Sub-Brokers To Demand Changes In Sebi Norms
Encouraged by the consent given by Securities and Exchange Board of India (Sebi) to extend the deadline for registration by one month, sub-brokers now want the market regulator to amend the agreement that makes a stock broker responsible for all clients of sub-brokers.
The clause is being opposed by the sub-broking fraternity as they feel it is anti-investor and will also work against their interests.
Some sub-brokers said that they would form an association within ten days, and register the same with stock exchanges. They would also demand repeal of the above mentioned clause.
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An agreement with the main brokers and compulsory registration of sub-brokers with Sebi is being brought forward by the market regulator to bring more discipline to the activities of over one lakh sub-brokers.
The move is also an attempt to make a broker liable to clients of sub-brokers. Under the new agreement, which the sub-brokers had to sign with stock exchange members by May 23, a sub-broker has to disclose to the member with whom he enters into an agreement his direct or indirect relationships with other sub-brokers or brokers.
In the case of any dealings with other brokers, a sub-broker would have to obtain a no-objection certificate from the brokers.
Also, instead of making a deposit with a stock exchange, the sub-brokers would now have to make a deposit with the broker.
Senior Sebi officials feel that the market regulator was justified in having norms for sub-brokers as they too were important intermediaries between investors and the bourses.
Sebi, as early as 1992, had asked sub-brokers to get themselves registered. However, only 1,900 of them has done it till date, a Sebi official said.
The market watchdog took stern action against sub-brokers when it said that all share transfer deeds having rubber stamps of unregistered sub-brokers would be considered as bad delivery.
Sebi doesn't ask for any minimum networth for a sub-broker or insist on maintaining trade accounting standards. What it is demanding is merely registration. I wonder why there is so much inertia among the sub-brokers, the Sebi official said.
Citing the example of Nasdaq, the second largest exchange in the US, the official said the exchange had started as an association of sub-brokers (who are actually called stock brokers in the US).
They (brokers in the US) had tough accounting standards, tight certification and effective arbitration procedures, the official said.
He said that more than Sebi prescribing norms, the sub-brokers should initiate a self-regulatory body and have an effective code of conduct.
Though the market regulator has given a breather to sub-brokers by extending the deadline, it seems unlikely that it would encourage any kind of relaxation in the new norms.