Sebi mulls dispute resolution mechanism to boost investor protection

Sources say Sebi is studying feasibility of introducing arbitration mechanism to settle disputes between investors and listed firms or clients and any regulated intermediary

Market regulator Securities and Exchange Board of India (Sebi) is mulling a dispute resolution mechanism to increase investor protection and boost the trust in the market.

“Sebi is examining, in consultation with regulated entities, the possibility of introducing alternate dispute resolution mechanism in various agreements between the regulated entities and their clients. This is with a view to providing an efficacious mechanism for resolving disputes between the investors and the regulated entities,” the regulator said in a release.

People in the know said Sebi is studying the feasibility of introducing an arbitration mechanism to settle disputes rising between investors and a listed company or a client and any regulated intermediary.

The move will help settle grievances with the help of an arbitrator without the need of going through the lengthy court process.

“The proposal is still at the planning stage and its legal tenability is being studied. Listed companies need to be on board with the idea,” said a person with the direct knowledge of the development.

Currently, Sebi has so-called Scores (shot for Sebi Complaints Redress System) for disposing of investor grievances. Using this system, an investor can log a complaint against a listed company or an intermediary. The complainee then has to resolve the issue within 30 day failing which Sebi can pull up the entity.

The status of disposal of investor grievances received under Scores are displayed on Sebi’s website on a monthly basis. The disclosure can help market participants identify serial defaulters.

Meanwhile, Sebi and various stock market intermediaries have put in place investor charters to improve the investing experience.

The charters contain information related to details of various services provided by the intermediaries and their timelines. For instance, an investor can refer to the charter to know the time taken by a broker to convert physical shares into dematerialized shares. If the services are not delivered on time, the person can quote the charter and raise a dispute.

Besides intermediaries, Sebi too has issued its own charter highlighting its tasks and timelines.

Last year’s Union Budget had proposed an investor charter for the entire financial sector to bring in more transparency and protect investors from the misselling of financial products.

Sebi and its regulated entities have taken a lead in formalising an investor charter.