintained
properly/N.A.)

Rules, Bye-Laws, Business Rules and Circular No.

Documentary Evidences: Annexure ____

Observation Description/Remarks:

4.17 Maintenance of Register of Complaints

References

Compliance
(Y/N// Not maintained
properly/N.A.)

Rules, Bye-Laws, Business Rules and Circular No.

Documentary Evidences: Annexure ____

Observation Description/Remarks:

4.18 Maintenance of separate Ledger for Commodity Futures Exchange(s) and Spot
Exchange(s)
References

Compliance
(Y/N/ Not maintained
properly/N.A.)

Rules, Bye-Laws, Business Rules and Circular No.

Documentary Evidences: Annexure ____

Observation Description/Remarks:

CA Firm Name

Page 19 of 60

Member Name

Inspection Period

5. Dealing with Clients

5.1 Execution of Member Client Agreement (MCA)
References

Compliance
(Y/N/N.A.)

Rules, Bye-Laws, Business Rules and Circular No.

MCA has not been executed in ______ instances, for below mentioned clients:

Sr. No.

Name of Clients

Documentary Evidences: Annexure ____

Observation Description/Remarks:

5.2 Execution of Member Client Agreement (MCA) without any discrepancy

References

Compliance
(Y/N/N.A.)

Rules, Bye-Laws, Business Rules and Circular No.

MCA has been executed with discrepancies in ------- instances as mentioned below:

Client Name
Not stamped/franked
Date of execution prior to date of stamping/franking
Date of execution after 6 months from date of
stamping/ franking
Not in prescribed format

CA Firm Name

Page 20 of 60

Member Name

Inspection Period

Not filled up completely

Witness signature not obtained
Member signature not found on all the pages
Client signature not obtained on all the pages
Date of agreement after date of first trade
Discrepancies / deviations from the prescribed member
client agreement, if such discrepancies / deviations are
detrimental to clients.
Any other ( please specify the same)

Documentary Evidences: Annexure ____

Observation Description/Remarks:

5.3 Obtaining Client Registration (KYC) Forms

References

Compliance
(Y/N/N.A.)

Rules, Bye-Laws, Business Rules and Circular No.

KYC form has not been obtained in ____ instances for below mentioned clients:

Sr. No.

Name of Clients

Documentary Evidences: Annexure ____

Observation Description/Remarks:

CA Firm Name

Page 21 of 60

Member Name

Inspection Period

5.4 Obtaining Client Registration (KYC) Forms without any discrepancy

References

Compliance
(Y/N/N.A.)

Rules, Bye-Laws, Business Rules and Circular No.

KYC form has been obtained with discrepancies in ____ instances as mentioned below:

Client Name
Not in prescribed format
Contain inequitable, onerous or unreasonable conditions
imposed on clients
Not filled up completely
Photograph not affixed
Photograph not signed across
Document not taken * (Proof of identity, address, PAN card
etc.)
Documents wrt to Proof of identity, address, PAN, etc. are
not self-certified.
Client signature not obtained
KYC has been executed before the date of first trade
Any other ( please specify the same)
* Specify which document has not been taken.

Documentary Evidences: Annexure ____

Observation Description/Remarks:

CA Firm Name

Page 22 of 60

Member Name

Inspection Period

5.5 Issuing Risk Disclosure Document (RDD)

References

Compliance
(Y/N/N.A.)

Rules, Bye-Laws, Business Rules and Circular No.

RDD has not been issued in ____ instances for below mentioned clients:

Sr. No.

Name of Clients

Documentary Evidences: Annexure ____

Observation Description/Remarks:

5.6 Issuing Risk Disclosure Document (RDD) and Investors Rights and Obligation
(IR&O) without any discrepancy
References

Compliance
(Y/N/N.A.)

Rules, Bye-Laws, Business Rules and Circular No.

RDD has been issued with discrepancies in ____ instances as mentioned below:

Client Name
Not in prescribed format and dated
Client signature not obtained
RDD and IR&O not issued to the client
Any other ( please specify the same)

CA Firm Name

Page 23 of 60

Member Name

Inspection Period

Documentary Evidences: Annexure ____

Observation Description/Remarks:
5.7 KYC Norms with reference to Anti-money Laundering Guidelines
References

Compliance
(Y/N/N.A.)

Rules, Bye-Laws, Business Rules and Circular No.

The required procedure is not followed in below mentioned instances:

Sr. No.

Name of Client

Documentary Evidences: Annexure ____

Observation Description/Remarks:

5.8 Obtaining Blanket Confirmation from client

References

Compliance
(Y/N/N.A.)

Rules, Bye-Laws, Business Rules and Circular No.

Blanket confirmation has obtained in ____ instances as mentioned below:

Sr. No.

Name of Client

5.9 Uploading Unique Client Code (UCC)

References

Compliance
(Y/N/N.A.)

Rules, Bye-Laws, Business Rules and Circular No.

CA Firm Name

Page 24 of 60

Member Name

Inspection Period

UCC has not been uploaded in ---------instances for below mentioned clients:

Sr. No.

Client Name

Documentary Evidences: Annexure ____

Observation Description/Remarks:

5.10 Single ID allotted to a Client (not allotted multiple IDs)

References

Compliance
(Y/N/N.A.)

Rules, Bye-Laws, Business Rules and Circular No.

Multiple IDs have been allotted in ____ instances for below mentioned clients:

Sr. No.

Name of Clients

List of Ids allotted to the client

Documentary Evidences: Annexure ____

Observation Description/Remarks:

5.11 Collection of Margin from Clients

References

Compliance
(Y/N/N.A.)

Rules, Bye-Laws, Business Rules and Circular No.

CA Firm Name

Page 25 of 60

Member Name

Inspection Period

Margin has not been collected / partially collected in ---------instances as mentioned

below:

Sr.

Trade

Client

Client

Margi

Client

No

Date

Code

Name

Ledger

requir

Bal.

ed (1)

(Dr/Cr)
(2)

Margin

Non-Cash Collateral (after

Total

Margin

Bal

Collected

(Dr/Cr)

(5=2+3+4)

Ledger

haircut)

(3)

t
C
o
ll
e
c
t
i
o
n

(
1
5
)
B

FD

SECU

Othe

RITIE

rs

t
al
(
4
)

Documentary Evidences: Annexure ____

CA Firm Name

Page 26 of 60

Member Name

Inspection Period

Observation Description/Remarks:

5.12 Segregation of Margin ensured for Commodity Futures and Spot Exchanges
References

Compliance
(Y/N/N.A.)

Rules, Bye-Laws, Business Rules and Circular No.

Documentary Evidences: Annexure ____

Observation Description/Remarks:

5.13 Client Code Modification / Transfer of Trades not leading to margin evasion
References

Compliance
(Y/N/N.A.)

Rules, Bye-Laws, Business Rules and Circular No.

Client code modification has been observed in ______ instances which have been / not
have been reported to the Exchange

Trade

Trade

Original

Modified

Contract

Buy

Date

No.

Code

Client

Specification

Code

Qty

Price

Amt.

Sell

Documentary Evidences: Annexure ____

Observation Description/Remarks:

CA Firm Name

Page 27 of 60

Member Name

Inspection Period

5.14 Client Code Modification / Transfer of Trades leading to margin evasion

References

Compliance
(Y/N/N.A.)

Rules, Bye-Laws, Business Rules and Circular No.

Client code modification has been observed in ______ instances which have been / not
have been reported to the Exchange leading to evasion of margin payable to the
Exchange for total amount of `______ as mentioned below:

Trade

Trade

Origi

Modif

Contract

Contract

Buy /

Date

No.

nal

ied

Specifica

Expiry

Sell

Code

Client

tion

Code

Price

Qty

Amt

Offsett

No.

Total

ing

of

Applic

positio

days

able

ns

margi

margin

taken

for

on

evade

these

**(Dat

days

e)

** In case the carried forward position was off-set by such Client code modification then the date of taking such
position may be provided here.

Documentary Evidences: Annexure ____

Observation Description/Remarks:

CA Firm Name

Page 28 of 60

Member Name

Inspection Period

5.15 Operating inactive client accounts

References

Compliance
(Y/N/N.A.)

Circular No.

The required procedure wrt to inactive client accounts is not followed in below
mentioned _____instances:

Sr. No.

Name of Client

Documentary Evidences: Annexure ____

Observation Description/Remarks:

CA Firm Name

Page 29 of 60

Member Name

Inspection Period

6. Handling Funds & Commodities

6.1 Maintenance of Separate Client Bank Account
References

Compliance
(Y/N/N.A.)

Rules, Bye-Laws, Business Rules and Circular No.

Documentary Evidences: Annexure ____

Observation Description/Remarks:

6.2 Segregation of Clients and Own Funds

References

Compliance
(Y/N/N.A.)

Rules, Bye-Laws, Business Rules and Circular No.

___instances of Credit of Clients Funds into Own Account amounting to `______without

appropriate justification are given below:

S. No.

Date

Source from where clients fund

Amount (`)

received into own account

(Exchange/Client Name/Clients
Account)

Documentary Evidences: Annexure ____

CA Firm Name

Page 30 of 60

Member Name

Inspection Period

Observation Description/Remarks:

6.3 Use of client bank account for the purpose other than specified by the
Exchange
References

Compliance
(Y/N/N.A.)

Rules, Bye-Laws, Business Rules and Circular No.

Clients bank account has been utilized for purpose other than specified by the exchange
in ____instances for total amount of `________, as detailed below:

Sr. No.

Date when client bank

Purpose of utilization

Amount (`)

account is used for purpose

other than specified by the
Exchange

Documentary Evidences: Annexure ____

Observation Description/Remarks:

6.4 Utilization of Clients Fund for own Purpose

References

Compliance
(Y/N/N.A.)

Rules, Bye-Laws, Business Rules and Circular No.

CA Firm Name

Page 31 of 60

Member Name

Inspection Period

Clients funds have been utilized for purpose other than specified by the exchange in
____instances for total amount of `_______, as detailed below:

Sr.

Date of Client Funds Transferred

No.

No. of Days of

Purpose of

utilization of

utilization

clients funds

o
u
n
t

(
`
)
Debit to Client

Credit Back to

Bank Account

Client Bank Account

(A)

(B)

Documentary Evidences: Annexure ____

Observation Description/Remarks:
6.5 Use of one Clients Funds for transactions of Other Clients:
References

Compliance
(Y/N/N.A.)

Rules, Bye-Laws, Business Rules and Circular No.

CA Firm Name

Page 32 of 60

Member Name

Inspection Period

One clients funds have been utilized for other clients transactions in ____instances for
total amount of `__________, as detailed below:
Sr.

Date of Transfer of Clients

No. of

Purpose

No

Funds

Days of

of

utilization

utilization

of the

clients

funds

(
`
)
Code of the

Debit to the

Credit Back to

client whose

Clients

the same

funds were

Account (A)

Clients

used

Account (B)

Documentary Evidences: Annexure ____

Observation Description/Remarks:
6.6 Evidence for payment of MTM gain made by clients
References

Compliance
(Y/N/N.A.)

Rules, Bye-Laws, Business Rules and Circular No.

Documentary Evidences: Annexure ____

Observation Description/Remarks:

CA Firm Name

Page 33 of 60

Member Name

Inspection Period

6.7 Not Dealing in Cash with Clients

References

Compliance
(Y/N/N.A.)

Rules, Bye-Laws, Business Rules and Circular No.

Member has done cash transactions with clients in________ instances for total amount
of `____________ as mentioned below:

Sr. No.

Client Name

Received/Paid

Amount (in Rs.)

Documentary Evidences: Annexure ____

Observation Description/Remarks:

6.8 Adhered to the Guidelines on Pre-funded instruments

References

Compliance
(Y/N/N.A.)

Rules, Bye-Laws, Business Rules and Circular No.

Documentary Evidences: Annexure ____
Observation Description/Remarks:

6.9 Not Delaying Pay Out of Funds

References

Compliance
(Y/N/N.A.)

Rules, Bye-Laws, Business Rules and Circular No.

Pay out of funds has been delayed in _____ instances for total amount of ` ______ as
mentioned below:

CA Firm Name

Page 34 of 60

Member Name

Inspection Period

Sr.

Client

Date of Pay Out from

Date of Payment to Delay

Amount (in

No.

Name

Exchange

Client

`)

(No. of
Days)

Documentary Evidences: Annexure ____

Observation Description/Remarks:

6.10 Not Delaying Payment of Funds to clients beyond 15 days from the date of
receipt of request
References

Compliance
(Y/N/N.A.)

Rules, Bye-Laws, Business Rules and Circular No.

Payment of funds has been delayed beyond 15 days from the date of receipt of request
from clients in _______instances for total amount of `________. Details are mentioned
below:

Sr.

Client

Date of receipt of

Actual

No. of Days of

Amount

No.

Name

request for payment

Payment

delay in Payment

(in `)

date

Documentary Evidences: Annexure ____

Observation Description/Remarks:

CA Firm Name

Page 35 of 60

Member Name

Inspection Period

6.11 Not Delaying transfer of Commodities

References

Compliance
(Y/N/N.A.)

Rules, Bye-Laws, Business Rules and Circular No.

Transfer of Commodities has been delayed in ________instances for total amount of

`_____. Details are mentioned below:

Sr. No. Client

Name

Date of Pay Out

Date of transfer

Delay

Amount (in

from Exchange

to Client

(No. of Days)

`)

Documentary Evidences: Annexure ____

Observation Description/Remarks:

6.12 Not Delaying transfer of Commodities to clients beyond 15 days from the date
of receipt of request
References

Compliance
(Y/N/N.A.)

Rules, Bye-Laws, Business Rules and Circular No.

Transfer of Commodities has been delayed beyond 15 days from the date of receipt of
request from clients in ________ instances for total amount of `_______. Details are
mentioned below:

Sr.

Client

Date of receipt of request for

Actual

No. of Days of

No.

Name

transfer of commodities

transfer date

delay in transfer

CA Firm Name

Page 36 of 60

Member Name

Inspection Period

Documentary Evidences: Annexure ____

Observation Description/Remarks:

6.13 Sending Statement of Accounts to Clients

References

Compliance
(Y/N/N.A.)

Rules, Bye-Laws, Business Rules and Circular No.

Statement of accounts has not been sent / has been sent with delay in _________
instances for below mentioned clients:
Sr.

Name of

No. Client

Period

Statement

Statement Required

ending

sent on (date) to be sent on (date)

Delay (no of
days)

Documentary Evidences: Annexure ____

Observation Description/Remarks:

6.14 Sending Statement of Accounts to Clients without any discrepancies

References

Compliance
(Y/N/N.A.)

Rules, Bye-Laws, Business Rules and Circular No.

Statement of accounts has been sent with discrepancy in ______ instances for below
mentioned clients:
Name of Client

Period Ending

Discrepancy Observed

Documentary Evidences: Annexure ____

Observation Description/Remarks:

CA Firm Name

Page 37 of 60

Member Name

Inspection Period

6.15 Unutilized Balances of the clients

References

Compliance
(Y/N/N.A.)

Rules, Bye-Laws, Business Rules and Circular No.

Unutilized balances have been observed in the following _______ instances:
Client
Code

Name of the
Client

Credit /
(Debit)
Balance

O/s Less
than 30
days

>30 days and

< 60 days

> 60 days
and < 90
days

> 90
days

Documentary Evidences: Annexure ____

Observation Description/Remarks:

CA Firm Name

Page 38 of 60

Reasons
for
overdue

Member Name

Inspection Period

7. Contract Notes
7.1 Issue of Contract Notes to Clients
References

Compliance
(Y/N/N.A.)

Rules, Bye-Laws, Business Rules and Circular No.

Contract notes have not been issued in _________instances for below mentioned
clients:

Sr. No.

Client Code

Client Name

Trade No.

Trade Date

Documentary Evidences: Annexure ____

Observation Description/Remarks:

7.2 Issue of Contract Notes to Clients within Prescribed Time Limit

References

Compliance
(Y/N/N.A.)

Rules, Bye-Laws, Business Rules and Circular No.

Contract notes have not been issued within prescribed time limit in _____ instances as
mentioned below:
Sr.

Client Code

No.

Client

Trade No.

Name

Trade Date

Issue Date

Delay (no of
days)

Documentary Evidences: Annexure ____

Observation Description/Remarks:

CA Firm Name

Page 39 of 60

Member Name

Inspection Period

7.3 Issue of Contract Notes in Prescribed Format

References

Compliance
(Y/N/N.A.)

Rules, Bye-Laws, Business Rules and Circular No.

Contract notes are not in format in _____ instances as mentioned below:

Particulars

C
o
m
pli
an
ce

Contract Note No.

Contract Note Date
Client Code
All details not printed as per format
Member ID not printed
FMCs Unique Member Code (UMC)
not printed
Not serially numbered
Serial Number not reset at
beginning of Financial Year
Not signed by authorized signatory
Any other ( please specify the same)

Documentary Evidences: Annexure ____

CA Firm Name

Page 40 of 60

Member Name

Inspection Period

Observation Description/Remarks:
7.4 Adherence to Guidelines on Electronic Contract Notes
References

Compliance
(Y/N/N.A.)

Rules, Bye-Laws, Business Rules and Circular No.

Documentary Evidences: Annexure ____

Observation Description/Remarks:

7.5 Issue of Electronic Contract Notes with Authenticated Digital Signature

References

Compliance
(Y/N/N.A.)

Rules, Bye-Laws, Business Rules and Circular No.

Electronic contract notes have been issued without digital signature certification in
_____ instances as mentioned below:

Sr. No.

Contract Note No.

Contract Note Date

Client Code

Documentary Evidences: Annexure ____

Observation Description/Remarks:

CA Firm Name

Page 41 of 60

Member Name

Inspection Period

7.6 Maintaining Log Reports of Electronic Contract Notes issued

References

Compliance
(Y/N/N.A.)

Rules, Bye-Laws, Business Rules and Circular No.

Log reports of issuing electronic contract notes have not been maintained in _____
instances as mentioned below:

Sr. No.

Contract Note Date

Documentary Evidences: Annexure ____

Observation Description/Remarks:
7.7 Maintaining Duplicate Copy of Contract Notes
References

Compliance
(Y/N/N.A.)

Rules, Bye-Laws, Business Rules and Circular No.

Duplicate copies of contract notes are not maintained in _____ instances as mentioned
below:

Sr. No.

Contract Note No.

Contract Note Date

Client Code

Documentary Evidences: Annexure ____

Observation Description/Remarks:

CA Firm Name

Page 42 of 60

Member Name

Inspection Period

7.8 Maintaining Proof of Dispatch of Contract Notes

References

Compliance
(Y/N/N.A.)

Rules, Bye-Laws, Business Rules and Circular No.

Proof of dispatch of contract notes is not maintained in _____ instances as mentioned

below:

Sr. No.

Contract Note No.

Contract Note Date

Client Code

Documentary Evidences: Annexure ____

Observation Description/Remarks:

7.9 Maintaining Proof of Receipt of Contract Note

References

Compliance
(Y/N/N.A.)

Rules, Bye-Laws, Business Rules and Circular No.

Proof of receipt of contract note is not maintained in _____ instances as mentioned

below:
Sr. No.

Contract Note No.

Contract Note Date

Client Code

Documentary Evidences: Annexure ____

Observation Description/Remarks:

CA Firm Name

Page 43 of 60

Member Name

Inspection Period

7.10 Separate contract notes issued for trades on Commodity Futures and Spot
Exchanges
References

Compliance
(Y/N/N.A.)

Rules, Bye-Laws, Business Rules and Circular No.

Documentary Evidences: Annexure ____

Observation Description/Remarks:
7.11 Consolidated contract notes not issued to clients
References

Compliance
(Y/N/N.A.)

Rules, Bye-Laws, Business Rules and Circular No.

Consolidated contract notes are issued in _____ instances as mentioned below:

Sr. No.

Contract Note No.

Contract Note Date

Client Code

Documentary Evidences: Annexure ____

Observation Description/Remarks:

CA Firm Name

Page 44 of 60

Member Name

Inspection Period

8. Brokerage
8.1 Mentioning Brokerage separately on the Contract Notes
References

Compliance
(Y/N/N.A.)

Rules, Bye-Laws, Business Rules and Circular No.

Brokerage has not been mentioned on the contract notes in ______instances as

mentioned below:
Sr. No.

Contract Note No

Contract Note Date

Client Code

Documentary Evidences: Annexure ____

Observation Description/Remarks:

8.2 Charging Brokerage within prescribed limit

References

Compliance
(Y/N/N.A.)

Rules, Bye-Laws, Business Rules and Circular No.

Brokerage has been charged in excess of the prescribed limit in ______ instances for
excess amount of `______ as mentioned below:
Sr.

Trade

Trade

Trade

Max.

Actually

Excess Brokerage

No.

Date

No.

Value

Permissible

Charged

Amount (in `)

Brokerage (in

Brokerage (in

Rs.)

Rs)

Documentary Evidences: Annexure ____

CA Firm Name

Page 45 of 60

Member Name

Inspection Period

Observation Description/Remarks:

8.3 Not Sharing Brokerage with employee of another member/another

member/with whom members are forbidden to do business/ suspended
member/expelled member/default member.
References

Compliance
(Y/N/N.A.)

Rules, Bye-Laws, Business Rules and Circular No.

Brokerage has been shared with person not allowed by Exchange in _____ instances for
total amount of `______ as mentioned below:

Sr. No.

Name of the

Disallowed Category to

Amount of Brokerage Shared (in

Person

which the Person belongs

`)

Documentary Evidences: Annexure ____

Observation Description/Remarks:

CA Firm Name

Page 46 of 60

Member Name

Inspection Period

9. Trading System
9.1 Use of Trading System by Approved Users
References

Compliance
(Y/N/N.A.)

Rules, Bye-Laws, Business Rules and Circular No.

Trading terminal has been used by person other than the user approved by Exchange in
______ instances as mentioned below:
Sr. No.

User ID

Name of Approved User

Name of person actually using the

terminal

Documentary Evidences: Annexure ____

Observation Description/Remarks:

9.2 Location of Trading Terminals

References

Compliance
(Y/N/N.A.)

Rules, Bye-Laws, Business Rules and Circular No.

Documentary Evidences: Annexure ____

Observation Description/Remarks:

CA Firm Name

Page 47 of 60

Member Name

Inspection Period

9.3 Use of Trading Terminals for Pro-Trading

References

Compliance
(Y/N/N.A.)

Rules, Bye-Laws, Business Rules and Circular No.

Member has misused the pro trading facility in ___________ instances (please provide
the information as explained under Chapter 2 of the Inspection Manual)
Documentary Evidences: Annexure ____
Observation Description/Remarks:

9.4 Use of Software provided by the Exchange in a manner allowed by the

Exchange
References

Compliance
(Y/N/N.A.)

Rules, Bye-Laws, Business Rules and Circular No.

Documentary Evidences: Annexure ____

Observation Description/Remarks:

9.5 Use of IBT Terminal in a manner allowed by the Exchange

References

Compliance
(Y/N/N.A.)

Rules, Bye-Laws, Business Rules and Circular No.

Documentary Evidences: Annexure ____

Observation Description/Remarks:

CA Firm Name

Page 48 of 60

Member Name

Inspection Period

9.6 Use of CTCL Terminal in a manner allowed by the Exchange

References

Compliance
(Y/N/N.A.)

Rules, Bye-Laws, Business Rules and Circular No.

Documentary Evidences: Annexure ____

Observation Description/Remarks:

9.7 Periodic System Audit of IBT System

References

Compliance
(Y/N/N.A.)

Rules, Bye-Laws, Business Rules and Circular No.

Documentary Evidences: Annexure ____

Observation Description/Remarks:

9.8 Periodic system audit of CTCL system

References

Compliance
(Y/N/N.A.)

Rules, Bye-Laws, Business Rules and Circular No.

Documentary Evidences: Annexure ____

Observation Description/Remarks:

CA Firm Name

Page 49 of 60

Member Name

Inspection Period

9.9 Use of Automated Trading Facility with Prior Approval from the Exchange
References

Compliance
(Y/N/N.A.)

Rules, Bye-Laws, Business Rules and Circular No.

Documentary Evidences: Annexure ____

Observation Description/Remarks:

9.10 Installed Antivirus Software and Firewalls in the System

References

Compliance
(Y/N/N.A.)

Rules, Bye-Laws, Business Rules and Circular No.

Documentary Evidences: Annexure ____

Observation Description/Remarks:

9.11 Ensured regular back-up of data

References

Compliance
(Y/N/N.A.)

Rules, Bye-Laws, Business Rules and Circular No.

Documentary Evidences: Annexure ____

Observation Description/Remarks:

CA Firm Name

Page 50 of 60

Member Name

Inspection Period

10.

Miscellaneous

10.1 Adherence to Anti Money Laundering norms

References

Compliance
(Y/N/N.A.)

Rules, Bye-Laws, Business Rules and Circular No.

Documentary Evidences and type of non-compliance: Annexure ____

Observation Description/Remarks:

10.2 Appointed Principal Officer

References

Compliance
(Y/N/N.A.)

Rules, Bye-Laws, Business Rules and Circular No.

Principal Officer has been appointed and details of the same has been intimated to the
Financial Intelligence Unit-India
Documentary Evidences: Annexure ____
Observation Description/Remarks:
10.3 Undertaken Internal Review of the Business
References

Compliance
(Y/N/N.A.)

Rules, Bye-Laws, Business Rules and Circular No.

Documentary Evidences: Annexure ____

Observation Description/Remarks:

CA Firm Name

Page 51 of 60

Member Name

Inspection Period

10.4 Displayed Notice Board

References

Compliance
(Y/N/N.A.)

Rules, Bye-Laws, Business Rules and Circular No.

Documentary Evidences: Annexure ____

Observation Description/Remarks:

10.5 Not using Exchange logo(s)

References

Compliance
(Y/N/N.A.)

Rules, Bye-Laws, Business Rules and Circular No.

Documentary Evidences: Annexure ____
Observation Description/Remarks:

10.6 Payment of Stamp Duty

References

Compliance
(Y/N/N.A.)

Rules, Bye-Laws, Business Rules and Circular No.

In ________ instances member has not paid / delayed payment of the stamp duty to the
relevant Stamp Office.
Documentary Evidences: Annexure ____
Observation Description/Remarks:

CA Firm Name

Page 52 of 60

Member Name

Inspection Period

10.7 Payment of Service Tax

References

Compliance
(Y/N/N.A.)

Rules, Bye-Laws, Business Rules and Circular No.

In ________ instances member has not paid / delayed payment of the Service Tax to the
relevant Tax Authorities.
Documentary Evidences: Annexure ____
Observation Description/Remarks:

10.8 Payment of Statutory dues

References

Compliance
(Y/N/N.A.)

Rules, Bye-Laws, Business Rules and Circular No.

In ________ instances member has not paid / delayed payment of the Statutory Dues to
the relevant Authorities.
Documentary Evidences: Annexure ____
Observation Description/Remarks:
10.9 Not published advertisement without permission of the Exchange
References

Compliance
(Y/N/N.A.)

Rules, Bye-Laws, Business Rules and Circular No.

Advertisement has been published without prior approval from the Exchange in ---instances as mentioned below:
Sr. No.

Published in

Reason for Publishing

Documentary Evidences: Annexure ____

Observation Description/Remarks:

CA Firm Name

Page 53 of 60

Member Name

Inspection Period

10.10 Not involved in unauthorized or illegal trading activities / fictitious transactions

or unfair trade practice including Circular Trading, cross deals, price rigging, price
manipulation and other market Abuses
References

Compliance
(Y/N/N.A.)

Rules, Bye-Laws, Business Rules and Circular No.

Member is involved in above mentioned activities in ________ instances. (Please provide

detailed information in this regard)
Documentary Evidences: Annexure ____
Observation Description/Remarks:

10.11 Not indulged in Portfolio Advisory Services/Portfolio Management

Services
References

Compliance
(Y/N/N.A.)

Rules, Bye-Laws, Business Rules and Circular No.

Documentary Evidences: Annexure ____

Observation Description/Remarks:

10.12 Obtained CCP Certification

References

Compliance
(Y/N/N.A.)

Rules, Bye-Laws, Business Rules and Circular No.

Documentary Evidences: Annexure ____
Observation Description/Remarks:

CA Firm Name

Page 54 of 60

Member Name

Inspection Period

10.13 Complaint of clients is resolved within prescribed time limit

References

Compliance
(Y/N/N.A.)

Rules, Bye-Laws, Business Rules and Circular No.

Details of complaint of the clients are given below;

Sr. No.
1
2
3
4
5

Particular
Complaints received
Complaints resolved within 30 days
Complaints resolved after 30 days
Complaints pending upto 30 days
Complaints pending for more than 30 days.

No. of case

Amount

Documentary Evidences: Annexure*

Sr. Client
No. Name

Code

Complaint
received on

Complaint Resolved
within 30After 30
daysdays

Complaint pending
Upto 30More than
days30 days

* Pleased provide the details in separate annexure

Observation Description/Remarks:
10.14

Submission of the Annual Compliance Report (ACR) to the Exchange for

the FY 20__ - 20__
References

Compliance
(Y/N/N.A.)

Rules, Bye-Laws, Business Rules and Circular No.

Documentary Evidences:

CA Firm Name

Page 55 of 60

A
m
o
u
n
t

Member Name

Inspection Period

Observation Description/Remarks:
10.15

Declarations made in ACR submitted to the Exchange for the FY 20__ 20__ are in agreement with the findings reported during the inspection
References

Compliance
(Y/N/N.A.)

Rules, Bye-Laws, Business Rules and Circular No.

In the following _____ instances the findings of the inspection were not in agreement
with the declaration made in the ACR submitted by the member for the same period.
Sr. No.

Violation observed in the inspection

Compliance reported in ACR

Documentary Evidences and No. of Instances:

Observation Description/Remarks:

10.16

Segregation of BPO/KPO services from Commodity Derivatives Market

References

Compliance
(Y/N/N.A.)

Rules, Bye-Laws, Business Rules and Circular No.

Documentary Evidences and No. of Instances:
Observation Description/Remarks:
10.17 Not dealt with any Broker/Sub-Broker (till January 31, 2011) /Authorized
Person/entity who is Suspended or Debarred by SEBI, any Exchange or any
authority.
References

Compliance
(Y/N/N.A.)

Rules, Bye-Laws, Business Rules and Circular No.

CA Firm Name

Page 56 of 60

Member Name

Inspection Period

Member has dealt with person not allowed to trade as mentioned above, in _____
instances as mentioned below:
Sr.

Name of the

Disallowed Category to which the

Dates of dealing /

No.

Person

Person belongs

trading

Documentary Evidences: Annexure ____

Observation Description/Remarks:

10.18

Insurance Policy
References

Compliance
(Y/N/N.A.)

Rules, Bye-Laws, Business Rules and Circular No.

Documentary Evidences: Annexure ____
Observation Description/Remarks:

10.19

Confirmation of Existence of Clients

References

Compliance
(Y/N/N.A.)

Rules, Bye-Laws, Business Rules and Circular No.

Observation Description/Remarks: We have verified the ___ clients and found that they
exist and their details are also updated in the Exchange UCC database with respect to
address/PAN details/Contact details . Or

We have verified the ____ clients and found that ____ out of the same do not exist/were
not contactable/ (any other reason, please specify). Further the details of ___ clients
with respect to address/PAN details/Contact details are not updated in the Exchange UCC
database.

CA Firm Name

Page 57 of 60

Member Name

10.20

Inspection Period

Audit Report of Corporate Member

References

Compliance
(Y/N/N.A.)

Rules, Bye-Laws, Business Rules and Circular No.

10.21 ROC related compliance

References

Compliance
(Y/N/N.A.)

Rules, Bye-Laws, Business Rules and Circular No.

10.22

List of Client grievances cases which are escalated to arbitration:

10.23

Dues of Leased line, VSAT connectivity etc

10.24

List of cases where post-facto approval is obtained from the Exchange

10.25

Observations with reference to miscellaneous items in the Manual

10.26

Other Information, if any (which the Inspection Team wishes to provide)

CA Firm Name

Page 58 of 60

Member Name

Inspection Period

10 List of Annexures

CA Firm Name

Page 59 of 60

Member Name

Inspection Period

CA Firm Name

Page 60 of 60