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This document is issued by the member of
the National Stock Exchange of India (herein after 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rescinded on that account.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 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.
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
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.
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.
3
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 a security.
4
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.
5
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.
6
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.
7
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.
8
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 order.
9
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 / contract.
10
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.
11
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.
12
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.
13
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.
14
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:-
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 margin
amount.
-
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
your positions.
-
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
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.
-
The
Exchange may impose exercise restrictions and have absolute
authority to restrict the exercise of options at certain
times in specified circumstances.
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 circumstances.
◊
GENERAL
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.
2
Deposited cash and property
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
For rights and obligations of the clients, please refer
to Annexure-1 enclosed with this document.
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.
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
◊
ANNEXURE-1 INVESTORS’ RIGHTS AND OBLIGATIONS:
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.
2
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.
3
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.
4
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.
5
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.
6
You should exercise due diligence and comply with the
following requirements of the NSE/BSE and/or SEBI:
7
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).
8
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.
8
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.
10
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.
11
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.
12
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.
13
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.
14
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.
15 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.
16
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.
17
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.
18
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.
19
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.
20
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.
Notes:
-
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.
Disclosure:
All
clients Dealing through us on National Stock Exchange are hereby
that Mithun Securities Private Limited deal in Capital Market
as well as Derivatives Segment on our own (prop.) account on the
Exchange. This IS for Your information please.
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