Brokers Sore Over Sebi Diktat On Bye-Laws

The broking community is peeved with the Securities and Exchange Board of India (Sebi) for its directions on rules and bye-laws for model stock exchanges which would lead to increased control by the markets regulator and also impose restrictions on elected brokers without giving them any authority.

The steps proposed by Sebi would have to be implemented in two months. The four-part model, which was recommended by the M R Mayya committee, was adopted by Sebi and the stock exchanges were asked to introduce part of them.

However, one part of the rules could not be introduced without corporatisation of the exchanges. They would be fit for introduction after the corporatisation of exchanges expected to be done by two months, a top Sebi official said.

Brokers said the Sebi model has made it clear that the market regulator would hold the remote control on the management of the exchanges by approving nominations of 60 per cent non-broker members of an exchange board. In addition, induction and removal of managing director would also be controlled by Sebi.

Stock brokers criticised the Sebi move of attempting to control exchanges through this route as against the perception that model exchanges would be self regulatory.

"A board having 60 per cent Sebi representatives and Sebi's managing director can not be called a self-regulatory one," said a senior broker. He also said mere increasing control on bourse authorities would not serve any purpose unless discipline was imposed in other segments of the capital markets.

Citing examples of insider trading, he said only punishment of the involved brokers would not put an end to the practice.

"To stop insider trading, there should be clear guidelines on promoters and management in the corporate sector because brokers only act on information being forwarded from the corporates."

The brokers also questioned the Sebi move of imposing stipulations on trades of elected brokers. The Sebi model said the elected brokers "shall disclose to the governing board, ethics committee, designated compliance officer on a periodic basis all their dealings, direct and indirect, in securities".

The model rules also said "all transactions must be an investment in nature and not speculative in nature. Towards this end, all securities purchased must be held for a minimum 60 days before they are sold."

The brokers said imposition of stipulations on elected brokers without empowering them with any "real power" was "unjustified". Dwelling on powers of elected brokers, the model rule said they were allowed to participate in committees on arbitration, audit, membership, selection and ethics, but not hold posts like treasurer or president.