Too many unique identities

RAISINA HILL

On January 1, 2004, the Securities and Exchange Board of India (Sebi) passed a diktat asking all brokers and market intermediaries to obtain a unique identification number (UIN) within three months.

It was a seemingly-innocuous regulation until brokers discovered the devil in the fine print. Not only did Sebi (Central Database of Market Participants) Regulations, 2003, call upon all brokers and key executives in market intermediaries to obtain a UIN, it also required their relatives, including spouses, dependent children and dependent parents, to apply for the UIN.

To get a UIN, one has to provide biometric impressions of the left and right thumbs and left and right index fingers, electronically, on the system of the designated service provider "" the National Securities Depository Ltd (NSDL), in this case. NSDL further appointed points of service (POS) in all regions to facilitate the creation of a Mapin (market participants identification number) database.

The market regulator has invoked the powers under Section 11 (1) of the Sebi Act to issue this regulation, which it said, was necessary to protect investor interests and to promote, develop and regulate the securities market.

Not many, however, appreciate the regulator's diktat. Some even compare the procedure of creating a Mapin database to that meted out to a criminal. "Taking the fingerprints of almost all the family members is bordering on paranoia," said a leading broker.

The project is ambitious given the size of the Indian markets and the number of intermediaries. While in the first phase, Sebi plans to map all market intermediaries and brokers, the second phase would cover individual shareholders too.

The intermediaries include depositories; depository participants; stock exchanges and their members; merchant bankers; underwriters; registrars and transfer agents; mutual funds; collective investment schemes and portfolio managers; stock lending and credit rating agencies; debenture trustees; custodians; venture capital funds; and investor associations.

While not many intermediaries have openly criticised the regulator's move, it has caused a fair amount of consternation amongst them. That's because it's not just the stock broker firm that has to get a UIN, but all its employees too.

The Sebi diktat goes a step further and requires even the employees' spouses, dependent parents and children to be "finger-printed" for the UIN.

Similarly, in the case of entities, not only is the promoter required to obtain a UIN, his brothers, sisters, spouse, parents and children, too, have to apply with NSDL for the UIN.

All brokers have a unique client code, the data being available with Sebi as well as with the stock exchanges. "One more UIN is just duplication of all previous efforts," said a leading depository participant.

Obviously, none of them have taken the legal recourse since they do not want to take on the regulator or the government. But, they have a point.

Another issue is NSDL's decision to outsource the process to several POS. For instance, a prominent Delhi-based broker said that for the northern region, NSDL has appointed Alankit Assignments Ltd, a broking firm.

"It is difficult to share all information with another broker," he said. Alankit is a POS for the northern region covering states like Chhattisgarh, Haryana, Punjab, Uttar Pradesh, Madhya Pradesh, Rajasthan, New Delhi, Uttaranchal, Himachal Pradesh and Jammu & Kashmir.

The pricing, too, has left the market intermediaries pretty unhappy. NSDL charges Rs 300 for each application. Compare this to Rs 60 charged for the permanent account number (PAN) card, which UTI Investor Services issues these days.

For NSDL, this will be manna. While no clear estimate is available about the revenues it can generate for NSDL, market participants put the figure at several hundred crores.

According to Sebi, the Mapin scheme is aimed at developing an inventory of market participants and investors and also set up a standard for client code through the UIN. But, as an intermediary pointed out, there are already enough safeguards available in the system.

The "know your client" programme calls upon brokers to get their clients' thumb impressions, photographs and signatures. Also, the government of India requires all individuals to carry a voter's ID card, which is unique. Besides, the revenue department requires tax assessees to procure a PAN, which again is a unique identity.

Clearly, there is little coordination between the various government agencies about how a central database of all those who matter can be created.

In the US, the social security number is a unique code. In India, the PAN could have been one. The government has already entrusted NSDL the task of creating the Tax Information Network (TIN).

This could have been the starting point for an integrated approach. But along comes UIN; tomorrow one more regulator may seek to map its constituency through another unique number. This is duplication that should be avoided.