Brokering Education
From the very beginning, the twin objectives of the Securities and Exchange Board of India (Sebi) have been to promote a healthy growth of the capital market and provide adequate protection to investors. While its success is debatable, it has come up with yet another proposal to guard investor interests.
Sebi proposes to rigorously screen new and old operators. It will introduce a system of testing and certification of people already working in the industry market as well as new entrants. A recent draft consultative paper states Sebi aims to introduce a written test for persons employed in the securities industry at the operational and supervisory levels. Candidates will have to appear for an examination, and those who qualify will be awarded a certificate their entry-ticket to the capital markets.
At present, the industry is bereft of any form of professional education on the subject. Barring some short-term courses and seminars conducted by some institutions, there is no formal training on capital markets. Trading skills are picked up on the job.
However, there are three reasons why requisite knowledge is particularly essential for employees of intermediaries. Firstly, there is a complete transformation in the industry. This is marked by increasing automation and institutionalisation. Then, with the advent of screen-based trading, depositories and a variety of mutual fund schemes, there is growing sophistication in capital market operations. As a result, traditional learning through family business may not be enough for new entrants. The changes call for well qualified and trained personnel who are willing to continuously update their skills.
Two, the intermediaries, especially the most critical ones like the brokers, sub-brokers and their employees with an investor interface, should be well-equipped to efficiently play their designated role in the securities market. They must possess a certain minimum degree of professional qualification to improve the quality of their intermediation and provide investors with sound professional advice to deal in securities. And this standardisation, it is hoped, will boost investor confidence.
These practices are followed in most developed countries and are being introduced in the newly emerging markets as well. The US began with a single test in the late fifties. And over a period of time, this has developed as a specialised test for specific market areas for different function levels like sales and sales supervision. The US industry now has 22 separate securities tests for supervisors and sales people.
The United Kingdom started with one test in the mid-eighties, and now has testing and certification for various market professionals. Other countries like Zambia and Indonesia have begun certification. Countries like Sri Lanka, Tanzania and Lithuania have also initiated this process to improve the quality of their markets.
Back home, Sebi is trying to blend international experience with the needs of the Indian markets. It plans to introduce certification by examination of people operating in the securities markets. To begin with, the test will be voluntary, enabling the market to accept it as value addition to the quality of intermediation. However, Sebis long- term objective is to make the test mandatory for participants in the industry. The test can be taken by anyone irrespective of qualification, age, employment or experience.
Initially, the multiple choice test will be offered twice a year, and based on market response, Sebi will increase the frequency. In times to come, the test will be one of the criteria for a person planning to join any market intermediary firm, said Vijay Ranjan, Sebi executive director (primary markets) who heads the certification committee. The proposals put forth by the committee are as follows:
Every person, irrespective of higher/professional qualifications, will be required to obtain the certificate prior to seeking employment with the intermediary since the course curriculum of professional examinations does not provide knowledge of operations and procedures of the securities market.
Once the test becomes mandatory, no person will be employed by an intermediary unless he/she holds the certificate.
On the date when the test becomes mandatory, two people or 20 per cent of the existing staff, whichever is more, employed with the intermediary, will have to obtain the certificate within six months.
Anyone who has not acquired the certificate, and is employed with the intermediary, shall not be eligible for employment with another intermediary unless he/she has obtained the certificate prior to fresh employment.
Any person who has not been active in the securities markets (who has not been employed with a market intermediary or who has not been self-employed in the industry) for a period of two years or more, will be required to pass the certification test before entering the industry.
The certificate will be valid for life and the candidate will not be expected to take the test again, so long as he is active in the industry. However, Sebi may prescribe specialised tests as a precondition for intermediaries operating in new markets and in new products such as derivatives.
The committee has also suggested that keeping in view the different specialisations, skills and knowledge required at different levels for different participants, specialised multiple testing should be the long-term objective. To begin with, there should be only one test for all intermediaries. It will be aimed at brokers, their employees and sub-brokers as they exert considerable influence on investors decision-making, having the needed market information and expertise in evaluating various investment products. The examination aims to improve the level of their knowledge.
No doubt there is a need to establish a basic minimum standard for all persons operating in the securities industry. The proposed certification can prove useful to the industry as well as the investor. But there are certain critical issues which need to be considered.
First, will merely passing or clearing a test educate the intermediaries or does Sebi propose to conduct classroom teaching or induct correspondence coaching. For, without proper coaching, the aim behind the examination would not be achieved. In view of the complexity of capital market operations, there is need to provide practical knowledge/training about important aspects like automated screen-based trading, settlement systems and depository procedures. The aim and objective should therefore be on actually educating the intermediaries and not merely assessing them on the basis of a certificate.
Second, can qualifying for a test inculcate a sense of responsibility in capital market participants? What is lacking is not the knowledge and understanding of investor profiles and their need, but the willingness to be truthful and honest. No doubt very often investors have been misguided by brokers and sub-brokers, mishandled by registrars and share transfer agents and mistreated by merchant bankers.
But the problem lies not in the lack of professional education, but in the lack of professionalism. Learning investor profile and investor need is fine, but the desire and attitude to serve the investor in the true sense needs to be inculcated. For, people working in the industry must be made to realise their responsibility and the consequence of their action on investors.
Third, there should be a stricter regulation of intermediaries with a stringent code of conduct. Law enforcement should be firm. Whatever the compulsions, intermediaries violating norms should not be allowed to go scot free.
Fourth, if at all a test is required, an already overburdened Sebi could let professional institutes conduct it. It could ask the Institute of Company Secretaries of India, the Institute of Chartered Accountants of India or the Institute of Cost and Works Accountant of India. These institutes could also provide the necessary study material and conduct classes.
The institutes could also hold informative programmes on the various aspects of the capital market relevant for intermediaries. For, upgrading knowledge and information is as essential as its possession. The effort would relieve Sebi of an additional burden. It could then channelise its time and resources to regulate and supervise the conduct of intermediaries.
[Alka Kapur is a senior faculty member of the Institute of Company Secretaries of India]
With screen-based trading, depositories and a variety of mutual fund schemes, there is growing sophistication in capital market operations. So traditional learning through family business may not be enough for new entrants.