Finding arbitration solutions to client-broker disputes

The exchanges have four levels at which investors’ complaints are redressed

Entering the equity market through a broker is supposed to make life easy for investors. But the number of cases investors lodge with stock exchanges shows the contrary.

Despite transparent procedures, miscommunication between a client and a broker can lead to problems. Some common problems are:

Unauthorised trades on behalf of a client
When an authorised sub-broker carries out trades on behalf of a client without his approval. Pawan Bhatia, 58, faced such a situation some time ago. The sub-broker’s move resulted in a loss for Bhatia in the markets. He was left with a balance of only Rs 9,000 in his account. He refused to bear the loss and spent months running from pillar to post, before the matter was resolved in his favour.

Placing wrong orders for a client
Errors such as a dealer forgetting to type the client’s unique identification number are taken care of during the post-trading session. “Considering the number of trades a dealer punches each day, increased trading hours and market volatility, such mistakes are bound to happen. But these are minuscule compared to the total trades”, says Vinay Agarwal, executive director, Angel Broking.

Non-receipt of money against delivery of shares
This can happen at client’s as well as the broker’s end. Brokers maintain client-trading accounts and keep funds on their behalf. At times, a client may request for funds, which the broker needs to pay within 24 hours, but cannot. Similarly, brokers pay the exchange on behalf of the client and demand quick payment from the client.

Non-settlement of client’s accounts
In December 2009, the Securities and Exchange Board of India asked brokers to settle their clients’ accounts once every month or every quarter. This rule is not being implemented by all brokers, and they can be hauled up for its violation.

Solutions from exchanges
If the client is not satisfied with the solution, he can approach the exchange. The stock exchanges have four levels at which such complaints are redressed.

First is the investor service cell. “The exchange looks for any contradiction in the records that both parties submit. It may set up a meeting between the two and play an informal mediator”, says a National Stock Exchange official.

If the problem persists, a special committee is approached. The Bombay Stock Exchange’s (BSE’s) investor grievance redressal committee is headed by a retired judge. According to a BSE official, “Almost 50 per cent complaints are sorted out at this level.”

The next step is the exchange’s arbitrator. But there are both conditions and costs involved in this. The good news is that arbitration services for claim amounts under Rs 10 lakh are free. Besides, if you win the case, no charges are claimed from you. The deposit amount for claims higher than Rs 10 lakh starts from from Rs 13,000 and can go up to Rs 90,000. Deposit rates also rise for claims made six months after the trade has taken place.

The arbitration panel’s judgment is a legally binding one, but one can appeal to a full bench arbitration panel headed by three professionals. According to exchange officials, this is the last level of necessary intervention, as judgments are binding on member brokers. If the result is still not satisfactory, one can approach the courts.