Code of conduct

A broking registration is not a licence to do as you like with somebody else's money. It comes with a written list of things a broker must do and must not do, and breaching the list is itself an offence — no separate proof that the client lost money is required.

The list lives in Chapter VIII of the SEBI (Stock Brokers) Regulations, 2026, and it is organised under three heads: how the broker behaves generally, what it owes the investor, and how it deals with other brokers.

Most of the content is obvious once said out loud. The examinable part is that it is written down, and written down in that order.

A. General — five clauses. Integrity, with high standards of promptitude and fairness. Exercise of due skill and care in the conduct of all business. No manipulative, fraudulent or deceptive transactions or schemes, and no spreading of rumours to distort market equilibrium. No malpractices creating a false market, singly or in concert. Compliance with the Act, rules and regulations of the Government, the Board and the exchange.

The workbook expands due skill and care with examples that are not in the text of the clause: delayed or absent responses to a client, improper client profiling, advising risky trades not commensurate with the risk profile, pushing an elderly client into internet-based trading he cannot operate, and dealers trading on a blanket authority without recording reasons.

B. Duty to the Investor — execution of orders at the best available market price, with no refusal to deal with a small investor merely because of the size of his business; segregation and monitoring of collateral at client level under the July 2021 norms; issue of a contract note without delay, electronically only with the client's consent; no breach of trust in handling client information; no encouraging sales or purchases with the sole objective of generating brokerage; no dealing for a client who has defaulted on commitments with another broker; disclosure of whether the broker acts as principal or agent; suitability before any recommendation; and, under clause 7(A), disclosure of the broker's and the employee's and their dependent family members' interest and long or short position whenever investment advice is given in publicly accessible media.

C. Dealing with other Brokers — cooperation in comparing unmatched transactions, no knowing delivery of bad delivery documents, protection of clients' entitlements, completion of settlement obligations, no advertising unless permitted by the exchange, no unfair inducement of another broker's clients, and no false or misleading returns to SEBI or the exchange.

Chapter 10 section 10.4 adds two more that are examined on their own: brokers must run a voice recording mechanism in the dealing room and execute all deals on recorded lines, retained for at least the period during which arbitration accepts complaints and until final resolution where a dispute has been raised; and a broker is responsible for losses from unauthorised PMS, whether extended directly or indirectly through a related entity it influences.

What "business and commission" looks like in rupees.

A client deposits Rs 2,50,000 and authorises his relationship manager to trade one lot of gold futures — lot 1 kilogram, quoted at Rs 50,000 per 10 grams, contract value Rs 50,00,000. Over one month the dealer runs 20 round turns.

That is 32% of the client's capital, consumed in a month, before the market has been asked to move at all. The gold price could finish exactly where it started and the client would still be down roughly a third.

Nothing here is a manipulative trade. Every order was matched on the exchange at a fair price. It breaches the code all the same — on business and commission (trading with the sole objective of generating brokerage), on due skill and care (trades executed on a standing authority without reasons assigned), and very likely on investment advice if the frequency was never suitable for the client in the first place.

Chapter 10 (Code of Conduct and Investor Protection Measures), section 10.1, with the duties and obligations restated in section 10.4. Questions here are recall: which head a given duty sits under, what a broker may not do without the exchange's permission (advertise), and when an electronic contract note may be issued (only with the client's consent, in the client agreement or separately).

• An electronic contract note needs consent. It is not compulsory, and it is not prohibited — the workbook's sample question sets up both wrong answers.
• Advertising needs exchange permission; it is not free at the broker's discretion.
• The code bars refusing a small investor merely on volume. A broker may decline a client for risk or default reasons, not for being small.
• Clause 7(A) requires disclosure of dependent family members' and the employer's positions, not just the adviser's own.
• A broker may not deal for a client who has defaulted with another broker — a duty owed to the market, not to that client.
• Voice recordings are kept at least as long as arbitration accepts complaints, and until final resolution once a dispute is raised. There is no fixed short period after which they may be erased.