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3. What does Client Code Modification mean?

Client Code is a unique code which is assigned by a broker to its clients. A broker can issue just one code to a client. SEBI vide its Circular SMD/Policy/Cir-39/2001 dated July 18, 2001 made it mandatory for all brokers to use unique client codes for all clients. Client Code Modification means modification / change of the client codes after execution of trades. Vide Circular no. SMD/POLICY/Cir- /03 dated February 6, 2003 SEBI mandated that the stock exchanges shall not normally permit changes in the client code except to correct for genuine mistakes. The client code modifications permit brokers to rectify human errors when a client inadvertently provides a wrong code or when a wrong code is punched in by the broker whilst executing the trade. The facility ensures smooth functioning of the system and is to be used as an exception rather than routine. However, over a period of time, some persons, in connivance with brokers started using Client Code Modifications for purposes other than genuine errors and brokers transferred gains or losses from one person to another by changing the code, in the garb of correcting an error. CCM especially in the Futures and Options Segment (F&O) was being used a device to evade taxes wherein the client codes were modified for booking artificial profits or losses at the fag end (Jan to March) of the Financial year when the book profits/losses of various clients have crystallized.

3. The findings of the SA were confronted to the assessee company. However, the assessee submitted an evasive reply to the effect that CCM can be done by the stock broker and since the assessee is not a stock broker.

4. What does Client Code Modification mean?

Client Code is a unique code which is assigned by a broker to its clients. A broker can issue just one code to a client. SEBI vide its Circular SMD/Policy/Cir-39/2001 dated July 18, 2001 made it mandatory for all brokers to use unique client codes for all clients. Client Code Modification means modification / change of the client codes after execution of trades. Vide Circular no. SMD/POLICY/Cir- /03 dated February 6, 2003 SEBI mandated that the stock exchanges shall not normally permit changes in the client code except to correct for genuine mistakes. The client code modifications permit brokers to rectify human errors when a client inadvertently provides a wrong code or when a wrong code is punched in by the broker whilst executing the trade. The facility ensures smooth functioning of the system and is to be used as an exception rather than routine. However, over a period of time, some persons, in connivance with brokers started using Client Code Modifications for purposes other than genuine errors and brokers transferred gains or losses from one person to another by changing the code, in the garb of correcting an error. CCM especially in the Futures and Options Segment (F&O) was being used a device to evade taxes wherein the client codes were modified for booking artificial profits or losses at the fag end (Jan to March) of the Financial year when the book profits/losses of various clients have crystallized.