Suspicious Transaction Report
Also written STR · Suspicious Transaction Report (STR) · Suspicious Transaction Reporting · STR filing
A report a SEBI intermediary must file with FIU-IND within 7 days of concluding that a transaction or connected series of transactions is suspicious — and must never disclose to the client.
In plain language
Every SEBI intermediary, brokers included, has to monitor its clients' transactions to make sure they are not suspicious from a money laundering or a tax evasion point of view. When monitoring produces a conclusion, the conclusion has to be filed.
The report goes to the Financial Intelligence Unit – India (FIU-IND), a separate intelligence arm under the Ministry of Finance, through the online mechanism FIU provides. The broker's Principal Officer must record his reasons for treating the transaction or series as suspicious, and it must be ensured that there is no undue delay in arriving at that conclusion.
The deadline is 7 days from arriving at the conclusion — not from the date of the trade, and not from the date somebody first wondered.
And there is an absolute prohibition attached: the broker must not inform the client that the report has been made. Doing so is tipping off, and it is illegal and not allowed. The client keeps trading, unaware, while the intelligence flows.
How it works
What triggers it. Any transaction — cash or non-cash — or a series of transactions integrally connected, that the intermediary concludes is of a suspicious nature. The workbook names three specific patterns from the trading floor: reversal trades, profit transfer trades, and trades associated with dabba trading.
Whose duty it is. The broker's own. The exchange's surveillance may raise a suspicion about a client's transactions, but it is the duty of the concerned broker to identify suspicious transactions through its own regular monitoring and report them. Members are explicitly told not to depend solely upon direction from the exchanges' surveillance mechanism, but to have their own robust controls and procedures.
Who signs. The Principal Officer, who records the reasons for the conclusion.
To whom, and how. FIU-IND, through its online mechanism, using the reporting formats published on the FIU-IND website under "Obligation of Reporting Entity – furnishing information – reporting format".
By when. Within 7 days of arriving at the conclusion.
A related deadline that gets confused with it. Non-Profit Organization Transaction Reports (NTRs) for each month must be submitted to FIU-IND by the 15th of the succeeding month. That is a monthly calendar deadline; the STR clock is a 7-day clock from a conclusion.
The formula
Trigger : any transaction (cash or non-cash), or a series of
integrally connected transactions, concluded to be suspicious
No threshold: the amount is irrelevant
Who files: the intermediary, through its Principal Officer,
who records his reasons
To whom : FIU-IND, online
By when : within 7 days of arriving at the conclusion
And : the client must NOT be told — tipping off is illegal
Separately: NTRs for each month → FIU-IND by the 15th of the next month
A worked example
A broker's surveillance flags a currency derivatives client. Over four trading sessions the client repeatedly buys and sells the same USDINR contract with the same counterparty within minutes, with no market move in between — a classic reversal trade pattern used to move money between accounts.
On 8 May the pattern is quantified:
200 contracts × USD 1,000 × price difference of Rs 0.40
= 200 × 1,000 × 0.40 = Rs 80,000 transferred in a single session
Across four sessions the transfer totals Rs 3,20,000. Individually, no single trade is large. Together they are a series of integrally connected transactions, and that is what the rule captures.
The timeline:
| Date | Event |
|---|---|
| 8 May | Surveillance flags the pattern; review begins |
| 12 May | The Principal Officer concludes the transactions are suspicious, and records his reasons in writing |
| 12–19 May | The STR must be filed online with FIU-IND |
| 19 May | Last day — 7 days from the conclusion |
The clock started on 12 May, the date of the conclusion — not 8 May when the alert fired, and not the trade dates. But "no undue delay in arriving at such a conclusion" means a broker cannot simply sit on the review from 8 May to October and then claim a fresh 7 days.
What the broker must not do. When the client calls to ask why his account is under review, the dealer may not tell him a report has been filed, or that one is being considered. That is tipping off — illegal, and a separate offence from the money laundering itself. The client's trading is not frozen by the STR; he goes on trading, and the broker goes on monitoring.
And note the threshold: there isn't one. Rs 3.2 lakh of reversal trades is reportable for the same reason Rs 32 crore would be. Suspicion, not size, is the test.
Why NISM asks about it
Chapter 10 (Codes of Conduct and Investor Protection Measures), section 10.6.4, covers Suspicious Transaction Reporting to FIU in full, and it is the single densest paragraph of examinable facts in the chapter: the reporting entity, the recipient, the 7-day deadline, the Principal Officer's duty to record reasons, the prohibition on tipping off, and the three example patterns.
Expect questions on the 7-day clock and what starts it (arriving at the conclusion), on who files (the broker, not the exchange), and on whether the client may be informed (never). The NTR deadline of the 15th of the succeeding month is the standard distractor against the 7 days. The AML vocabulary this sits inside — money laundering, KYC, the Principal Officer, client risk categorisation — is taught across Series I Chapter 10 and, in far more depth, in the dedicated AML paper.
Common exam traps
- There is no monetary threshold. An STR is triggered by suspicion, not by an amount. Any option offering "transactions above Rs X lakh" is wrong.
- The 7 days run from the conclusion, not from the transaction — and are paired with an obligation to reach that conclusion without undue delay, so the clock cannot be gamed by never concluding.
- Tipping off is prohibited absolutely. Not "discouraged", not "subject to the compliance officer's discretion". The workbook calls it illegal and not allowed.
- The broker files, not the exchange. Exchange surveillance may raise a suspicion, but members are told explicitly not to depend solely on it.
- Cash and non-cash alike. A suspicious transaction need not involve cash at all — and in a cash-settled currency derivatives segment it usually does not.
- Do not confuse the 7-day STR deadline with the 15th-of-next-month NTR deadline. Different report, different clock, and they appear in the same paragraph precisely so they can be swapped in an option.
- An STR is not an accusation and does not freeze the account. The client keeps trading; the report goes to FIU-IND for intelligence.
Check yourself
1.Investors can have grievances against:
- a)All of the above
- b)Brokers
- c)Intermediaries
- d)The company of which they are a shareholder
Show the answer
Answer: (a) All of the above
There may be occasions when the investors have grievances against a) intermediary/broking firm through which it is carrying out the transactions or/and (b) against the company of which it is a shareholder.
Both routes exist, and the escalation path is the same in outline.
In the event of any grievance(s), the investor is first required to approach the concerned intermediary/trading firm/company for settling his/her grievance. If the investor is not satisfied, then he/she can approach the stock exchange(s) of which the broking firm is a member and/or the investor can approach the securities market regulator-SEBI.
And then: the stock exchange(s) and SEBI then independently take up the grievances against its registered intermediaries and advises the registered trading member to redress the investor grievance.
The ODR framework covers a wide list of respondents — AIFs- Fund Managers · Banker to an Issue and Self-Certified Syndicate Banks · CIS · Commodities Clearing Corporations · Depository Participants · Investment Advisors · InvITs · Merchant Bankers · Mutual Funds - AMCs · Portfolio Managers · Registrars and Share Transfer Agents · REITs · Research Analyst · Stock brokers.
Plus listed companies themselves: disputes between Investors/Clients and listed companies (including their registrar and share transfer agents) or any of the specified intermediaries/regulated entities in securities market may be resolved through the ODR portal.
Even service issues qualify: non-receipt/delay of account statement, non-receipt/delay of bills, closure of account/branch, technological issues... improper service by staff, freezing of account, alleged debit in trading account, contact person not available, demat account transferred without permission.
The underlying principle: investors are the backbone of the securities market. Protection of the interests of investors is of paramount importance for the intermediaries, stock exchanges and the regulators.
2.Arbitration is a ______ judicial process.
- a)Quasi
- b)Fully
- c)Non
- d)Purely administrative
Show the answer
Answer: (a) Quasi
Arbitration, which is a quasi-judicial process, is an alternate dispute resolution mechanism prescribed under the Arbitration and Conciliation Act, 1996.
"Quasi-judicial" captures its position — it produces a binding award enforceable at law, but it is not a court.
How the arbitrator is appointed: the ODR Institution shall appoint a sole independent and neutral arbitrator from its panel of arbitrators within 5 calendar days of reference and receipt of fees, cost and charges as applicable. Such arbitrator shall have relevant qualifications or expertise and should not be connected with or linked to any disputing party.
And for large claims, three: in the event that the aggregate of the claim and/or counter-claim amount exceeds Rs 30,00,000/-... the matter shall be referred to an Arbitral Tribunal consisting of three Arbitrators.
The award timeline: within 30 calendar days... of the appointment, extendable up to a further period of 30 calendar days for claims exceeding... Rs 1,00,000/-.
Small claims are decided on paper: when the value of claim and/or counter-claim is Rs 1,00,000/- or below... the Sole Arbitrator shall conduct a document-only arbitration process — though the arbitrator may grant a hearing to the parties for recorded reasons.
After the award: payment within a period of 15 calendar days from the date of the arbitral award, and MII shall provide necessary assistance to the investor/client for enforcement of the arbitral award.
Challenge is possible but constrained: intention must be filed within 7 calendar days, under Section 34 of the Arbitration Act, and if a stay is not granted within 3 months from the date of the receipt of award, complete adherence to the terms of the arbitral award must be done.
It follows conciliation, which is consensual and ends in a duly executed settlement agreement, not an award.
3.Subsequent to completing KYC, the broker must upload the KYC information to:
- a)The KRA
- b)The depository
- c)The clearing bank
- d)SEBI
Show the answer
Answer: (a) The KRA
All members have to be registered with any one or more KRAs registered by SEBI as per the SEBI KRA Regulations 2011.
And the obligation: the Member is to perform the initial due diligence of the new client whose KYC data are not available with the KRAs, upload the KYC information for both individuals and non-individuals with proper authentication on the system of the KRA, furnish the scanned images of the KYC documents to the KRA, and retain the physical KYC documents.
The deadline is ten days: a new client can be allowed to start trading/dealing on the exchange platforms through the member as soon as the client is registered by completing the necessary KYC documentation process. However, the Member shall be under obligation to upload KYC details with proper authentication on the system of the KRA, within 10 days of receipt of the KYC documents from the client.
Trading may begin immediately; the upload follows within ten days.
Existing clients are covered too: with respect to the existing clients, who are presently registered with the members but whose KYC data are not available with any of the KRAs, the member shall upload the KYC information with proper authentication on the system of the KRA.
Two limits on the data: the member shall not use the KYC data of a client obtained from the KRA for purposes other than it is meant for; nor shall it make any commercial gain by sharing the same with any third party including its affiliates or associates. And the member shall, at all times, have adequate internal controls to ensure the security and authenticity of data uploaded.
Responsibility does not shift to the KRA: the Member shall have the ultimate responsibility for the KYC of its clients, by undertaking enhanced KYC measures commensurate with the risk profile of its clients.
A separate registry exists across the whole financial sector — CKYC, managed by CERSAI, acting as the Central KYC Registry (CKYCR).
Where this is taught
Free preparation for NISM Series VIRelated terms
- Principal officerThe named individual at a non-individual intermediary who carries personal regulatory responsibility for the advisory business, and who must personally hold the prescribed qualification and NISM certification.
- Unique Client CodeThe single code a broker assigns to a client once KYC is complete, mapped to that client's PAN and demat account, under which every one of the client's orders must be entered on the exchange.
- Money launderingTurning the proceeds of a crime into money that looks legitimate — classically in three stages, placement, layering and integration — and a standalone offence under section 3 of the PMLA.
- Client risk categorisationClassifying clients as low, medium or high risk on the basis of location, business activity, turnover, transaction nature and payment manner — medium being those speculating beyond known sources of income, and high…
- Speculative transactionOne periodically or ultimately settled otherwise than through actual delivery or transfer.
- Know Your CustomerThe identity and address check every investor must clear before a bank, broker or depository participant will open an account — mandatory under the Prevention of Money Laundering Act, 2002.
- Financial Intelligence UnitA separate intelligence arm under the finance ministry, to which brokers report suspicious transactions through its online mechanism.
- FIU-INDIndia's central national agency for receiving, processing, analysing and disseminating information on suspect financial transactions, set up in November 2004 and reporting to the Economic Intelligence Council.
- Enhanced Due DiligenceThe additional customer due diligence a Regulated Entity must perform where ML/TF risk is high — including source of wealth, Senior Management approval and enhanced ongoing monitoring.
- Specified transactionThe class of transactions under section 12AA of the PMLA that a reporting entity may not begin until it has completed enhanced due diligence on the client undertaking them.
- Politically exposed personsA higher-risk class of client that SEBI treats as a client of special category: the intermediary must detect them, obtain senior management approval to deal with them, and verify their source of funds and wealth.
- LayeringThe second stage of money laundering — moving money through enough transactions, accounts and jurisdictions that the trail back to the original crime becomes impossible to follow.
- Mule accountAn account held in one person's name but effectively controlled by another — defined in the SEBI PFUTP Regulations and used to place criminal money without exposing whoever actually owns it.
- Client Due DiligenceScreening and verifying a client using reliable, independent sources — identity, beneficial owner, purpose of the relationship — and then continuing to scrutinise it for as long as it lasts.
- Risk Based ApproachApplying each due diligence measure in proportion to the money-laundering risk a client poses — enhanced diligence for higher-risk clients, simplified for lower-risk, never simplified where suspicion exists.
- Retention periodsHow long AML records must be kept: five years from the transaction for transaction records, and five years after the relationship ends or the account is closed, whichever is later, for identity records.