Bourses, brokers protest Sebi diktat on client order evidence
Mumbai: The country’s top brokerages and stock exchanges have collectively protested against the Securities and Exchange Board of India’s (Sebi) recent diktat, requiring brokers to keep evidence of every instruction given by their clients with regard to trades in equities and equity derivatives.
In its effort to curb risks arising out of unauthorized trading by stock brokers, Sebi directed all brokerages on 26 September to compulsorily record every phone call of their clients or keep evidence of all their trade-related instructions in writing, email or text message formats.
The market watchdog also directed brokerages to keep a record of the logs of internet transactions by their clients and all other legally verifiable records with regard to trades in equities and derivatives.
Sebi, in its September circular, put the onus on stock brokers to produce proof of clients’ activities in the event of any dispute arising out of a stock trade.
Stock exchanges were directed to make the necessary changes in their processes to comply with the norms, which were supposed to be effective from 1 January 2018.
In a letter to Sebi last Wednesday, the Association of National Exchanges Members of India (ANMI) and stock exchanges have jointly voiced their grievances, claiming that it is practically impossible to have recording telephones at every dealer’s terminal with sufficient accuracy of voice identification and then retrieving such records.
The letter to Sebi mentioned that stock prices change fast and since many clients trade by directly communicating with the dealer in the office premises of the broker, asking clients for written orders every time will be very cumbersome, and is not investor friendly.
ANMI and the two national bourses BSE Ltd and NSE Ltd also feel that many brokers may not have the wherewithal to manage records of every instruction because often a single client uses multiple modes of communication such as mobile, WhatsApp and other applications for the same set of trades.
Most importantly, the brokers and exchanges said that many orders are modified or cancelled at the direction of the client at different points of time, which will make it tough for the brokers to match the recording of original instructions with the modified/cancelled orders, the letter mentions.
Mint has reviewed a copy of the letter.
Emails sent to Sebi and NSE remained unanswered, while BSE declined to comment.
During the ongoing financial year, NSE has received 4,498 complaints against trading members from their clients with regard to trades in equities and derivatives. As on 31 October, 4,408 of these complaints were moved to the exchange’s grievance redressal cell. BSE has received 580 stock-trading related complaints against trading members, including brokers and sub-brokers during the financial year so far. Of this, till 30 September, 427 cases were moved to the stock exchange’s investor grievance redressal cell.
“Both the premier exchanges put together, there are 13.9 million number of daily trades on an average. Looking at the volume in the market, such system of written order/recording is not practical,” said the letter.
Instead of taking responsibility for recording every client activity, the market intermediaries feel that after the execution of a trade, the broker should inform the client not only of the value of trade in figures but also the details of the quantity and scrips traded.
Deven R. Choksey, managing director of K.R. Choksey Shares & Securities Pvt Ltd, said Sebi’s intention is good but the suggested solution is not feasible. “There are thousands of dealer terminals located across 600 cities in India. Recording each and every client instruction and preserving all the records at all the times is practically not possible. Also, nowadays orders are communicated through various different modes. Recording each and every one of them for every client is a monumental task and even if Sebi sticks to its directive, the move will only lead to market inefficiency.”