Sales Practices and Investor Protection
SEBI mandates a code of conduct for brokers dealing in derivatives — fair execution, full disclosure, suitability assessment, fair charges, prompt grievance red...
Code of Conduct + Grievance Framework
SEBI mandates a code of conduct for brokers dealing in derivatives — fair execution, full disclosure, suitability assessment, fair charges, prompt grievance redressal. Investor Protection Fund (IPF) at exchanges and SEBI's SCORES portal provide layered redressal. Unauthorised trading and mis-selling draw financial and criminal penalties.
Every broker must: (a) verify KYC and suitability before enabling F&O; (b) share the Model Risk Disclosure Document; (c) execute only at best-available prices; (d) send contract notes within 24 hours; (e) maintain segregated client funds; (f) not engage in unauthorised trading, front-running or circular trading. Violations are adjudicated by SEBI under the SEBI Act 1992. Investors can escalate grievances: (1) Broker first; (2) Exchange Investor Grievance Cell; (3) SEBI SCORES (online portal); (4) Securities Appellate Tribunal (SAT). IPF compensates investors up to ₹25 L (NSE) / ₹15 L (BSE) in broker default cases.
F&O is not for low-risk-tolerance or limited-resource clients
Client money held separately from broker's own money
Broker → Exchange → SEBI SCORES → SAT
₹25 L cover on NSE default events
A Practical Example
Priya's broker places 50 unauthorised F&O trades in her account overnight — total loss ₹3 L. She escalates:
1. Broker grievance cell — no response in 15 days.
2. NSE Investor Grievance Cell — files complaint with trade logs.
3. NSE conducts internal investigation, finds evidence of unauthorised trading, orders broker to refund + reports to SEBI.
4. Broker fails to refund → NSE's Investor Protection Fund pays Priya ₹3 L within ~60 days.
5. SEBI separately imposes a ₹5 L penalty on the broker for Code of Conduct breach.
Total timeline: ~90 days. Rule: always maintain your own trade logs and contract notes.
What Makes This Important
Frequently Asked Questions
SCORES (SEBI Complaints Redress System) is SEBI's online portal where investors can file complaints against brokers, mutual funds, listed companies or other SEBI-regulated entities. Complaints are assigned ticket numbers and tracked to resolution within mandated timelines.
🧠 Quick Quiz
2 questions to check your understanding