Stock brokers, sub-brokers, dealers, and financial advisors are entrusted with client money, trades, and critical advice. To maintain a relationship of trust, fairness, and transparency with investors, SEBI has made it mandatory for all these entities to adhere to a strict Code of Conduct.
10.2 Code of Conduct for Brokers / Trading Members 🤝
Under the SEBI (Stock Brokers and Sub-Brokers) Regulations, 1992, brokers must follow several key principles:
Integrity & Honesty: Brokers must act fairly in all dealings and avoid any form of misrepresentation, fraud, or misleading statements.
Diligence & Prompt Service: All client instructions must be executed quickly and efficiently. Brokers are responsible for ensuring proper confirmations and delivering contract notes without undue delays.
Transparency: There must be clear and upfront disclosure of all brokerage charges, fees, and the risks associated with investments. Hidden costs are strictly prohibited.
Confidentiality: Client data, trading information, and personal details must be kept confidential and are not to be leaked or misused.
Conflict of Interest: A broker's primary duty is to their client. They must prioritize the client's interests over their own. This includes a strict ban on "front-running," which is trading ahead of a client's large order.
Fairness in Advice: Any recommendations or advice provided must be based on a thorough analysis and not on a motive to manipulate the market. Risk disclosure is a compulsory part of this process.
10.3 Code of Conduct for Analysts / Research Reports 📊
Research analysts are governed by the SEBI Research Analyst Regulations, 2014. Key requirements include:
Disclosure of Ownership: Analysts must disclose if they or their family members have any ownership in the securities they are discussing.
Conflict of Interest: Any potential conflicts of interest must be clearly stated in their reports.
No Guaranteed Returns: Analysts are strictly prohibited from promising or guaranteeing any returns on investments.
10.4 Client Protection Measures 🛡️
SEBI has put several measures in place to protect investors:
KYC Norms: A compulsory "Know Your Customer" process to verify the identity and address of every client.
Risk Disclosure Document (RDD): Before a client can begin trading in derivatives, they must sign this document to acknowledge that they understand the inherent risks.
Investor Grievance Redressal:
SCORES: The SEBI Complaints Redress System is an online platform for investors to lodge and track complaints.
Arbitration Process: A formal process at the exchanges for resolving disputes between clients and brokers.
10.5 Penalties for Misconduct ⚖️
SEBI has a range of powers to penalize those who fail to comply with the Code of Conduct:
Monetary Penalty: Imposing fines for regulatory violations.
Suspension of Trading Rights: Temporarily barring the entity from conducting trades.
Cancellation of Registration: The most severe penalty, permanently revoking the entity's license to operate.