A foreign broker registered with SEBI is allowed to operate in the Indian stock market on behalf of registered Flls by transmitting orders to members of Indian stock exchanges. These orders will be executed and a contract note issued by the members of the Indian stock exchanges. Foreign brokers can also become members of Indian Stock Exchanges subject to necessary approvals. Detailed operating guidelines for foreign brokers have been issued by SEBI.
Foreign brokers need to open a rupee account and a foreign currency account with a designated bank branch, with the permission of RBI. Inward remittances in foreign currency have to be made for initial payment against each purchase contract. Earnings of the broker by way of brokerage, comission, etc. can be transferred from the rupee account to the foreign exchange account for repatriation.
Foreign brokers can open custody accounts with the approved custodians of all registered FIIs whom he may be assisting. There must be a separate account for each FII.
Orders for purchase and sale on behalf of a FII should be placed with members of the Stock Exchange.
A 5% service tax on brokerage was introduced in the fiscal year 1994-95. This tax is to be collected by the broker from the client for further payment to the government.
Centre for Monitoring Indian Economy, Bombay
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Last updated: May 1995.