Sebi Amends Bad Delivery Norms

The Securities and Exchange Board of India (Sebi) has amended the bad delivery norms accepting the demand made by brokers to bring down the liability of the introducing broker from three years to one year.

This is a significant achievement for the broking community as the capital market watchdog had earlier said that the liability of the introducing broker will be for three years.

However, it has been brought down taking into consideration the brokers plea on the same.

The Securities and Exchange Board of India senior executive director O P Gahrotra confirmed that amendments had been made in the good/bad delivery norms on the basis of a meeting held last week. However, he declined to comment on the nature of the amendments.

A senior Bombay Stock Exchange governing board member confirmed that he had received a note on the Sebi amendments. The source revealed that the meeting of all stock exchange chiefs called on March 19 by Sebi discussed the issue.

The Securities and Exchange Board of India approval to the changes in amendments came yesterday.

The member said: There has also been an amendment in Rule 100 of the norms which states that the introducing brokers liability ends once shares are transferred in the name of the transferree.

According to the new rule, the introducing brokers liability continues in case of shares being found to be fake, forged and stolen after they are transferred.

Rule 100 further states that where shares have been duly transferred by the company in the name of the transferee and thereafter the company sends a letter informing the latter that the shares have been transferred based on fraudulent documents, such cases cannot be lodged as company objections.

This meant earlier that the liability of the introducing broker ended on completion of transfer.

The capital market regulator has also made changes in another norm concerning call endorsement for fully-paid debentures. Said the member: Companies very often do not indicate the endorsement date on the debenture in case it is fully convertible.

This was considered as bad delivery. However, as per the new norm, if the company endorses only the equity portion, then it will be no longer be considered as bad delivery.

Rule 68 of the good/bad delivery norms reads that in case of fully convertible debentures, after they have been converted into equity, if the call money is done only for the equity portion and not for the debenture portion, then they were treated as bad delivery.