MLF Submits Investor Perspective on 32 Broker Defaults to SEBI
Requesting adequate weightage and empathy for the major handicaps that stock market investors face, Moneylife Foundation has urged an ad-hoc committee headed by G Mahalingam, a former whole-time member (WTM) of the Securities and Exchange Board of India (SEBI), to hold exchanges accountable for their lapses, especially in cases of broker defaults. The committee will review and make recommendations for further strengthening governance norms at market infrastructure institutions (MIIs).
In her presentation before the Committee, Sucheta Dalal, founder-trustee of Moneylife Foundation, pointed out that investors alone cannot carry the burden for the failure of oversight of exchanges leading to broker defaults. She pointed out that the National Stock Exchange (NSE) has failed in various primary regulatory functions and sided with brokers, who whipped up frothy turnover by hook or by crook.
Since May 2019, there have been 32 broker defaults (including Modex International Securities, Anugrah Stock and Broking Pvt Ltd, Karvy Stock Broking, BMA Wealth Creators, Fairwealth Securities) on NSE.
NSE expelled four brokers in 2019, 14 in 2020, 10 in 2021 and four in the first four months of 2022, that had taken the total number of brokers defaulted and expelled by NSE to 32.
In the presentation, Moneylife Foundation has given 11 suggestions that would help redress investors' grievances, especially in broker defaults.
Ms Dalal also highlighted issues with the arbitration orders passed by grievance redress committees (GRCs). She says, "...arbitration cases and orders of the GRC have chilling examples of how SEBI rules are flouted with impunity by brokerage firms. Investors are rarely able to put up a proper fight, so the number of orders does not tell the real story. Also, the outcome is barely adequate. An investor is lucky to avoid losses - there is no compensation, costs or damages."