Rights & Obligations Documents for Brokers and Clients — What Must Be Disclosed

SEBI has prescribed a standard Rights & Obligations document that replaces all client-broker agreements. The document is mandatory and binding on existing and new stock brokers and clients. This article explains what must be disclosed, the key clauses covering transactions, margins, brokerage, and dispute resolution, and the rights of both parties.

The Regulatory Basis

SEBI (Stock Broker and Sub-Broker) Regulations, 1992 were amended vide Notification No. LAD NRO/GN/2011-12/19/26273 dated August 17, 2011 to replace all client-broker agreements with the 'Rights and Obligations' document. The document is mandatory and binding on the existing and new stock brokers and clients.

Key Clauses That Must Be Disclosed

1. Binding Nature

The stock broker and the client shall be bound by all the Rules, Byelaws and Regulations of the Exchange and circulars/notices issued thereunder and Rules and Regulations of SEBI and relevant notifications of Government authorities as may be in force from time to time.

2. Client Information

• The client shall furnish all such details in full as are required by the stock broker in "Account Opening Form" with supporting details.
• The client shall immediately notify the stock broker in writing if there is any change in the information.
• The stock broker shall maintain all the details of the client confidentially.

3. Margins

• The client shall pay applicable initial margins, withholding margins, special margins or such other margins as are considered necessary.
• The stock broker is permitted to collect additional margins and the client shall be obliged to pay such margins within the stipulated time.

4. Transactions and Settlements

• The stock broker shall ensure to place orders and execute the trades of the client, only in the Unique Client Code assigned to that client.
• The stock broker shall ensure that the money/securities deposited by the client shall be kept in a separate account.
• Where the Exchange(s) cancels trade(s), all such trades including the trade/s done on behalf of the client shall ipso facto stand cancelled.

5. Brokerage

• The Client shall pay to the stock broker brokerage and statutory levies as are prevailing from time to time.
• The stock broker shall not charge brokerage more than the maximum brokerage permissible.

6. Liquidation and Close Out of Position

• The stock broker shall be entitled to liquidate/close out all or any of the client's positions for non-payment of margins or other amounts.
• Any and all losses and financial charges on account of such liquidation/closing-out shall be charged to and borne by the client.

7. Dispute Resolution

• The stock broker shall co-operate in redressing grievances of the client.
• The client and the stock broker shall refer any claims and/or disputes to conciliation/arbitration as per the Rules, Byelaws and Regulations of the Exchanges.

8. Termination of Relationship

• The stock broker and the client shall be entitled to terminate the relationship between them after giving notice in writing of not less than one month.

9. Additional Rights and Obligations

• The stock broker shall issue a contract note within 24 hours of execution of trades.
• The stock broker shall make pay out of funds or delivery of securities within one working day of receipt of the payout.
• The stock broker shall send a complete 'Statement of Accounts' for both funds and securities in such periodicity and format as prescribed.
• The stock broker shall send daily margin statements to the clients.
• The stock broker / stock broker and depository participant shall not directly / indirectly compel the clients to execute Power of Attorney (PoA) or Demat Debit and Pledge Instruction (DDPI) or deny services if the client refuses.

10. Electronic Contract Notes

• In case client opts to receive the contract note in electronic form, he shall provide an appropriate e-mail id to the stock broker.
• The stock broker shall ensure that all ECNs sent through the e-mail shall be digitally signed, encrypted, non-tamperable and in compliance with the provisions of the IT Act, 2000.

11. Internet & Wireless Technology Based Trading

• Additional clauses shall be applicable for internet and wireless technology based trading.
• The stock broker shall make the client aware that the Stock Broker's IBT system itself generates the initial password.
• The Client shall be responsible for keeping the Username and Password confidential and secure.

Voluntary Clauses

Any additional voluntary clauses/document added by the stock broker should not be in contravention with rules/regulations/notices/circulars of Exchanges/SEBI. Any changes in such voluntary clauses/document(s) need to be preceded by a notice of 15 days.

How We Help

At Anuj Desai & Associates, we help stock brokers prepare and implement the Rights & Obligations document, ensure compliance with SEBI's requirements, and update the document as regulations change. If you need assistance with Rights & Obligations compliance, reach out to our regulatory compliance desk.