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Guidelines Issued by Reserve Bank of India for the Regulation of Financial Markets
5) Accounting Standards
Any other instructions issued from time to time The internal policy guidelines on
securities transactions framed by the PD, duly certified by its management to the effect
that they are in accordance with the RBI guidelines and that they have been put in place,
may be perused by the Statutory Auditors and commented upon as to the conformity of
the guidelines with the instructions/guidelines issued by RBI. The effectiveness of the
policy and operational guidelines should be periodically evaluated.
2) Prohibition of short selling of securities – The Primary Dealers should not put through
any sale transaction without actually holding the security in its portfolio i.e. under no
circumstances, a PD should hold a oversold position in any security.
5) Provision also for suits under litigation – Even in cases where a PD has filed suit
against another party for recovery, such exposures should be evaluated and provisions
should be made to the satisfaction of auditors.
6) Claims against the PD to be taken note of and provisions made – Any claim against the
PD should also be taken note of and provisions made to the satisfaction of auditors.
7) Problem exposures to be reflected clearly in Profit and Loss Account – The profit and
loss account should, reflect the problem exposures, if any, as also the effect of valuation
of portfolio, as per the instructions issued by the Reserve Bank, if any, from time to time.
The report of the statutory auditors should contain a certification to this effect.
Business through brokers and contract limits for approved brokers – A disproportionate
part of the business should not be transacted through only one or a few brokers. PDs
should fix aggregate contract limits for each of the approved brokers. A limit of 5%, of
total transactions (both purchase and sales) entered into by a PD during a year should be
treated as the aggregate upper contract limit for each of the approved brokers. This limit
should cover both the business initiated by a PD and the business offered/brought to the
PD by a broker. PDs should ensure that the transactions entered into through individual
brokers during a year normally does not exceed this limit. However, the norm would not
be applicable to PD’s dealings through other Primary Dealers.
10) Material changes in circumstances – The PDs should report any material changes in
circumstances such as change in the ownership structure, business profile, organization
etc. affecting the conditions of licensing as PD to RBI immediately.
Guidelines Issued by Securities and Exchange Board of India for the Regulation of
Securities Markets
No person shall -
(a) effect, take part in, or enter into, either directly or indirectly, transactions in securities,
with the intention of artificially raising or depressing the prices of securities and thereby
inducing the sale or purchase of securities by any person;
(b) indulge in any act, which is calculated to create a false or misleading appearance of
trading on the securities market;
(c) indulge in any act which results in reflection of prices of securities based on
transactions that are not genuine trade transactions;
(d) enter into a purchase or sale of any securities, not intended to effect transfer of
beneficial ownership but intended to operate only as a device to inflate, depress, or cause
fluctuations in the market price of securities;
(e) pay, offer or agree to pay or offer, directly or indirectly, to any person any money or
money’s worth for inducing another person to purchase or sell any security with the sole
object of inflating, depressing, or causing fluctuations in the market price of securities19.
(b) is likely to induce the sale or purchase of securities by any other person or is likely to
have the effect of increasing or depressing the market price of securities, if when he
makes the statement or disseminates the information-
(i) he does not care whether the statement or information is true or false; or
(ii) he knows, or ought reasonably to have known that the statement or information is
misleading in any material particular.
Nothing in this sub-regulation shall apply to any general comments made in good faith in
regard to -
(d)any other matter of a similar nature, whether such comments be made in public or in
private.
No person shall -
(a) in the course of his business, knowingly engage in any act, or practice which would
operate as a fraud upon any person in connection with the purchase or sale of, or any
other dealing in, any securities;
(b) on his own behalf or on behalf of any person, knowingly buy, sell or otherwise deal in
securities, pending the execution of any order of his client relating to the same security
for purchase, sale or other dealings in respect of securities. Nothing contained in this
clause shall apply where according to the clients instruction, the transaction for the client
is to be effected only under specified conditions or in specified circumstances;
(c) intentionally and in contravention of any law for the time being in force delays the
transfer of securities in the name of the transferee or the dispatch of securities or
connected documents to any transferee;
(d) Indulge in falsification of the books, accounts and records (whether maintained
manually or in computer or in any other form);
(e) When acting as an agent, execute a transaction with a client at a price other than the
price at which the transaction was executed by him, whether on a stock exchange or
otherwise, or at a price other than the price at which it was offset against the transaction
of another client
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