Why is income proof required?
SEBI, in the year 2010 mandated Stockbrokers to collect an ‘Income proof’ document from all traders who wished to trade in the F&O segment. The reason behind this move was that since trading volumes & turnover were higher in the F&O markets compared to the Equity markets, the chances of black money getting into the Stock markets through the F&O route was high. In order to curb the probability of such an occurrence, the regulators mandated that every client wanting to trade in this segment had to provide an Income proof.
The Income proof would act as a reference to the amount of turnover executed by the client in the FO segment and would serve as an evidence in case any irregularity is observed. While SEBI considered extending this rule to the Equity segment, MCX, which until now was under the purview of FMC, did not insist on any Income proof, however since it has now come under SEBI’s jurisdiction, it remains to be seen whether an Income proof will be required to trade in Commodity Future contracts as well.
How do people route black money into cash and FNO or commodities market?
As mandated by SEBI, NSE asks for Income Proof from a client in order to allow them trade in F&O, which is explained in this document.