Accounts Notes: AUDIT OF MEMBERS OF STOCK EXCHANGE

Friday 25 March 2011

AUDIT OF MEMBERS OF STOCK EXCHANGE

 Every active member shall get his accounts audited by a chartered accountant.
 Company can also become a member of stock exchange.
 SEBI may levy monetary fine & penalties on any person in following cases:
(i) Failure to furnish document information etc. required by Board
(ii) Failure to maintain books of accounts/returns.
(iii) Failure by sponsor of any collective investment scheme including M.F. to obtain registration certificate. To comply with terms of such certificate, to dispatch unite certificate, to refund application money, to invest money in desired manner & in specified securities.
(iv) Failure to Issue contract notes in form required, to deliver security, make payment to client, charging excess brokerage.
(v) Failure to enter into agreement with client.
(vi) Person dealing/communicating on basis of price sensitive information.
(vii) Failure to disclose aggregate of shareholding in body corporate before acquiring furthers share & to make public announcement to acquire share at minimum price in case of takeovers.
 Business at S.E. can be transacted only by its members. They enter into transaction either on their own behalf or their clients or sub-brokers.

MARGIN
1. Due to wide fluctuations in prices of securities over a period of time, the exchange levies margin on its members.
2. This certain deposit is to be kept with exchange by its members.
3. This mechanism is adopted, in order to restrict excessive speculations and safeguard the interest of the investors.
4. The members are required to collect margins from their clients and deposit it with the clearing house of exchange.
5. The three types of margins are –
1. Volatility Margin :
(a) The volatility margin is imposed to curb excessive volatility in the securities.
(b) It is also used to prevent building up of excessive outstanding positions.
(c) This margin is calculated at the discretion of stock exchange to charge margin on any particular security because of its volatile nature, on specific percentage.
2. Gross Exposure Margin :
(a) It is the percentage of net cumulative outstanding position in each security that the member should keep with the exchange at all times.
(b) This margin is calculated on continuous basis.
(c) This margin is to be kept with stock exchange in advance.
(d) Gross exposure is calculated on all securities unlike volatility margin which is on any specific security.
3. Mark to Market Margin :
(a) This margin is imposed to cover a loss that a member may incur in case the transaction is closed out at the closing price of the trading day, which is different from the price at which the transaction has been entered into.
(b) It is the notional loss if net cumulative outstanding position in all the securities were closed out at closing price of relevant transaction date, for a specific member.
TYPES OF MARKET
There are four types of market.
I. Normal Market – All orders which are of the regular lot size or multiples thereof are traded in the Normal Market. For D-mat shares, lot size is 1 share.
II. Odd lot Market – An order is called an odd lot order if the order size is less than the regular lot size, such orders are traded in the odd lot market. But for order matching both price & quantity should tally with each other.
III. Spot Market – in all respects spot orders are similar to the normal market orders except that spot orders have different settlement periods vis-à-vis normal orders. Pay in pay out takes place on the same day.
IV. Auction Market – Stock exchange on behalf of their members initiate auctions to purchase from the market, the number of shares short deposited by the members. In this way, they complete the settlement process. Loss is recovered from members but profit it any deposited to investors education & protection fund.