CUSTOMER FUNDS PROTECTION AT NEWEDGE BROKER INDIA PRIVATE LIMITED

Transcription

1 NEWEDGE CUSTOMER FUNDS PROTECTION AT NEWEDGE BROKER INDIA PRIVATE LIMITED May 2014

2 OVERVIEW The foundation for protecting customer property when customer s trade is three-fold: Segregation Capital Requirements and Regulatory Reporting Audits and Inspections 2

3 I. SEGREGATION Newedge Broker India Private Limited ( Newedge India ) is a subsidiary of Newedge Group SA and is incorporated in India. Newedge India is registered as a Trading and Clearing Member of National Stock Exchange of India Limited ( NSE ) and as Trading Member of Bombay Stock Exchange Limited ( BSE ). Like other Indian market participants, Newedge India is supervised by the Securities and Exchange Board of India ( SEBI ). Among the applicable rules and regulations is the treatment of the client monies. 3

4 I. SEGREGATION (CONT D) Newedge India typically takes cash as collateral. Its obligations in relation to client monies includes: Newedge India s proprietary money must be always segregated from its client monies. For execution only and cash equities clients, segregation is not applicable to Newedge India as Newedge India does not receive any client funds. Client monies are kept by a local Indian custodian appointed by the client. For derivative clients, clients instruct a local Indian custodian to transfer funds to Newedge India s Client Money Account. 4

5 I. SEGREGATION (CONT D) 80% of the money from the Client Money Account is transferred by Newedge India to the Client Collateral Account opened with the National Securities Clearing Corporation Ltd ( NSCCL ) designated bank as a fixed deposit. The fixed deposit is subject to a lien marked in favour of NSCCL. The remaining 20% of the money in the Client Money Account is used to meet the client s daily funding needs, e.g. settlement of client transactions or payment to defray brokerage and other proper regulatory charges and/or fees in accordance with the terms and conditions of the clients agreements. Newedge India calculates the total amount of funds each client has deposited in the Client Money Account and its margin requirement on a daily basis. These calculations are checked and reconciled with the total amount of funds in the Client Money Account. The reconciliations are maintained as part of the regular books and records of Newedge India. 5

6 I. SEGREGATION (CONT D) Customer monies may be combined and commingled with other customers monies placed in the Client Money Account. Under the rules of SEBI, Newedge India is prohibited from using one client s money to meet the obligations (including default) of another client. In the event of a customer default, Newedge India is not allowed to fund such client with its proprietary monies. Customers are asked to stop trading and/or liquidate their positions when they are close to a predetermined threshold of trading. 6

7 II. CAPITAL REQUIREMENTS Being a trading and clearing member of the NSE, and trading member of BSE, Newedge India is required to maintain a security deposit of INR 11 million each with the NSE and BSE. Being a trading and clearing member of the NSE, Newedge India is required to maintain a minimum net worth of INR 30 million at all times, calculated as per the formula prescribed by NSE. Being a trading member of the BSE, Newedge India is required to maintain minimum net worth of INR 10 million at all times, calculated as per formula prescribed by BSE. Being a clearing member of NSCCL, Newedge India is also required to maintain a security deposit of INR 4 million with the NSCCL. October

8 III. REGULATORY REPORTING AND HANDLING OF CUSTOMER FUNDS Newedge India s regulatory capital requirements are met through equity from its parent, Newedge Group. Newedge India must file the following returns and reports to NSE and BSE: Bi-annual net worth requirement; Annual return (including annual accounts, changes in directors and shareholders details, membership with other exchanges); and Quarterly certificate on limits indicating that the various limits including (i) trading limits on quantity, value and dealer; (ii) user-id limits; and (iii) daily trading limits have been set. 8

9 III. REGULATORY REPORTING AND HANDLING OF CUSTOMER FUNDS If Newedge India ever had an issue regarding the adequacy of its capital or the amount of client monies in segregation, according to regulatory rules, it would be required to advise SEBI, NSE and BSE promptly. SEBI, NSE and BSE strictly restrict how the trading or clearing member handle client monies. Customer monies deposited with the NSCCL designated bank as collateral will earn a fixed rate interest. Customer monies in the Client Money Account not placed as collateral is not reinvested and does not earn any interest as the monies are used to satisfy daily settlement obligations of the client. 9

10 IV. AUDITS AND INSPECTIONS As NSE trading and clearing member, BSE clearing member and member of Newedge Group, Newedge India is subject to the following formal inspections or ongoing reviews by the following parties: SEBI National Stock Exchange of India Limited (NSE) Bombay Stock Exchange PricewaterhouseCoopers, our external auditors 10

11 IV. AUDITS AND INSPECTIONS (CONT D) In addition, The Autorité de Contrôle Prudentiel, the French regulator of Newedge Group, has a right to inspect Newedge India. Société Générale has the right to audit any Newedge company at any time. The client asset protection procedures are also subject to the review and examination of the Internal Audit Department of Newedge India. 11

12 V. SUMMARY OF APPLICATION OF BANKRUPTCY RULES Under the local regulations, customer monies are held in segregated account(s). Such customer monies may not be commingled with the assets of Newedge India and may not be used by Newedge India in the course of its own business except in accordance with the terms of client s agreements with Newedge India or in accordance with applicable laws and regulations. Customer monies will generally not be affected by the bankruptcy of Newedge India as customer monies do not belong to Newedge India. Unless otherwise provided under the terms of clients agreements with Newedge India or provided by the SEBI Rules and other applicable rules and regulations, customer monies shall not be available for payment of Newedge India s debts. 12

13 VI. EVALUATING RISKS TO SEGREGATED CUSTOMER PROPERTY Fraud. This risk is mitigated by Newedge India s internal control governance and the number and frequency of external audits to which it is subject. The internal control structure includes programs for regulatory Finance and Accounting, Treasury, Front Office, Clearing Operations, Compliance, Financial Crime Prevention/AML, Internal Audit, Permanent Supervision, and Operational Risk. The Firm s internal control procedures are reviewed annually by its external auditors. Proprietary Trading. This risk is mitigated as Newedge India does not engage in any significant proprietary trading activities (other than certain other treasury and customer facilitation activities). Default by another customer. This risk is mitigated by Newedge India s procedures for approving and monitoring clients, and the daily and prompt collection of margins. 13

14 VII. STRUCTURE OF NEWEDGE Société Générale 100% Newedge Group, SA 100% Newedge Broker India Private Ltd 14

15 VIII. NEWEDGE S CONSOLIDATED CAPITAL Newedge, like its shareholder Société Générale, is subject to strict capital adequacy requirements. As of 31 December 2012, the audited consolidated capital structure of Newedge was 1,165 M (calculated in accordance with IFRS rules). Consolidated regulatory capital of Newedge as of 31 December 2012 was 1,370 M (calculated in accordance with French banking regulation). 15

16 IX. CONCLUSION Newedge India manages the Customer Protection regime for trading on NSE and BSE in an efficient manner. This management is back stopped by regular reviews and reconciliations, both internally and externally, by third party auditors and regulators. Newedge India is part of a strong organization subject to stringent regulatory requirements. 16

17 This document has been produced for information purposes only and is not to be construed as an offer to buy or sell any financial instrument or security. Due to international regulations not all financial instruments/services may be available to all clients. You should be aware of and observe any such restrictions when considering a potential investment decision. This information is not intended to be construed as investment advice. We do not accept any liability or loss or damage arising from any inaccuracy or omission in or the use of or reliance on the information in this document. All information is subject to change without notice. The contents of this document have been prepared solely for the benefit of the clients of Newedge Broker India Private Limited and no other legal entity or person. For the avoidance of doubt, it may not be copied or reproduced in whole or in part, in any medium or given to any third party. This document has been prepared to provide a broad overview on how Newedge Broker India Private Limited handles its clients assets. It is not intended to be an advice, opinion or a comprehensive explanation of the legal or regulatory regime in India regarding the handling of client assets and it should not be relied upon as such. You are encouraged to obtain your own independent professional advice on laws and regulations regarding your assets as you consider necessary and appropriate. THE DISTRIBUTION OF THIS DOCUMENT IN OTHER JURISDICTIONS MAY BE PROHIBITED OR RESTRICTED BY LAW, AND PERSONS INTO WHOSE POSSESSION THIS REPORT COMES SHOULD INFORM THEMSELVES ABOUT AND OBSERVE ANY SUCH PROHIBITION OR RESTRICTIONS. BY ACCEPTING THIS REPORT, YOU AGREE TO BE BOUND BY THE FOREGOING. Newedge refers to Newedge Group SA and all of its worldwide branches and subsidiaries. Newedge Group in France and its foreign branches are authorized by the Autorité de Contrôle Prudentiel et de Résolution and Autorité des Marchés Financiers in France. Newedge UK Financial Limited is authorized and regulated by the Financial Conduct Authority (FCA). Newedge Group (Zurich and Dubai branches) and Newedge UK Financial Limited do not deal with, or for, Retail Clients (as defined under MiFID, FCA rules and Dubai Financial Services Authority). Only Newedge USA, LLC is a member of FINRA and SIPC (SIPC only pertains to securities-related transactions and positions). Only Newedge Canada Inc. is a member of the CIPF. Not all products or services are available from all Newedge organizations or personnel Newedge. All rights reserved 17