Reduce Burden On Introducing Broker, Says Calcutta Se

The Calcutta Stock Exchange (CSE) has protested against the huge responsibility allotted to the introducing broker with regard to share transfers, in its response to the proposals of the R Chandrashekharan Committee.

In a note sent to the Securities and Exchange Board of India, the CSE has said that, unless brokers are properly insured, the proposed system cannot work. This is because most of the brokers lack the capital to shoulder exigencies. The R Chandrashekharan Committee has recommended the following with respect to the introducing broker:

A registered broker is responsible for all transactions, tradesand documents introduced by him in the market on behalf of his client.

 

A broker will deal with a client only after proper identification and assessment.

The introducing member will attest the signature of the transferor/seller on the transfer deed and affix the hologram/medallion/magnetic tape on the transfer deed stating his registration number.

When share transfer agents (STAs) put through a transfer relying on the broker attestation of the transferor's signature and it is later found that the original investor has been deprived of his investment fraudulently, then the broker will have to compensate the loss.

After the hologram/medallion program is implemented, the STAs and issuing companies will transfer shares without verifying signatures of the transferor. If after this an investor is deprived of his investment by fraud, the broker will compensate the investor (whether buyer or seller).

All this assumes that the broker will have enough money to compensate for huge losses. According to the CSE, this is not true and in an environment where brokers are struggling to stay in the business it is unrealistic to expect that they will be able to carry the responsibility.

The committee has also said, "A broker will not deal with an unregistered sub-broker and will take full responsibility of all documents received from sub-brokers and delivered in the market." The CSE feels that if this clause is imposed, there will be a sudden drop in business as most sub-brokers are not registered with Sebi. and the process of registration is taking a long time due to delays by Sebi.

CSE has also recommended that the depository system be made mandatory and the cut-off date be announced for each scrip. This will solve the problems of share transfer. These interim measures, it is felt, are extremely expensive and will be difficult to implement. The exchange has also recommended that the different proposals i.e. issue of new certificates, use of holograms etc, be introduced in a phased manner rather than at one go, as this will ease the cost burden.

The committee has suggested that brokers should verify the databank of stolen/lost/duplicate share certificates prior to introducing the scrips in the market. CSE has said in the note to Sebi that the time span of liability of an introducing broker is too widespread for the broker to maintain a proper databank for lost/stolen/duplicate shares.

The exchange has also recommended that spot deals should continue as before, in response to the suggestion by the Chandrashekharan Committee that spot deals be regulated from now on. The exchange has also reminded Sebi that the issue of fake shares has not been properly dealt with in the proposals.