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| COMBINED RISK
DISCLOUSURE DOCUMENT FOR CAPITAL MARKET AND F &
O SEGMENTS |
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This document is
issued by the member of the National Stock Exchange
of India (hereinafter referred to as “NSE”)
/ The Stock Exchange Mumbai (hereinafter referred
to as “BSE”) which has been formulated
by the Exchanges in coordination with the Securities
and Exchange Board of India (hereinafter referred
to as “SEBI”) and contains important information
on trading in Equities and F & O Segments of NSE
/ BSE. All prospective constituents should read this
document before trading on Capital Market or F &
O segments of the exchange. |
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NSE / BSE /SEBI does
neither singly or jointly and expressly nor impliedly
guarantee nor make any representation concerning the
completeness, the adequacy or accuracy of this disclosure
document nor has NSE / BSE / SEBI endorsed or passed
any merits of participating in the trading segments.
This brief statement does not disclose all the risks
and other significant aspects of trading. |
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In the light of the
risk involved, you should undertake transaction only
if you understand the nature of the contractual relationship
into which you are entering and the extent of your
exposure to risk. |
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You must know and
appreciate that investment in Equity shares, derivative
or other instruments traded on the Stock Exchange(s),
which have varying element of risk, is generally not
an appropriate avenue for someone of limited resources/limited
investment and/or trading experience and low risk
tolerance. You should therefore carefully consider
whether such trading is suitable for you in the light
of your financial condition. In case you trade on
NSE/BSE and suffer diverse consequences or loss, you
shall be solely responsible for the same and NSE/BSE,
its Clearing, Corporation/Clearing House and/or SEBI
shall not be responsible, in any manner whatsoever,
for the same and it will not be open for you to take
a plea that no adequate disclosure regarding the risks
involved was made or that you were not explained the
full risk involved by the concerned member. The constituent
shall be solely responsible for the consequence and
no contract can be rescinded on that account. You
must acknowledge and accept that there can be no guarantee
of profits or no exception from losses while executing
orders for purchase and / or sale of a security or
derivative being traded on NSE / BSE. |
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It must be clearly
understood by you that your dealings on NSE / BSE
through a member shall be subject to your fulfilling
certain formalities set out by the Member, which may
interalia include your filling the know your client
form, client registration form, execution of an agreement,
etc., and are subject to the Rules, Byelaws and Regulations
of NSE / BSE and its Clearing Corporation, guidelines
prescribed by SEBI and in force from time to time
and Circulars as may be issued by NSE/BSE or its Clearing
Corporation/Clearing House and in force from time
to time. |
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NSE/BSE does not
provide or purport to provide any advice and shall
not be liable to any person who enters into any business
relationship with any trading member and/or sub-broker
of NSE/BSE and/or any third party based on any information
contained in this document. Any information contained
in this document must not be construed as business
advice/investment advice. No consideration to trade
should be made without thoroughly understanding and
reviewing the risks involved in such trading. If you
are unsure, you must seek professional advice on the
same. |
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| In considering
whether to trade or authorize someone to trade for you,
you should be aware of or must get acquainted with the
following:- |
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| 1. |
BASIC RISKS INVOLVED IN
TRADING ON THE STOCK EXCHANGE (EQUITY AND OTHER INSTRUMENTS) |
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1.1 Risk of Higher Volatility:
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Volatility
refers to the dynamic changes in price that securities
undergo when trading activity continues on the Stock
Exchange. Generally, higher the volatility of a security/contract,
greater is its price swings. There may be normally
grater volatility in thinly traded securities/contracts
than in active securities/contracts. As a result of
volatility, your order may only be partially executed
or not executed at all, or the price at which your
order got executed may be substantially different
from the last traded price or change substantially
thereafter, resulting in notional or real losses. |
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1.2
Risk of Lower Liquidity: |
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Liquidity
refers to the ability of market participants to buy
and/or sell securities / contracts expeditiously at
a competitive price and with minimal price difference.
Generally, it is assumed that more the numbers of
the orders available in a market, grater is the liquidity.
Liquidity is important because with greater liquidity,
It is easier for investors to buy and / or sell securities
/ contracts swiftly and with minimal price difference,
and as a result, investors are more likely to pay
or receive s competitive price for securities / contracts.
As a result, your order may only be partially executed,
or may be executed with relatively greater price difference
or may not be executed at all. |
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1.2.1
Buying/selling without intention of giving
and/or taking delivery of a security, as part of a
day trading strategy, may also result into losses,
because in such a situation, stocks may have to be
sold/purchased at a low/high prices, compared to the
excepted price levels, so as not to have any obligation
to deliver/receive a security. |
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1.3
Risk of wider Spreads: |
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Spread refers
to the difference in best buy price and best sell
price. It represents the differential between the
price of buying a security and immediately selling
it or vice versa. Lower liquidity and higher volatility
may result in wider than normal spreads for less liquid
or illiquid securities / contracts. This in turn will
hamper better price formation. |
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1.4
Risk-reducing orders: |
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Most Exchanges
have a facility for investors to place “limit
orders”, “stop loss orders” etc”.
The placing of such orders (e.g., “stop loss”
orders, or “limit” orders) which are intended
to limit losses to certain amounts may be effective
many a time because rapid movement in market condition
may make it impossible to execute such orders. |
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1.4.1
A “market” order will be executed
promptly, subject to availability of orders on opposite
side, without regard to price and that, while the
customer may receive a prompt execution of a “market”
order, the execution may be at available prices of
outstanding orders, which satisfy the order quantity,
on price time priority. It may be understood that
these prices may be significantly different from the
last traded price or the best price in that security. |
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1.4.2
A “limit” order will be executed
only at the “limit” price specified for
the order or a better price. However, while the customer
receives price protection, there is a possibility
that the order may not be executed at all. |
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1.4.3
A stop loss order is generally placed “away”
from the current price of a stock / contract, and
such order gets activated if and when the stock /
contract reaches, or trades through, the stop price.
Sell stop orders are entered ordinarily below the
current price, and buy stop orders are entered ordinarily
above the current price. When the stock reaches the
pre-determined price, or trades through such price,
the stop loss order converts to a market/limit order
and it is executed at the limit or better. There is
no assurance therefore that the limit order will be
executable since a stock / contract might penetrate
the pre – determined price, in which case, the
risk of such order not getting arises, just as with
a regular limit order. |
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1.5
Risk of News Announcements: |
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Issuers
make news announcement that may impact the price the
securities / contracts. These announcements may occur
during trading, and when combined with lower liquidity
and higher volatility, may suddenly cause an unexpected
positive or negative movement in the price of the
security / contract. |
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1.6
Risk of Rum ours: |
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Rum ours
about companies at times float in the market through
word of month, newspapers, websites or news agencies,
etc. The investors should be wary of and should desist
from acting on rum ours. |
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1.7
System Risk: |
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High volume
trading will frequently occur at the market opening
and before market close. Such high volumes may also
occur at any point in the day. These may cause delays
in order execution or confirmation. |
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1.7.1
During periods of volatility, on account of market
participants continuously modifying their order quantity
or prices or placing fresh orders, there may be delays
in order execution and its confirmations. |
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1.7.2
Under certain market condition, It may be difficult
or impossible to liquidate position in the market
at a reasonable price or at all, when there are no
outstanding orders or either on the buy side or the
sell side, or it trading is halted in a security due
to any action of unusual trading activity or stock
hitting circuit filters or for any other reason. |
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1.8
System/Network Congestion: |
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Trading
on NSE/BSE is in electronic mode, based on satellite/leased
line based communication, combination of technologies
and computer systems to place and route orders. Thus
there exists a possibility of communication failure
or system problems or slow or delayed response from
systems or trading halt, or any such other problem/glitch
whereby not being able to establish access to the
trading system/network. Which may be beyond the control
of and may result in delay in processing or not processing
buy or sell orders either in part or in full. You
are cautioned to note that although these problems
may be temporary in nature, but when you have outstanding
open positions or unexpected orders, these represent
a risk because of your obligations to settle all executed
transactions. |
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| 2. |
As
far as futures and options segment is concerned, please
note and get yourself acquainted with the following
additional features:- |
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2.1
Effect of “Leverage” or Gearing”
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The amount
of margin is small relative to the value of the derivatives
contract so the transactions are “leveraged”
or “geared”. Derivatives trading, which
is conducted with relatively small amount of margin,
provide a possibility of great profit or loss in comparison
with the principal investment amount. But transactions
in derivatives carry a high degree of risk |
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You should
therefore completely understand the following statements
before actually trading in derivatives trading and
also trade with caution while taking into account
one’s circumstances, financial resources, etc.
If the prices move against you, you may lose a part
or whole margin equivalent to the principal investment
amount in a relatively short period of time. Moreover,
the loss may exceed the original margin amount. |
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| A. |
Futures trading involve daily
settlement of all positions. Every day the open
positions are marked based on the closing level
of the index. If the index has moved against
you, you will be required to deposit the amount
of loss (notional) resulting from such movement.
This margin will have to be paid within a stipulated
time frame, generally before commencement of
trading next day. |
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| B. |
If you fail to deposit the additional margin
by the deadline or if an outstanding debt occurs
in your account, the broker/member may liquidate
a part of or the whole position or substitute
securities. In this case, you will be liable
for any losses incurred due to such close-outs |
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| C. |
Under certain market conditions, an investor
may find difficult or impossible to execute
transactions. For example, this situation can
occur due to factors such as illiquidity i.e.
when there are insufficient bids or suspension
of trading due to price limit or circuit breakers |
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| D. |
In order to maintain market stability, the
following steps may be adopted: changes in the
margin rate, increase in the cash margin rate
or others. These new measures may also be applied
to the existing open interests. In such conditions,
you will be required to put up additional margins
or reduce your positions. |
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| E. |
You must ask your broker to provide the full
details of the derivatives contracts you plan
to trade i.e. the contract specifications and
the associated obligations. |
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2.2
Risk Option Holders |
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1.
An option holder runs the risk of losing the entire
amount paid for the option in a relatively short period
of time. This risk reflects the nature of an option
as a wasting asset which becomes worthless when it
expires. An option holder who neither sells his option
in the secondary market nor exercises it prior to
its expiration will necessarily lose his entire investment
in the option. If the price of the underlying does
not change in the anticipated direction before the
option expires to an extent sufficient to cover the
cost of the option, the investor may lose all or significant
part of his investment in the option. |
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2.
The exchange may impose exercise restrictions and
have absolute authority to restrict the exercise of
options at certain times in specified circumstances. |
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2.3
Risks of option writers |
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| 1 |
If the price
movement of the underlying is not in the anticipated
direction, the option writer runs the risks
of losing substantial amount. |
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The risk of being an
option writer may be reduced by the purchase
of other options on the same underlying interest
and thereby assuming a spread position or
by acquiring other types of heading positions
in the options markets or other markets. However,
even where the writer has assumed a spread
or other hedging position, the risks may still
be significant. A spread position is not necessarily
less risky than a simple ‘long’
or ‘short’ position. |
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Transactions that involve
buying and writing multiple options in combination,
or buying, or writing options in combinations
with buying or selling short underlying interests,
present additional risks to investors. Combination
transaction, such as spreads, are more complex
than buying or writing a single option. And
it should be further noted that, as in any
area of investing, a complexity not well understood
is, in itself, a risk factor. While this is
not to suggest that combination strategies
should not be considered, it is advisable,
as is the case with all investments in options,
to consult with someone who is experienced
and knowledgeable with respect to the risks
and potential rewards of combinations transactions
under various market circumstances. |
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| 3. |
GENERAL |
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3.1
Commission and other chares |
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Before you
begin to trade, you should obtain a clear explanation
of all commission, fees and other charges for which
you will be liable. These charges will affect your
net profit (if any) or increase your loss. |
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3.2
Deposited cash and Property |
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You should
familiarize yourself with the protections accorded
to the money or other property you deposit particularly
in the event of a firm insolvency or bankruptcy. The
extent to which you may recover your money or property
may be governed by specific legislation or local rules.
In some jurisdictions, property which has been specifically
identifiable as your own will be pro- rated in the
same manner as cash purposes of distribution in the
event of a shortfall. In cash of any dispute with
the member, the same shall be subject to arbitration
as per the byelaws/ regulations of the Exchange. |
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3.3
For rights and obligations of the clients, please
refer to Annexure-1 enclosed with this document. |
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3.4
The term ‘constituent’ shall mean and
include a client, a customer or an investors, who
deals with a member for the purpose of acquiring and/or
selling of securities through the mechanism provided
by NSE/BSE. |
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3.5
The term ‘member’ shall mean and include
a trading member, a broker or a stock broker, who
has been admitted as such by NSE/BSE and who holds
a registration certificate as a stock broker from
SEBI. |
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| ANNEXURE
-1 |
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INVESTORES’
RIGHTS AND OBLIGATIONS: |
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| 1.1 |
You should
familiarize yourself with the protection accorded
to the money or other property you may deposit
with your member, particularly in the event
of a default in the stock market or the broking
firm’s insolvency or bankruptcy. |
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| 1.1.1 |
Please ensure that you
have a documentary proof of your having made
deposit of such money or property with member,
stating towards which account such money or
property deposited. |
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| 1.1.2 |
Further, it may be noted
that the extent to which you may recover such
money or property may be governed by the Bye-laws
and Regulations of NSE/BSE and the scheme
of the investors’ Protection Fund in
from time to time. |
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| 1.1.3 |
Any dispute with the
member with respect to deposits, margin money,
etc., and producing appropriate proof thereof,
shall be subject to arbitration as per the
Rules, Byelaws/Regulations of NSE/BSE or its
Clearing Corporation / Clearing House. |
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| 1.2 |
Before you begin to
trade, you should obtain a clear idea from
your member of all brokerage, commissions,
fees and other charges which will be levied
on you for trading, these charges will affect
your net cash inflow or outflow. |
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| 1.3 |
You should exercise
due diligence and comply with the following
requirements of the NSE/BSE and/or SEBI. |
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| 1.3.1 |
Please deal only with
and through SEBI registered members of the
stock Exchange and are enabled to trade on
the Exchange. All SEBI registered members
are given a registration no., which may be
verified from SEBI. The details of all members
of NSE/BSE and whether they are enabled to
trade may be verified from NSE/BSE website
( www.nseindia.com/ www.bseindia.com). |
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| 1.3.2 |
Demand any such information,
details and documents from the member, for
the purpose of verification, as you may find
it necessary to satisfy yourself about his
credentials. |
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| 1.3.3 |
Furnish all such details
in full as are required by the member as required
in “Know Your Client” form, which
may also include details of PAN or passport
or Driving Licence or Voters ID, or Ration
card, bank account and depository account,
or any such details made mandatory by SEBI/NSE
at any time, as is available with the investor. |
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| 1.3.4 |
Execute a broker-client
agreement in the form prescribed by SEBI and/or
the Relevant Authority of NSE or its Cleaning
Corporation / Cleaning House from time to
time, because this may be useful as a proof
of your dealing arrangements with the member. |
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| 1.3.5 |
Give any order for buy
or sell of a security in writing or in such
form or manner, as may be mutually agreed.
Giving instructions in writing ensures that
you have proof of your intent, in case of
disputes with the member. |
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| 1.3.6 |
Ensure that a contract
note is issued to you by the member which
contains minute records of every transaction.
Verify that the contract note contains details
of order no, trade number, trade time, trade
price, trade quantity, name of security, client
code allotted to you and showing the brokerage
separately. Contract notes are required to
be given/set by the member to the investors
latest on the next working day of the trade.
Contract note may be issued by the member
either in electronic form using digital signature
as required, or in hard copy. In case you
do not receive a contract note on the next
working day or at a mutually agreed time,
please get in touch with the investors Grievance
Cell of NSE/BSE, without delaying. |
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| 1.3.7 |
Facility of trade Verification
is available on NSE/BSE website (www.nseindia.com/
ww.bseindia.com), where details of trade as
mentioned in the contract note may be verified
from the trade date up to five trading days.
Where trade details on the website, do not
tally with the details mentioned in the contract
note, immediately get in touch with the investors
Grievance Cell of NSE/BSE. |
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| 1.3.8 |
Ensure that payment/delivery
of securities against settlement is given
to the concerned member within one working
day prior to the date of payin announced by
NSE/BSE or it’s Clearing Corporation
/ Clearing House. Payments should be made
only by account payee cheque in favor of the
firm/company of trading member and a receipt
or acknowledgements towards what such payment
is made be obtained from the member. Delivery
of securities is made to the pool account
of the member rather than to the beneficiary
account of the member. |
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| 1.3.9 |
In case Pay-out of money
and/or securities is not received on the next
working day after date of pay-out announced
by NSE/BSE or its Clearing Corporation / Clearing
House, Please follow up with the concerned
member for its release. In case pay-out is
not released as above from the member within
five working days, ensure that you lodge a
complaint immediately with the investors Grievance
Cell of NSE/BSE. |
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| 1.3.10 |
Every member is required
to send a complete ‘Statement of Accounts’,
for both funds and securities settlement to
each of its constituents, at such periodicity
as may be prescribed by time to time. You
should report errors, if any, in the Statement
immediately, but not letter than 30 calendar
days of the receipt thereof, to the member.
In case the error is not rectified or there
is a dispute, ensure that you refer such matter
to the investors Grievance Cell of NSE/BSE,
without delaying. |
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| 1.3.11 |
In case of a complaint
against a member / registered sub-broker,
you should address the complaint to the Office
as may be specified By NSE/BSE from time to
time. |
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| 1.4 |
In case where a member
surrenders his membership, NSE/BSE gives a
public notice inviting claims, if any, from
investors. In case of a claim, relating to
“transactions executed on the trading
system” of NSE/BSE, ensure that you
lodge a claim with NSE/BSE/NSCCL/Clearing
House within the stipulated period and with
the supporting documents. |
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| 1.5 |
In case where a member
is expelled from trading membership or declared
a defaulter, NSE/BSE gives a public notice
inviting claims, if any, from investors. In
case of a claim, relating to “transactions
executed on the trading system” of NSE/BSE,
ensure that you lodge a claim with NSE/BSE
within the stipulated period and with the
supporting documents. |
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| 1.6 |
Claims against a defaulter/
expelled member fond to be valid as prescribed
in the relevant Rules/Bye-laws and the scheme
under the investors protection Fund (IPF)
may be payable first out of the amount vested
in the Committee for settlement of Claims
against Defaulters, on pro-rata basis if the
amount is inadequate. The balance amount of
claims, if any, to a maximum amount of Rs.
10 lakhs per investor claim, per defaulter/expelled
member may be payable subject to such claims
being found payable under the scheme of the
IPF |
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