Is the grievance redressal and arbitration mechanism at stock exchanges robust enough to handle investor-broker disputes?
We are committed to adopting the best practices to improve the investor grievance redressal mechanism. Indian stock markets have witnessed a huge growth in turnover in the past two decades. At the same time, the risk management framework put in place by exchanges and automation of trading framework have brought in several investor-friendly features to the Indian capital markets.
In addition, a cost-effective arbitration mechanism, investor grievance councils and protection funds have made trading in the Indian capital markets safe. The BSE's Investor Protection Fund provides up to Rs 15 lakh in case of defaults by brokers. The number of defaults has also come down substantially. The current two-level arbitration process, as opposed to single-level arbitration, helps small investors. In fact, as many as 2,700 complaints against brokers were redressed in 2009-10.
One reason why investors contest arbitration rulings is the lack of clarity on a court's jurisdiction. For instance, if the client-broker agreement indicates that the disputes fall within the purview of a specific court, an investor based in another city might find it difficult to proceed. How do you plan to tackle this?
The BSE has a unique system of redressal against brokers. It appoints Investors' Grievances Redressal Committees (IGRCs) at each regional office in Chennai, Delhi, Kolkata and Mumbai. Presently, IGRC is a two-member panel, comprising a retired high court judge and a reputed broker. We request the disputing parties to be present before the IGRC on a scheduled date. The IGRC attempts to mediate and find a solution, failing which it advises the investor to file a complaint with the exchange.
The arbitration services are efficient (by-laws provide for a ruling within six months from the date of the first hearing) and cost-effective compared with the court proceedings. The BSE is the only stock exchange in the country that provides an appellate mechanism. It appoints panels of arbitrators for each of its regional arbitration centres (RACs) in Chennai, Delhi, Kolkata and Mumbai.
The BSE recently reduced the cost of entry for a member from Rs 1 crore to Rs 10 lakh. Is there a need to strengthen risk management measures?
The BSE has a robust risk management system in place for all members. The lower initial cash deposit requirement will not increase the risk because a member must put in some collateral before he can trade.
In India, exchanges focus on equities and derivatives. But, internationally, 80% of the volume is generated by debt, currency and small and medium enterprises. Is the BSE also working on product innovations?
Absolutely. The BSE is already working towards the development of markets and products in debt, currency (through the soon-to-be-launched United Stock Exchange) and SME. We will compete and have a presence across asset classes and value chain, from order routing and clearing to depository.
Investing in stocks is still restricted to certain pockets. What role can the exchanges play in expanding equity culture in India?
A lot more can be done in the sphere of training and educating investors. Efforts are being made to educate people through awareness seminars. Investors can also be provided access to the trading platform on their mobile handsets as the penetration of broadband is limited in the country. We are doing our bit to improve financial literacy in India through our training and certification institute. Lowering the cost or entry barriers for new participants will also help.
The potential of the financial services sector is huge and needs to be innovated to widen the customer base.
Source: From Money Today