ABOUT THE COMPANY
COMBINED RISK DISCLOSURE DOCUMENT FOR CAPITAL MARKET/CASH SEGMENT AND FUTURES &
OPTIONS SEGMENT (TO BE GIVEN BY THE BROKER TO THE CLIENT)
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/Cash Segment
or F&O segment of the Exchanges.
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. In the light of the risks involved,
you should undertake transactions only if you understand the nature of the contractual
relationship into which you are entering and the extent of your exposure to risk.
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 adverse 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the consequences and no contract can be rescinded on that account.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.
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 interlaid 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.
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.
In considering whether to trade or authorize someone to trade for you, you should
be aware of or must get acquainted with the following:-
- BASIC RISKS INVOVLED IN TRADING ON THE STOCK EXCHANGE (EQUITY AND OTHER INSTRUMENTS)
1.1. Risk of Higher Volatility: 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 greater 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.
1.2. Risk of Lower Liquidity: 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
orders available in a market, greater 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 a competitive price for securities / contracts
purchased or sold. There may be a risk of lower liquidity in some securities / contracts
as compared to active 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.
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 expected price levels, so as not to have any obligation to deliver/receive
1.3. Risk of Wider Spreads: 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.
1.4. Risk-reducing orders: 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 not be effective many a time because rapid movement in market conditions
may make it impossible to execute such orders
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.
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.
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 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 executed arises, just as with a regular limit
1.5. Risk of News Announcements: Issuers make news announcements that may
impact the price of 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 /
1.6. Risk of Rumours: Rumours about companies at times float in the market
through word of mouth, newspapers, websites or news agencies, etc. The investors
should be wary of and should desist from acting on rumours.
1.7. System Risk: 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.
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.
1.7.2. Under certain market conditions, it may be difficult or impossible
to liquidate a position in the market at a reasonable price or at all, when there
are no outstanding orders either on the buy side or the sell side, or if trading
is halted in a security due to any action on account of unusual trading activity
or stock hitting circuit filters or for any other reason.
1.8. System/Network Congestion: Trading on NSE/BSE is in electronic mode,
based on satellite/leased line based communications, 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 system
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 unexecuted orders, these
represent a risk because of your obligations to settle all executed transactions.
- As far as Futures and Options segment is concerned, please note and get yourself
acquainted with the following additional features:-
2.1. Effect of "Leverage" or "Gearing" 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 a relatively small amount
of margin, provides the possibility of great profit or loss in comparison with the
principal investment amount. But transactions in derivatives carry a high degree
of risk. 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 of or whole margin equivalent to the principal investment
amount in a relatively short period of time. Moreover, the loss may exceed the original
Futures trading involves daily settlement of all positions. Every day the open positions
are marked to market 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.
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.
Under certain market conditions, an investor may find it 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 offers or suspension of
trading due to price limit or circuit breakers etc.
In order to maintain market stability, the following steps may be adopted: changes
in the margin rate, increases 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.
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.
2.2. Risk of Option holders
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 a significant
part of his investment in the option.
2.3. Risks of Option Writers
If the price movement of the underlying is not in the anticipated direction, the
option writer runs the risks of losing substantial amount.
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 hedging 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.
Transactions that involve buying and writing multiple options in combination, or
buying or writing options in combination with buying or selling short the underlying
interests, present additional risks to investors. Combination transactions, such
as option 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 combination transactions under various market
3.1. Commission and other charges
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.
3.2. Deposited and property cash
You should familiarise 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 for purposes
of distribution in the event of a shortfall. In case of any dispute with the member,
the same shall be subject to arbitration as per the byelaws/regulations of the Exchange.
3.3.For rights and obligations of the clients, please refer to Annexure-1
enclosed with this document.
3.4. The term ‘constituent’ shall mean and include a client, a customer or
an investor, who deals with a member for the purpose of acquiring and/or selling
of securities through the mechanism provided by NSE/BSE.
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. I hereby acknowledge that I have received
and understood this risk disclosure statement and Annexure-1 containing my rights
and obligations. Customer Signature (If Partner, Corporate, or other Signatory,
then attest with company seal.) DD MMM YYYY.
INVESTORS’ RIGHTS AND OBLIGATIONS:
1.1.You should familiarise 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.
1.1.1. Please ensure that you have a documentary proof of your having made deposit of such money or property with the member, stating towards which account such money or property deposited.
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 force from time to time.
1.1.3.Any dispute with the member with respect to deposits, margin money, etc., and producing an appropriate proof thereof, shall be subject to arbitration as per the Rules, Byelaws/Regulations of NSE/BSE or its Clearing Corporation / Clearing House.
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.
1.3.You should exercise due diligence and comply with the following requirements of the NSE/BSE and/or SEBI:
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).
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.
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.
1.3.4.Execute a broker-client agreement in the form prescribed by SEBI and/or the Relevant Authority of NSE or its Clearing Corporation / Clearing House from time to time, because this may be useful as a proof of your dealing arrangements with the member.
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.
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/sent by the member to the investors latest on the next working day of the trade. Contract note can 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.
1.3.7.Facility of Trade Verification is available on NSE/BSE website (www.nseindia. com / www.bseindia.com), where details of trade as mentioned in the contract note may be verified from the trade date upto 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.
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 pay-in announced by NSE/BSE or it’s Clearing Corporation / Clearing House. Payments should be made only by account payee cheque in favour of the firm/company of the trading member and a receipt or acknowledgement 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.
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.
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 later than 30 calendar days of 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.
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.
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.
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.
1.6.Claims against a defaulter/expelled member found 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.
The term ‘constituent’ shall mean and include a client, a customer or an investor, who deals with a trading member of NSE/BSE for the purpose of acquiring and / or selling of securities through the mechanism provided by NSE/BSE.
The term ‘member’ shall mean and include a member or 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.
NSE/BSE may be substituted with names of the relevant exchanges, wherever applicable.