New Definition Of & #39;Associate & #39; Widens Sebi & #39;S Broker Probe

Several brokers -- currently being probed by the Securities and Exchange Board of India (Sebi) for alleged market manipulations -- are in a soup over Sebi's new definition of "associate in relation to stock brokers". This is the first time that Sebi has defined the term associate.

As per the latest circular, dated September 17 and addressed to the heads of all stock exchanges, the "associate"' in relation to a stockbroker, individual, body corporate or firm, shall include a person who directly or indirectly "holds substantial share of not less than 15 per cent'' in the capital of such entities.

Further, Sebi has defined "associate" as one who, directly or indirectly, by himself, or in combination with other persons, exercises control over the stockbroker. The stockbroker may either be an individual or body corporate or firm.

The definition also includes entities "whose director or partner is also a director or partner of the stockbroker, body corporate or the firm, as the case may be". This means that if an individual is a director on more than one broking firm, all such firms will be treated as "associates"' as per the definition, leading stock brokers said.

Navratan Capital & Securities Pvt Ltd (NCS), exonerated by the Sebi enquiry officer early October, may face action as the firm would come into the fold of former BSE president, Anand Rathi, since he holds about 18 per cent stake in it. Triumph International Finance (India) Ltd (TIFIL) may also get affected since Ketan Parekh indirectly holds 15 per cent stake in it.

In a circular dated September 26, 1997, Sebi had stated that if associates of defaulter-broker are holding membership in other stock exchanges, then action, if any, required to be taken against such associate members, should be decided by the respective stock exchanges. According to this explanation, a defaulter-broker on one exchange is also declared defaulter on other exchange where he may be a member.