Brokers allege OTC Exchange refusing to return deposits

OTCEI received Sebi approval for shutting down business in March this year

The OTC Exchange of India (OTCEI) is in the midst of a controversy over member deposits it had collected at the time of its inception, even as it heads towards the exit door.

The Association of National Exchange Members of India (ANMI) and brokers that Business Standard spoke with, confirmed the dispute over return of capital. An email sent to OTCEI by Business Standard remained unanswered.

OTCEI received the Security and Exchange Board of India (Sebi) approval for shutting down the exchange business in March this year. Regional exchanges unable to garner Rs 100 crore of networth and annual trading turnover worth Rs 1,000 crore  by May 2014 were asked to shut down.

The exit order, available on the Sebi website, states that the exchange is required to refund the “deposit (refundable) to the stock brokers including their initial contribution/deposit to Settlement Guarantee Fund/Trade Guarantee Fund (SGF/TGF).” But the exchange has not responded to requests, or in the case of some brokers, refused to return deposits.

ANMI said members had approached the body for the resolution of this conflict.

“Many of the members have complained that the exchange is not responding to any requests and even refusing to make the payments citing it as being part of the non-refundable fees,” said Gopal Agrawal, president of ANMI.

According to a list of members found on the exchange’s website, OTCEI has 199 members registered with it. Of these, 31 were individual members while the rest are corporates and partnerships.

“OTCEI was one of the larger exchanges and so the dues owed by them are much larger than the other regional stock exchanges like Mangaluru or Guwahati,” said Agrawal.

As per exchange rules, the membership fee paid by brokers to exchanges at the time of joining is non-refundable. However, the deposits paid by the brokers towards maintenance of margin like the base capital and other fixed deposits have to be refunded by the exiting exchanges. Business Standard also spoke to two of the members of OTCEI whose requests had not been heeded by the exchange.

ANMI estimates that the exchange, on an average, owes Rs eight-nine lakh per member. However, brokers said the number could be anywhere between Rs two lakh to Rs 20 lakh, as the deposits paid would depend on the size of the brokerage and the trades it undertakes. Based on the ANMI estimates, the exchange owes members about Rs 10 crore in payments.

ANMI plans to take up the issue. “We are preparing a strong letter to OTCEI from the association and their high-handed behaviour in forfeiting members’ money,” Agrawal said. He also said they might look to move higher authorities over the matter.

“As far I know, there are about a 100 members who are stuck like us. We have made repeated requests to the exchange but it is not responding. We have asked ANMI to take up the issue with the authorities,” said the compliance officer of a Mumbai-based brokerage. However, some sources in the industry said the exchange is in talks with Sebi to resolve the issue. There are brokers who claim that the exchange has promised to refund the money after consultation with Sebi.

“We have spoken to the exchange’s CEO who has said the deposits will be refunded,” said Rakesh Goyal, senior vice-president, Bonanza Portfolio. Munesh Kumar Goel is the MD&CEO of OTCEI.

But others remained skeptical. “The exchange has applied for liquidation....We are afraid that the money will not be refunded,” said the head of another brokerage firm.