Sebi Panel Debating Issue Of Sub-Broker Responsibility

According to senior panel members, the matter has got stuck on how to treat one major clause pertaining to a circular issued by the Bombay Stock Exchange (BSE) on October 14, 1993 on regulating sub-brokers.

Clause 13 of the circular says: ``The member-broker shall issue consolidated scripwise contract notes to the sub-broker in respect of all the scrips traded on behalf of the latter showing execution price of transaction and brokerage separately and the sub-broker, in turn, shall issue split confirmation memos to each of his clients wherein the reference number of the consolidated contract note of the member broker, the rate at which the sale or purchase is made and the brokerage shall be shown separately as required by the said regulations.''

 

The clause following states: ``The member-broker and the sub-broker hereby agree that they will assist and cooperate with each other in ensuring faster settlement of any arbitration proceedings arising out of the transactions entered into on behalf of the sub-broker and would accept arbitration awards in respect of the transactions entered into on his behalf''.

The panel members say the essence of what is being sought is that those issuing contracts must be responsible for honouring them: this means that if a broker is issuing contracts for trades done for clients of the sub-broker, the contracts should be honoured by him in every way.

But the brokers feel Sebi is seeking to regulate the sub-broking community through the brokers by placing the entire responsibility on them, and not directly.

According to the panelists, Sebi may even take the step of declaring deals with unregistered sub-brokers as illegal after a point, since that would be a way in which the enormous number of sub-brokers can be regulated.

But the members of the panel warn that the quick settlement of the sub-broker problem is a must if the equity cult is to be saved from being hit further.

The other option is that sub-brokers issue the contracts themselves. But panelists say that too would entail amendment to the Securities Contracts Regulation Act.

Section 13 of the SCR Act says:`` If the central government is satisfied, having regard to the nature or the volume of transactions in securities in any state or area, that it is necessary to do so, it may, by notification in the Official Gazette, declare this section to apply to such state or area, and thereupon every contract in such state or area which is entered into after the date of the notification otherwise than between members of a recognised stock exchange in such state or area or through or with such member shall be illegal.''Panel members say to give legitimacy to a sub-broker's contract, section 13 of the SCR Act needs to be amended. This also entails the formation of a sub-brokers' body on a national level to regulate the activities of these sub-brokers.