Due skill, care and diligence
Also written Exercise of due skill and care · Due skill and care
A general standard in SEBI's broker code of conduct that covers gaps the specific rules miss, from delayed responses to unsuitable advice pushed on vulnerable clients.
In plain language
A code of conduct cannot list every possible way a broker might fail a client. So alongside its specific rules, it includes a general standard: whatever you do, do it with due skill, care and diligence.
This catch-all clause is what a regulator falls back on when a broker's conduct was clearly wrong, but no single specific rule names the exact failing.
How it works
Clause 2 of the general section of the code of conduct under Chapter VIII of the SEBI (Stock Brokers) Regulations requires that a broker "shall act with due skill, care and diligence in the conduct of all its business."
The workbook is explicit that this covers matters not clearly spelt out elsewhere in the codes and regulations — including delayed response or non-response to a client, improper client profiling, giving advice on risky trades not commensurate with a client's risk profile, not responding to client queries, aggressively pushing an elderly client into internet-based trading despite their inability to understand computers, handling mobile trades on the client's behalf without proper authorisation, and a relationship manager or dealer frequently trading on discretionary authority without properly assigning reasons for those trades.
A worked example
A 72-year-old client with no prior derivatives experience opens a commodity trading account. His relationship manager, aware that the client struggles with online platforms, repeatedly pushes him toward frequent internet-based trading in high-volatility contracts, and executes several trades on his behalf without clearly explaining the reasoning to him each time.
No single, narrowly worded rule in the code of conduct names "pressuring an elderly, technologically unfamiliar client into unsuitable internet trading" as a specific prohibited act. But this conduct falls squarely within the general duty to act with due skill, care and diligence — the relationship manager has failed the client through improper profiling, unsuitable advice and unexplained discretionary trading, all captured by this one broad standard.
Why NISM asks about it
Chapter 10, section 10.1, sets this out as clause 2 of the "General" section of the code of conduct, immediately after "Integrity," and the workbook devotes an unusually long explanatory passage to the range of conduct it is meant to catch. Expect a question testing which specific behaviours (elderly client pressure, improper profiling, unauthorised discretionary trading) the workbook associates with a breach of this duty.
Common exam traps
- This is a general, catch-all standard, not a narrow, specifically defined rule — it exists precisely to cover conduct that no other single clause names.
- The workbook's examples are illustrative, not exhaustive — delayed responses, improper profiling and pressuring vulnerable clients are given as examples of what breaches this duty, not a closed list.
- Due skill, care and diligence is distinct from the specific "Investment Advice" clause, which concerns suitability of a specific recommendation — this broader duty covers the whole conduct of the business relationship.
Where this is taught
Free preparation for NISM Series XVIRelated terms
- Code of conductThe conduct obligations a broker accepts as a condition of registration — integrity, due skill and care, no manipulation, and a specific list of duties owed to the client and to other brokers.
- Advice in publicly accessible mediaSEBI's code-of-conduct rule that a stockbroker or its employee giving investment advice about any security on TV, print or online media must first disclose their own, their family's and their employer's position in it.
- Collateral segregationSEBI's July 2021 norm requiring brokers to report client-wise collateral by category, so one client's securities cannot be misused for another client's exposure, margin or settlement.
- Electronic Contract NoteA contract note issued electronically instead of on paper — permitted only after the client's consent, given either through the client agreement or as a separate, standalone consent.
- Suitability ruleThe stock broker's code-of-conduct duty not to recommend a security to a client unless it has reasonable grounds to believe the recommendation suits that client's holdings, financial situation and investment objectives.