Brokers, Sub-Brokers Up In Arms Over Ad Ban

Brokers and sub-brokers are up in arms against the Securities and Exchange Board of India (Sebi) for debarring them from issuing advertisements. The markets regulator had recently sent a reminder to stock exchanges saying that brokers and sub-brokers are contravening the code of conduct by issuing advertisement and inducing clients from others.

However, brokers and sub-brokers feel that Sebi's code of conduct for brokers and sub-brokers in this regard is now redundant what with increasing competition for business amidst drastic fall in volumes, shrinking retail investor base and increasing institutional activity.

According to Sebi, certain brokers and sub-brokers are indulging in unfair trade practices such as poaching clients from other brokerages, under-cutting the already abysmal servicing fees and advertising about their business.

Brokers point out that several small-to-medium marginal brokers are closing shop following depressed market conditions. As a result, genuine investors serviced by these brokers and sub-brokers are left in a lurch and have to look out for new brokers or sub-brokers to deal with.

"When there is an opportunity for other brokers to get business of these investors, one cannot sit back and watch. The investor ultimately has to go to another broker and there is nothing wrong if another broker pitches for the account," a BSE broker said.

Brokers are also complaining against the ban on issuing ads. "This is the age of communication and in a era where marketing is the key to increase business why meet step-motherly treatment to brokers and sub-brokers from advertising when other financial intermediaries such as mutual funds and banks are allowed to advertise," an agitated NSE broker said.

"Ultimately, the decision lays with the investor. He will look for the quality of service, safety of capital and quality of research," Rajiv Sampat, director, Parag Parikh Securities said.

However, some brokers were cautious about the advertisements issued by some sub-brokers. "If the advertisement is about brand and servicing it should be okay but some of them have started giving tips about what stocks to buy and what not. They even advertise about how the stocks recommended by them have performed. This could be mis-leading for investors and such advertisements should certainly be banned," a sub-broker said.

Sebi's circular to the exchanges said that it had come to its notice that certain brokers and sub-brokers are advertising their business in prohibition of Clause C(4) and C(5) of the Code of Conduct specified in Schedule II of Regulation 7 and Clause C(5) and C(6) of the Code of Conduct specified in Schedule II of Regulation 15 of SEBI (Stock Brokers and Sub-brokers) Regulations, 1992, respectively.

The bourses were advised to bring the same to the notice of their brokers and ensure that they do not issue such ads in future, including on their Internet portals, by subsidiaries, group companies in contravention to the said regulation and bye laws of the concerned stock exchange.

Similarly, the exchanges were advised to inform their brokers to ensure that their sub-brokers do not issue such advertisements in future.