Sebi Complaints Redress System (SCORES)
Sebi Complaints Redress System (SCORES)
Stocks & Trading Disclosure
This document contains important information on trading in Equities/Derivatives Segments of the stock exchanges. Allprospective constituents should read this document before trading in Equities/Derivatives Segments of the Exchanges.
Stock exchanges/SEBI/Trading member does neither singly or jointly and expressly nor impliedly guarantee nor make any representationconcerning the completeness, the adequacy or accuracy of this disclosure document nor have Stock exchanges/SEBI/Trading member endorsed or passed any merits of participating in the trading segments. This brief statement does not disclose all the risksand other significant aspects of trading.
In the light of the risks involved, you should undertake transactions only if you understand the nature of the relationship intowhich you are entering and the extent of your exposure to risk.
You must know and appreciate that trading in Equity shares, derivatives contracts or other instruments traded on the StockExchange, which have varying element of risk, is generally not an appropriate avenue for someone of limitedresources/limited investment and/or trading experience and low risk tolerance. You should therefore carefully considerwhether such trading is suitable for you in the light of your financial condition. In case you trade on Stock exchanges andsuffer adverse consequences or loss, you shall be solely responsible for the same and Stock exchanges/its ClearingCorporation and/or SEBI shall not be responsible, in any manner whatsoever, for the same and it will not be open for you totake a plea that no adequate disclosure regarding the risks involved was made or that you were not explained the full riskinvolved by the concerned stock broker. The constituent shall be solely responsible for the consequences and no contractcan be rescinded on that account. You must acknowledge and accept that there can be no guarantee of profits or noexception from losses while executing orders for purchase and/or sale of a derivative contract being traded on Stockexchanges.
It must be clearly understood by you that your dealings on Stock exchanges through a stock broker shall be subject to yourfulfilling certain formalities set out by the stock broker, which may inter alia include your filling the know your client form,reading the rights and obligations, do’s and don’ts, etc., and are subject to the Rules, Byelaws and Regulations of relevantStock exchanges, its Clearing Corporation, guidelines prescribed by SEBI and in force from time to time and Circulars asmay be issued by Stock exchanges or its Clearing Corporation and in force from time to time
Stock exchanges does not provide or purport to provide any advice and shall not be liable to any person who enters into anybusiness relationship with any stock broker of Stock exchanges and/or any third party based on any information contained inthis document. Any information contained in this document must not be construed as business advice. No consideration totrade 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 withthe following:-
Volatility refers to the dynamic changes in price that a security/derivatives contract undergoes when trading activity continueson the Stock Exchanges. Generally, higher the volatility of a security/derivatives contract, greater is its price swings. Theremay be normally greater volatility in thinly traded securities / derivatives contracts than in active securities /derivativescontracts. As a result of volatility, your order may only be partially executed or not executed at all, or the price at which yourorder got executed may be substantially different from the last traded price or change substantially thereafter, resulting innotional or real losses.
Liquidity refers to the ability of market participants to buy and/or sell securities / derivatives contracts expeditiously at acompetitive price and with minimal price difference. Generally, it is assumed that more the numbers of orders available in market, greater is the liquidity. Liquidity is important because with greater liquidity, it is easier for investors to buy and/or sellsecurities / derivatives contracts swiftly and with minimal price difference, and as a result, investors are more likely to pay orreceive a competitive price for securities / derivatives contracts purchased or sold. There may be a risk of lower liquidity insome securities / derivatives contracts as compared to active securities / derivatives contracts. As a result, your order mayonly be partially executed, or may be executed with relatively greater price difference or may not be executed at all.
Spread refers to the difference in best buy price and best sell price. It represents the differential between the price of buying asecurity / derivatives contract and immediately selling it or vice versa. Lower liquidity and higher volatility may result in widerthan normal spreads for less liquid or illiquid securities / derivatives contracts. This in turn will hamper better price formation.
The placing of orders (e.g., "stop loss” orders, or "limit" orders) which are intended to limit losses to certain amounts may notbe 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 andthat, while the customer may receive a prompt execution of a "market" order, the execution may be at available prices ofoutstanding orders, which satisfy the order quantity, on price time priority. It may be understood that these prices may besignificantly different from the last traded price or the best price in that security / derivatives contract.
1.4.2 A "limit" order will be executed only at the "limit" price specified for the order or a better price. However, while thecustomer 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 / derivatives contract, and such order getsactivated if and when the security / derivatives contract reaches, or trades through, the stop price. Sell stop orders areentered ordinarily below the current price, and buy stop orders are entered ordinarily above the current price. When thesecurity / derivatives contract reaches the pre -determined price, or trades through such price, the stop loss order converts toa market/limit order and is executed at the limit or better. There is no assurance therefore that the limit order will beexecutable since a security / derivatives contract might penetrate the pre-determined price, in which case, the risk of suchorder not getting executed arises, just as with a regular limit order.
News announcements that may impact the price of stock / derivatives contract may occur during trading, and when combinedwith lower liquidity and higher volatility, may suddenly cause an unexpected positive or negative movement in the price of thesecurity / contract.
Rumors about companies / currencies at times float in the market through word of mouth, newspapers, websites or newsagencies, etc. The investors should be wary of and should desist from acting on rumors.
High volume trading will frequently occur at the market opening and before market close. Such high volumes may also occurat 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 orplacing 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 reasonableprice 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 /derivatives contract due to any action on account of unusual trading activity or security / derivatives contract hitting circuitfilters or for any other reason.
Trading on exchanges is in electronic mode, based on satellite/leased line based communications, combination oftechnologies and computer systems to place and route orders. Thus, there exists a possibility of communication failure orsystem problems or slow or delayed response from system or trading halt, or any such other problem/glitch whereby notbeing able to establish access to the trading system/network, which may be beyond control and may result in delay inprocessing or not processing buy or sell orders either in part or in full. You are cautioned to note that although theseproblems may be temporary in nature, but when you have outstanding open positions or unexecuted orders, these representa risk because of your obligations to settle all executed transactions.
In the derivatives market, the amount of margin is small relative to the value of the derivatives contract so the transactionsare 'leveraged' or 'geared'. Derivatives trading, which is conducted with a relatively small amount of margin, provides thepossibility of great profit or loss in comparison with the margin amount. But transactions in derivatives carry a high degree ofrisk.
You should therefore completely understand the following statements before actually trading in derivatives and also tradewith caution while taking into account one's circumstances, financial resources, etc. If the prices move against you, you maylose a part of or whole margin amount in a relatively short period of time. Moreover, the loss may exceed the original margin amount.
A. Futures trading involve daily settlement of all positions. Every day the open positions are marked to market based on theclosing level of the index / derivatives contract. If the contract has moved against you, you will be required to deposit theamount of loss (notional) resulting from such movement. This amount will have to be paid within a stipulated time frame,generally before commencement of trading on next day.
B. If you fail to deposit the additional amount by the deadline or if an outstanding debt occurs in your account, the stockbroker 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.
C. Under certain market conditions, an investor may find it difficult or impossible to execute transactions. For example, thissituation 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.
D. In order to maintain market stability, the following steps may be adopted: changes in the margin rate, increases in the cashmargin 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
E. You must ask your broker to provide the full details of derivatives contracts you plan to trade i.e. the contract specifications and the associated obligations.
1. The profit or loss in transactions in foreign currency-denominated contracts, whether they are traded in your own oranother jurisdiction, will be affected by fluctuations in currency rates where there is a need to convert from the currencydenomination of the contract to another currency.
2. Under certain market conditions, you may find it difficult or impossible to liquidate a position. This can occur, for examplewhen a currency is deregulated or fixed trading bands are widened.
3. Currency prices are highly volatile. Price movements for currencies are influenced by, among other things: changingsupply-demand relationships; trade, fiscal, monetary, exchange control programs and policies of governments; foreignpolitical and economic events and policies; changes in national and international interest rates and inflation; currencydevaluation; and sentiment of the market place. None of these factors can be controlled by any individual advisor and noassurance can be given that an advisor's advice will result in profitable trades for a participating customer or that a customer will not incur losses from such events.
1. An option holder runs the risk of losing the entire amount paid for the option in a relatively short period of time. This riskreflects the nature of an option as a wasting asset which becomes worthless when it expires. An option holder who neithersells his option in the secondary market nor exercises it prior to its expiration will necessarily lose his entire investment in theoption. If the price of the underlying does not change in the anticipated direction before the option expires, to an extentsufficient to cover the cost of the option, the investor may lose all or a significant part of his investment in the option.
2. The Exchanges may impose exercise restrictions and have absolute authority to restrict the exercise of options at certain times in specified circumstances.
1. If the price movement of the underlying is not in the anticipated direction, the option writer runs the risks of losingsubstantial amount.
2. The risk of being an option writer may be reduced by the purchase of other options on the same underlying interest andthereby 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 spreadposition is not necessarily less risky than a simple 'long' or 'short' position.
3. Transactions that involve buying and writing multiple options in combination, or buying or writing options in combination withbuying or selling short the underlying interests, present additional risks to investors. Combination transactions, such as optionspreads, are more complex than buying or writing a single option. And it should be further noted that, as in any area ofinvesting, a complexity not well understood is, in itself, a risk factor. While this is not to suggest that combination strategiesshould not be considered, it is advisable, as is the case with all investments in options, to consult with someone who isexperienced and knowledgeable with respect to the risks and potential rewards of combination transactions under variousmarket circumstances.
Any additional provisions defining the features, risks, responsibilities, obligations and liabilities associated with securities trading through wireless technology/ smart order routing or any other technology should be brought to the notice of the client by the stock broker.
4.1 The term ‘constituent’ shall mean and include a client, a customer or an investor, who deals with a stock broker for thepurpose of acquiring and/or selling of securities / derivatives contracts through the mechanism provided by the Exchanges.
4.2 The term ‘stock broker’ shall mean and include a stock broker, a broker or a stock broker, who has been admitted assuch by the Exchanges and who holds a registration certificate from SEBI
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