Description

BSE releases detailed methodology and categorization framework for inspection of Authorised Persons (APs), covering violations related to unauthorized trading, fund movements, dabba trading, and compliance requirements.

Summary

BSE has issued Annexure A detailing the comprehensive inspection framework for Authorised Persons (APs). The document outlines 13 specific inspection areas with indicative methodologies and violation categorizations (Internal, A, B, or C). The framework covers critical areas including client registration verification, fund/securities movement monitoring, detection of unauthorized/dabba trading, compliance with advertisement codes, and terminal registration verification.

Key Points

  • All clients must be registered directly with Trading Members only, not through APs
  • No fund or securities movement permitted between clients and APs
  • APs prohibited from making fixed periodic payments to clients or engaging in cash dealings
  • APs cannot be involved in fund-based activities, collecting deposits, or offering assured returns
  • Strict prohibition on illegal/dabba/paper trading activities
  • APs cannot deal with unregistered intermediaries on behalf of clients
  • No incentives to be offered for opening trading accounts
  • Written authorization required from clients for trading on their behalf
  • All advertisements and business solicitation materials require approval from Exchange and Trading Member
  • All AP terminals must be reported to the Exchange
  • Mystery shopping, surprise visits, web searches, and client feedback used as inspection tools

Regulatory Changes

This circular establishes a structured inspection and categorization framework for AP violations:

Violation Categories:

  • Internal: Internal compliance issues
  • Category A: Major violations including unauthorized trading, fund movements, dabba trading, dealing with unregistered intermediaries, accepting deposits with assured returns, and unreported terminals
  • Category B: Moderate violations including unauthorized client trading and non-compliant advertisements
  • Category C: Minor violations for advertisements issued in line with advertisement code
  • Complaint-dependent: Categorization based on complaint outcome (A or B)

Compliance Requirements

For Trading Members:

  • Conduct comprehensive inspections covering all 13 specified areas
  • Examine demat and bank statements during inspection periods
  • Obtain written confirmations from APs regarding all disclosed accounts
  • Review client ledgers for irregular payment patterns
  • Analyze all complaints received against APs
  • Verify terminal information matches Exchange records
  • Approve all AP advertisements before publication

For Authorised Persons:

  • Maintain direct client registration with Trading Members
  • Disclose all demat and bank accounts to Trading Members
  • Avoid any fund or securities movement with clients
  • Refrain from cash dealings with clients
  • Not engage in unauthorized trading, dabba trading, or deposit schemes
  • Not deal with unregistered intermediaries
  • Obtain client authorization for trading on their behalf
  • Seek proper approvals before issuing any advertisements
  • Ensure all terminals are properly reported to the Exchange

Inspection Methodologies Include:

  • Examination of books of account, demat and bank statements
  • Client ledger analysis
  • Mystery shopping exercises
  • Surprise visits to AP offices
  • Web and social media monitoring
  • Regular client feedback collection
  • Complaint analysis and review
  • Media scanning (newspapers, print media, social platforms)

Important Dates

  • Circular Date: October 10, 2025
  • No specific implementation or effective dates mentioned; framework appears to be ongoing inspection guideline

Impact Assessment

Market Impact:

  • Strengthens investor protection framework through systematic AP oversight
  • Increases transparency in intermediary operations
  • May reduce instances of unauthorized trading and fraudulent schemes

Operational Impact:

  • Trading Members must implement comprehensive inspection protocols
  • APs face stricter scrutiny and monitoring requirements
  • Enhanced documentation and disclosure obligations
  • Potential disciplinary actions for non-compliance across multiple violation categories

Compliance Impact:

  • Clear categorization enables consistent enforcement actions
  • Multiple inspection methodologies ensure thorough oversight
  • Focus on digital surveillance (social media, web searches) reflects modern trading practices
  • Emphasis on client protection from unauthorized activities and misleading advertisements

Impact Justification

Critical regulatory framework defining inspection methodology and violation categories for Authorised Persons, directly impacting broker operations and investor protection mechanisms