Nse Cornered For The First Time Over Indemnity Issue

The National Stock Exchange (NSE), for the first time since its inception, has come under intense pressure from trading members. With the exchange making it mandatory for trading members to sign the indemnity bonds, the members have literally waged a war against the exchange.

While the exchange had tried hard to sell the idea to the members, the exchange has not been able to gain ground in terms of actually convincing the trading members to sign the guarantees.

Most of the members have expressed concern over the manner in which the exchange imposed the new scheme. The exchange stands to lose all the goodwill it has generated over the period of time, if it takes the trading members for a ride, said a Mumbai-based NSE dealer. This, despite the fact that the members wanted the system to be clear of dud/junk stocks.

 

While the members have threatened to walk out on the exchange, the exchange has decided not to cow down to threats. The exchange officials have taken a hard stance without understanding the problems members might face. We have told the exchange officials that this is against the corporate norms. If the dominant members have to take unlimited liability, then we would rather convert our corporate membership to sole proprietary membership and take back the additional deposits which we have kept with the exchange, informed another NSE dealer.

Members argue that there are instances where the dominant players do not take an active role in the day-to-day functioning of the broking firm.

There are some NRI promoters, who have merely put in their money. If any thing goes wrong why should the promoters be held responsible for something that they have not done, argues another NSE dealer.

The exchange, on the other hand, says the trading members do not take due diligence while accepting delivery as they have the clearing corporation to rely on.

RH Patil, managing director of NSE, had made it very clear that if the trading members are not willing to furnish personal guarantee then the members may not avail the facility of the clearing corporation.

The members have now suggested to the exchange that the dominant partner may not be exposed to unlimited liability for all the issues. The dominant players should be held responsible only in case of fake/forged/stolen shares.

The exchange has held on to its firm stand despite a section of the brokers moving court on the issue. Patil was of the view that it was only in India that there is such a large number of brokers at each exchange. He was of the view that the exchange could be run even if 500 members decide not to sign the indemnity bond.