Brokers found short-changing investors will face Sebi ire

Many complaints being received by the NSE for non-receipt of funds and securities

Amid a large number of investor complaints being received by the NSE for non-receipt of funds and securities against some member brokers, regulator Sebi plans to soon take strict penal action against the wrong-doers after a thorough probe into the matter.

The National Stock Exchange (NSE) has issued a circular to "alert" its members against any non-adherence to norms about timely settlement of funds and securities in the investor accounts, after its inspections and internal audits found some of them were not "diligently adhering" to such guidelines.

Sebi has now decided to thoroughly look into the matter to ensure that investors are not taken for a ride and their grievances are addressed effectively, a senior official said.

Noting that such inadequacy of funds indicated "serious liquidity concerns" on the part of the concerned brokers, the NSE had asked all its members to strictly ensure timely settlement of funds in their client accounts.

When contacted, an NSE spokesperson said, "As a front-line regulator, NSE, in keeping with exchange bye laws and Sebi regulations, keeps taking appropriate action where required.

"This circular was issued to alert members and investors and ensure that the interest of market participants and the market as whole is safeguarded."

The spokesperson, however, did not reply to specific queries on whether it has taken or initiated action against the members who have been found to be "not diligently adhering to the requirement of settling client accounts" in a timely manner.

With regard to a "recent case in which investor complaints have come," the spokesperson said, "Coordinated efforts are required between the NSE, BSE and the Regulator. What is required is a joint processing of claims, for the best resolution (of the claims) and we are trying to work out commensurate modalities."

However, the exchange did not disclose any further details about the case. It also did not reply to queries about the number and further details of non-compliant members and about the concerned client accounts.

While the exchange and its officials refused to speak further on the "serious liquidity concerns" it had flagged, sources said that the issue was very serious and involved large amounts of funds.

Some brokers have not fulfilled the arbitration awards decided against them, while collaterals given by them have also been found to be inadequate, sources said, while adding that the Exchange needs to declare such brokers defaulters.

At least two well-known brokerage firms are suspected to have short-changed the investors and they would face action by Sebi if the matter is not effectively and conclusively resolved by the Exchange.