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DIRECT MARKET ACCESS FACILITY
In terms of the provisions of the Rules, Bye-laws and Regulations of the MCX Stock Exchange Ltd. (MCX-SX). Members are hereby notified as under:
Direct Market Access (DMA) is a facility which allows Members to offer their clients direct access to the exchange trading system through their Computer to Computer Link (CTCL) infrastructure without manual intervention by them.
Securities and Exchange Board of India (SEBI) vide its circular no.MRD/DoP/SE/Cir-7/2008 dated April 03, 2008 had permitted introduction of Direct Market Access facility (“DMA Facility”). Further it had vide its circular no.MRD/DoP/SE/Cir-3/2009 dated February 20, 2009 issued clarifications regarding availing of DMA facility by institutional clients through their investment managers. Copies of the said SEBI circulars are enclosed at Annexure IA and Annexure IB.
Members desirous of availing the DMA facility for their clients are advised to ensure complete compliance with the aforesaid circulars of SEBI and this circular. The procedure and relevant information has been detailed in the following manner:
1. Application Members who are desirous of offering DMA facility to their eligible clients may make an application to the Exchange for approval, in the format given in the Annexure II. The applications of the Members shall be examined on a case-to-case basis. The application form should contain a certificate in the specified format, from ISACA certified CISA auditor holding a valid membership number, that the proposed DMA software and systems of the applicant are reliable. The electronic/automated risk management systems should be capable of carrying out appropriate validations of all risk parameters including Quantity limits, Price Range Checks, Order Value and Credit Checks before the orders are released in the Exchanges trading system.
Applicant members shall test their proposed DMA software in the test environment provided by the Exchange at a pre-specified time (under previous intimation to the Exchange). Upon satisfactory completion of such testing, they shall seek appointment with the Exchange for making demonstration of their proposed DMA facility. On satisfactory results and fulfillment of all conditions mentioned by SEBI and by the Exchange, the member would be granted approval on a case-to-case basis to provide the facility to its eligible clients (such clients who have been provided the facilities are hereinafter referred to as “DMA clients”).
2. Eligibility: DMA facility is currently permitted by SEBI only to institutional clients and further extended to investment managers as specified in the aforesaid SEBI circular. Such institutional clients may use the services of an investment manager or advisor or portfolio manager (“Investment Manager”) to avail the DMA facility, as mentioned in the SEBI circular. The Members providing the facility shall ensure compliance with the KYC norms, record-keeping requirements, audit trail and other requirements, as mentioned in the SEBI circulars and required by the Exchange, in respect of their DMA clients and orders emanating from their systems.
The systems and the software proposed for the DMA facility shall be duly certified by ISACA certified CISA auditor before the grant of permission by the Exchange.
3. Model Agreement The Members shall enter into an agreement with their DMA clients on the lines of the model given in Annexure III. The agreements with DMA clients shall not contain any clause that is less stringent or that is contrary to the conditions stipulated in the model agreement.
4. Operational Specifications including password maintenance and authentication Members shall ensure that standard procedures as mentioned under part 2 (“Operational specifications”) of SEBI circular no MRD/DoP/SE/Cir-7/2008 dated April 03, 2008, are provided in the DMA facility, including in cases where the clients access the DMA server of broker through third party service providers.
Password maintenance and authentication may be done either by the trading member and or by the third party network service provider. The member shall ensure that there is secured access and communication and a sound audit trail for all the DMA orders/trades. The trading members and the DMA clients shall have appropriate agreements with the third party service providers for ensuring secured access and communication.
The systems used by the members for DMA facility shall have adequate security, reliability and confidentiality of data through use of encryption technology. Members shall also ensure that there are adequate provisions for back-up systems and data storage capacity in place. The Members shall ensure that proper audit trail, transaction logs, identification of user ID, activities / alert logs, unique numbering of orders / trades are maintained.
The authorized user and client details should be part of the order details received and authenticated at the DMA server of the trading member.
5. Other requirements Members are advised to note that they shall be fully responsible and liable for all orders emanating from their DMA systems and that it shall be their responsibility to ensure that only eligible DMA clients access the facility.
Members are further advised to ensure that their systems do not cross trades of their clients with each other and that all orders are placed in the Exchange system.
The Members shall submit a yearly systems audit report in respect of their DMA systems.
For clarifications on the CTCL / IBT / DMA circular, members may contact Mukesh Desai 022 – 67319000 (8964) or Pratik Doshi on 022 – 67319000 (8973) or send an email at ctcl@mcx-sx.com. In case of general queries kindly contact Customer Service on 022 - 67319010 or send an email to customerservice@mcx-sx.com for any clarification.
For and on behalf of MCX Stock Exchange Ltd.
Mukesh Desai Manager, Market Operations-CTCL
ANNEXURE – IA
Chief General Manager Market Regulation Department-Division of Policy E-mail: mdrao@sebi.gov.in
MRD/ DoP/SE/Cir- 7 /2008 April 03, 2008
The Managing Director and CEO Bombay Stock Exchange Phiroze Jeejeebhoy Towers Dalal Street Mumbai 400001 The Managing Director National Stock Exchange of India Ltd., Exchange Plaza Bandra Kurla Complex Bandra (E) Mumbai- 400 051.
Dear Sir,
Sub:- Introduction of Direct Market Access facility
Direct Market Access (DMA) is a facility which allows brokers to offer clients direct access to the exchange trading system through the broker’s infrastructure without manual intervention by the broker. Some of the advantages offered by DMA are direct control of clients over orders, faster execution of client orders, reduced risk of errors associated with manual order entry, greater transparency, increased liquidity, lower impact costs for large orders, better audit trails and better use of hedging and arbitrage opportunities through the use of decision support tools / algorithms for trading.
While ensuring conformity with the provisions of the Securities Contract (Regulations) Act, 1956 (42 of 1956), Stock Exchanges may facilitate Direct Market Access for investors subject to the following conditions:
1. Application for Direct Market Access (DMA) facility
Brokers interested to offer DMA facility shall apply to the respective stock exchanges giving details of the software and systems proposed to be used, which shall be duly certified by a Security Auditor as reliable.
The stock exchange should grant approval or reject the application as the case may be, and communicate its decision to the member within 30 calendar days of the date of completed application submitted to the exchange.
The stock exchange, before giving permission to brokers to offer DMA facility shall ensure the fulfillment of the conditions specified in this circular.
2. Operational specifications
All DMA orders shall be routed to the exchange trading system through the broker’s trading system. The broker’s server routing DMA orders to the exchange trading system shall be located in India.
The broker should ensure sound audit trail for all DMA orders and trades, and be able to provide identification of actual user-id for all such orders and trades. The audit trail data should available for at least 5 years.
Exchanges should be able to identify and distinguish DMA orders and trades from other orders and trades. Exchanges shall maintain statistical data on DMA trades and provide information on the same to SEBI on a need basis.
The DMA system shall have sufficient security features including password protection for the user ID, automatic expiry of passwords at the end of a reasonable duration, and reinitialisation of access on entering fresh passwords.
Brokers should follow the similar logic/priorities used by the Exchange to treat DMA client orders. Brokers should maintain all activities/ alerts log with audit trail facility. The DMA Server should have internally generated unique numbering for all such client order/trades.
A systems audit of the DMA systems and software shall be periodically carried out by the broker as may be specified by the exchange and certificate in this regard shall be submitted to the exchange.
The exchanges and brokers should provide for adequate systems and procedures to handle the DMA trades.
3. Client Authorization and Broker – Client agreement
Exchanges shall specify from time to time the categories of investors to whom the DMA facility can be extended. Initially, the permission is restricted to institutional clients.
Brokers shall specifically authorize clients for providing DMA facility after fulfilling Know Your Client requirements and carrying out due diligence regarding clients’ credit worthiness, risk taking ability, track record of compliance and financial soundness. Brokers shall ensure that only those clients who are deemed fit and proper for this facility are allowed access to the DMA facility. Brokers shall maintain proper records of such due diligence. Individual users at the client end shall also be authorized by the broker based on minimum criteria. The records of user details, user-id and such authorization shall be maintained by the broker. Details of all user-ids activated for DMA shall be provided by the broker to the exchange.
The broker shall enter into a specific agreement with the clients for whom they permit DMA facility. This agreement will include the following safeguards:
(a) The client shall use the DMA facility only to execute his own trades and shall not use it for transactions on behalf of any other person / entity. (b) Electronic/Automated Risk management at the broker’s level before release of order to the Exchange system. The client shall agree to be bound by the various limits that the broker shall impose for usage of the DMA facility. (c) Right to withdraw DMA facility if the limits set up are breached or for any other such concerns (d) Withdrawal of DMA facility on account of any misuse or on instructions from SEBI/Exchange.
Exchanges shall prepare a model agreement for this purpose. The broker’s agreement with clients should not have any clause that is less stringent/contrary to the conditions stipulated in the model agreement
4. Risk Management
The broker shall ensure that trading limits/ exposure limits/ position limits are set for all DMA clients based on risk assessment, credit quality and available margins of the client. The broker system shall have appropriate authority levels to ensure that the limits can be set up only by persons authorized by the risk / compliance manager.
The broker shall ensure that all DMA orders are routed through electronic/automated risk management systems of the broker to carry out appropriate validations of all risk parameters including Quantity Limits, Price Range Checks, Order Value, and Credit Checks before the orders are released to the Exchange.
All DMA orders shall be subjected to the following limits:
(a) Order quantity / order value limit in terms of price and quantity specified for the client. (b) All the position limits which are specified in the derivatives segment as applicable. (c) Net position that can be outstanding so as to fully cover the risk emanating from the trades with the available margins of the specific client. (d) Appropriate limits for securities which are subject to FII limits as specified by RBI.
The broker may provide for additional risk management parameters as they may consider appropriate.
5. Broker to be liable for DMA trades
The broker shall be fully responsible and liable for all orders emanating through their DMA systems. It shall be the responsibility of the broker to ensure that only clients who fulfill the eligibility criteria are permitted to use the DMA facility
6. Cross Trades Brokers using DMA facility for routing client orders shall not be allowed to cross trades of their clients with each other. All orders must be offered to the market for matching.
7. Other legal provisions In addition to the requirements mentioned above, all existing obligations of the broker as per current regulations and circulars will continue without change. Exchanges may also like to specify additional safeguards / conditions as they may deem fit for allowing DMA facilities to their brokers.
8. The Stock Exchanges are advised to:
• make necessary amendments to the relevant bye-laws, rules and regulations for the implementation of the above
• bring the provisions of this circular to the notice of the member brokers/clearing members and also disseminate the same on their website.
• communicate to SEBI, the status of the implementation of the provisions of this circular in the Monthly Development Report.
9. A review of the working of this facility shall be undertaken after six months from its introduction.
10. This circular is being issued in exercise of powers conferred under Section 11 of the Securities and Exchange Board of India Act, 1992 to protect the interests of investors in securities and to promote the development of, and to regulate the securities market.
Yours faithfully, S V Murali Dhar Rao
ANNEXURE – IB
Chief General Manager Market Regulation Department-Division of Policy E-mail: mdrao@sebi.gov.in MRD/ DoP/SE/Cir- 03 /2009 February 20, 2009 The Managing Director and CEO The Managing Director Bombay Stock Exchange National Stock Exchange of India Ltd., Phiroze Jeejeebhoy Towers Exchange Plaza Dalal Street Bandra Kurla Complex Mumbai 400001 Bandra (E) Mumbai- 400 051 051 Dear Sir,
Sub: Direct Market Access - Clarification
1. This is further to the SEBI circular no. MRD/ DoP/SE/Cir- 7 /2008 dated April 03, 2008 regarding introduction of facility for Direct Market Access.
2. With regard to para 3 of the aforesaid circular, it is clarified as follows: a. Institutional investors may use DMA facility through investment managers after due authorization and upon furnishing to the broker/exchange suitable agreements/ undertakings between the institution and investment manager stating, inter alia, that the institutional investor shall be responsible for all actions undertaken by its authorized investment manager. Such investment managers may execute necessary documents on behalf of the institutional investor.
b. The Broker-Client Agreement shall provide complete details of such investment manager, including, inter alia, details of their registration/ regulation in their relevant jurisdiction, specify the role and responsibilities of the investment manager, and contain adequate safeguards to ensure that DMA facility is utilized to execute trades of only those institutions for which the investment manager is authorized.
c. The exchange/ broker shall ensure that proper audit trails are available to establish identity of the ultimate client.
d. The exchange may put in place such other safeguards as it deems fit to mitigate any concerns it may have.
3. This circular is issued in exercise of powers conferred under Section 11 of the Securities and Exchange Board of India Act, 1992 to protect the interests of investors in securities and to promote the development of, and to regulate the securities market.
Yours faithfully, S V Murali Dhar Rao
ANNEXURE – II
Application form for permission for providing Direct Market Access (DMA) to clients (To be executed on letterhead of the Member)
We/I, -------------------------------------------- is a trading member/s of ___________ segment of the MCX Stock Exchange Limited, hereby apply for the approval of the Exchange for providing DMA facility and services to our clients.
I. General
II. Network Security, Standards for interfaces and Protocols:
III. Systems Operations and Risk Management :
Whether the requirements of systems and software as stipulated by SEBI and MCX-SX in this regard are complied with (A certificate issued by ISACA certified CISA auditor holding a valid membership number, in the format in Annexure A should be enclosed in support).
IV. A comprehensive write-up on the Direct Market Access (DMA) system shall be enclosed as Annexure-B.
V. Detailed network diagram to be submitted in Annexure – C.
We confirm and certify that the software for DMA has been tested by us to our satisfaction and we undertake to comply with and be bound by the Rules, Bye-laws, Regulations of the Exchange, SEBI, RBI and any other statutory and regulatory body(ies) as may be applicable from time to time.
We certify that all the statements are true and correct to the best of our knowledge. We are aware that in case any of the statements are found to be incorrect or false, we are liable for disciplinary action.
Signed sealed and delivered by the Authorised representative of the MEMBER.
Date: Place:
ANNEXURE – A
[on the letterhead of the ISACA certified CISA auditor]
It is hereby confirmed and certified that the software (complete details of the software with their versions) and systems used by ________, a member of MCX Stock Exchange Limited for providing Direct Market Access facility to its clients is tested by us and are found to be in compliance with the requirements stipulated by SEBI circulars MRD/ DoP/SE/Cir- 7 /2008 dated April 03, 2008 and MRD/ DoP/SE/Cir- 03 /2009 dated February 20, 2009, and the MCX Stock Exchange Limited Circular MCX-SX/xxx/xxxx dated _______.
Signed (Authorised Signatory)
ANNEXURE – B (Comprehensive write-up on the Direct Market Access (DMA) system)
ANNEXURE – C
NETWORK DIAGRAM
Details of connectivity of DMA server with MCX-SX Central server along with the diagram of distribution connectivity is to be provided by Members.
Annexure III
Model DMA Member – Client Agreement (Executed on stamp paper of requisite value as per the Stamp Act applicable in the State/place of execution of the Agreement) This agreement is made at ___________ this ______ day of __________.
Between:
Mr./Ms/M/s.______________________________, an individual / a sole proprietary concern / a partnership firm / a body corporate, registered / incorporated under the provisions of the Indian Partnership Act, 1932 / the Companies Act, 1956, being a member of the MCX Stock Exchange Ltd. (hereinafter called “MCX-SX”), and having his / her / its registered office at ………………………………………………………………………………………………… (hereinafter called “the Trading Member”) which expression shall, unless repugnant to the context or meaning thereof, be deemed to mean and include himself in the capacity of a trading member while trading in the Currency Derivatives Segment, his/her heirs, executors, administrators and legal representatives/the partners for the time being of the said firm, the survivor or survivors of them and their respective heirs, executors, administrators and legal representatives/its successors, as the case may be, of the One Part;
And
Mr./Ms/M/s.……………………………………………………………………………….., an individual/ a sole proprietary concern/a partnership firm/a body corporate, registered/incorporated, under the provisions of the Indian Partnership Act, 1932/the Companies Act, 1956, having his/her/its Permanent Account Number (“PAN”) and his/her/its residence/ registered office at………………………………………………………………………………….…… (hereinafter called the “Client”) which expression shall, unless repugnant to the context or meaning thereof, be deemed to mean and include his/her heirs, executors, administrators and legal representatives/the partners for the time being of the said firm, the survivor or survivors of them and their respective heirs, executors, administrators and legal representatives/its successors, as the case may be, of the Other Part;
WHEREAS,
(i). MCX Stock Exchange Limited (“MCX-SX”) has approved the proposal of the Trading Member to provide Direct Market Access Facility (“DMA Facility”) to its Client to access the trading system of MCX-SX.
(ii). *the Client has entered into an agreement with____________, an Investment Manager/Advisor/Portfolio Manager (hereinafter referred to as the “Investment Manager”) registered with/regulated by _________ (name of the regulator and the jurisdiction) as a market intermediary. Under the said agreement the Client has authorized the Investment Manager to execute orders and necessary documents on his behalf, as his agent. Under the said agreement the Client is responsible for all actions taken on his behalf by the Investment Manager. Further the Client has also authorized the Investment Manager to apply the Trading Member for availing the DMA Facility on its behalf for the purpose of accessing the MCX-SX trading system through the Trading Member’s infrastructure. (iii). *the Client is desirous of availing third party network services for the purpose of accessing the trading system of MCX-SX through the Trading Member’s infrastructure.
(iv). the Client has satisfied itself of the capability of the Trading Member offering DMA Facility and wishes to execute his orders through him and the Client shall continue to satisfy itself of such capability of the Trading Member before executing orders through him.
(v). the Trading Member is satisfied and shall on a continued basis satisfy himself about the genuineness and financial soundness of the Client and investment objectives relevant to the services to be provided as specified by MCX-SX or other relevant authority from time to time.
(vi). the Trading Member has taken steps and shall take steps to make the Client aware of the precise nature of the Trading Member's liability for business to be conducted, including any limitations on that liability and the capacity in which it acts.
*strike off if the clause is not applicable NOW, THIS AGREEMENT WITNESSETH that, in consideration of the mutual understanding as set forth herein, the parties hereto agree as follows:
1. The Client agrees that the DMA Facility would be used only to execute own trades and shall not use it for transactions on behalf of any other person/entity or for any other purpose.
2. The Client agrees to provide such information as may be required by the Trading Member for fulfilling Know Your Client requirements and carrying out due diligence regarding including Clients credit worthiness, risk taking ability, track record of compliance and financial soundness. The Trading Member agrees to maintain proper records of such information and the parties acknowledge that the same shall be made available to MCX-SX as when sought by MCX-SX.
3. Individual users at the Client end shall also be authorized by the Trading Member (‘Authorized Users’) and such Authorized Users may access the DMA Facility.
4. The Client shall access each DMA Facility only through the use of password specified by Trading Member or by the third party network service provider. The Client is solely responsible for ensuring that the passwords are known to and used only by Authorised User(s).
5. The Client shall ensure that only Authorized Users have access to its systems and that all orders placed using the DMA Facility are duly authorized, the client shall also ensure that the DMA Facility or any part of it is not provided/ extended to any third party.
6. The Client agrees to be bound by the various risk management requirements that the Trading Member shall impose for the usage of DMA Facility from time to time.
7. The Client agrees to be bound by the exposure limits fixed by the Trading Member and the Trading Member shall be entitled to withdraw the DMA Facility if the limits set up are breached by the client.
8. The Trading Member shall also be entitled to withdraw the DMA Facility in case of any misuse or in order to comply with the instructions from SEBI/MCX-SX or any other regulatory authority.
9. The Client shall immediately notify the Trading Member in the event of DMA Facility being compromised. Upon receipt of this notice, Client’s DMA Facility shall be promptly be withdrawn but Client shall be responsible for any actions taken through the use of such DMA Facility before withdrawal.
10. The Client shall be solely responsible for all acts or omissions of any person using the DMA Facility provided by Trading Member and bound by the terms of all transactions executed through DMA Facility. All transactions /messages generated by use of DMA Facility shall be deemed to be authorized by Client.
11. The instructions issued by an authorized representative of the Client shall be binding on the Client in accordance with the letter authorizing the said representative to deal on behalf of the Client.
12. Notwithstanding any other provision of the Agreement, the Trading Member shall have the right to terminate (temporarily or permanently and at any time, with or without cause or prior notice) all or any part of any Facility, or access to any facility, or to change the nature, composition or availability of any Facility.
13. The Client is aware that authentication technologies and strict security measures are required for routing orders through DMA Facility and undertakes to ensure that the password of the Client and/or his authorized representative are not revealed to any third party.
14. The Client undertakes to ensure that no person authorized to place orders via DMA Facility has been involved in any action by any of the regulatory authorities and convicted in any jurisdiction of any offence in relation to securities or fraud.
15. This agreement shall be in addition and not in derogation to any other agreement that is/may be entered into between the Trading Member and the Client.
16. This agreement shall forthwith terminate if the Trading Member for any reason ceases to be a Trading Member of MCX-SX including cessation of membership by reason of the Trading Member's default, death, resignation or expulsion or if the certificate issued by SEBI is cancelled.
17. The Trading Member and the Client acknowledge that they are aware of the provisions of Bye-Laws, Rules and Regulations of MCX-SX, in particular, those relating to resolution of disputes/differences through the mechanism of arbitration provided by the MCX-SX and agree to abide by the said provisions.
18. This agreement may be terminated by either party by giving at least one month written notice. However, such cancellation or termination shall not have any effect on transaction executed before the date of such notice of termination and the parties shall enjoy the same rights and shall have same obligations in respect of such transactions.
19. The Trading Member and the Client declare and agree that all the trades, transactions and contracts entered into using the DMA Facility are subject to the Rules, Byelaws and Regulations and circulars of MCX-SX and all parties to such trade shall have submitted to the jurisdiction of such court as may be specified by the Byelaws and Regulations of MCX-SX for the purpose of giving effect to the provisions of the Rules, Byelaws and Regulations of MCX-SX and the circulars issued there under.
20. The provisions of this agreement shall always be subject to the Byelaws, Rules, Regulations and Circulars issued by MCX-SX from time to time and the Rules, Circulars, Regulations And Guidelines issued by SEBI /or any other regulatory bodies that may be in force from time to time.
*21. (a) By an agreement dated __________ entered into with the Investment Manager, the client has appointed the latter as his Investment Adviser/Investment Manager/portfolio Manager. (b) *The Investment Manager is registered as a market intermediary with ________ (name of the Regulator) in _________ (country / jurisdiction). The registration details are as below: _______________ (Or) * The Investment Manager is not registered as a market intermediary. However the Investment Manager is a regulated entity/person under _____ (name of the Legislation/Regulation) in __________ (country/jurisdiction). (c) The Investment Manager is authorised to execute this agreement pursuant to the agreement/undertaking/authorisation dated ________. Copy of the agreement/undertaking/authorisation is attached as an Annexure.
(d) Pursuant to the aforesaid agreement/undertaking/ authorisation, the Investment Manager is authorised to execute the orders on behalf of the Client as its agent and the Client shall be solely responsible for all such orders which are executed by the Investment Manager through the DMA Facility.
(e) The Client agrees to ensure that the Investment Manager authorized to use its DMA Facility does not cross its trades/orders with those of other clients.
*strike off if the clause is not applicable IN WITNESS THEREOF, the parties to agreement have caused these presents to be executed as of the day and year first above written.
**ANNEXURE A - Copy of the agreement/undertaking/authorization to be attached (For Investment Managers) *strike off if the clause is not applicable **to be enclosed only in case of DMA Facility to clients through Investment Manager
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Registered & Corporate office -------------------------------------------------- MCX Stock Exchange Limited 2nd Floor, Exchange Square Suren Road, Chakala, Andheri (East), Mumbai – 400 093 Tel.: 022 – 67319010, Fax: 022 – 6731 9103 www.mcx-sx.com email: customerservice@mcx-sx.com |