New Delhi, Oct 19: The Securities and Exchange Board of India has barred sub-brokers from issuing "contract notes" and making payments by cheque directly for share transactions. While barring the usual practice of issuing contract notes to investor, a sub-broker will now have to mandatory enter into a "tripartite agreement" with a Sebi-registered broker and the client for any sale or purchase of securities.
The move comes after numerous instance of default in payment by brokers and sub-brokers to their clients in absence of a well-defined rule on agreement between the three parties.
Sebi has amended its stock brokers and sub-brokers regulations 1992 by inserting a clause that says "a sub-broker shall enter into a tripartite agreement with his client and with the main broker specifying the scope of rights and obligations of the sub-broker, broker and such client of the sub-broker".
The sub-broker would have to assist his clients in obtaining the contract note from the main broker but can not issue the note or make payments through cheques directly, which has to come from the main broker from now on.
Sebi has also directed brokers not to deal with any person acting as a sub-broker unless he is registered with the exchange and the regulator.
Moreover, sub-brokers would have to comply with the rules, regulations and by-laws of the exchange, Sebi said in its new regulation.
A sub-broker can not be affiliated to more than one broker of one exchange, it said.
Bureau Report