The Hindu Business Line : Brokers lobby with SEs on revised payment mode

INTENSE pressure from the broking community is making the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE) go slow on implementing the Securities and Exchange Board of India's (SEBI) order aimed at diminishing the involvement of sub-brokers in transaction of securities.

The SEBI order also makes it mandatory for the exchanges to ensure that there is a tripartite agreement in place among each client, the broker and the sub-broker who introduces the client to the broker. Sources in stock exchanges said that while the order should have been implemented from November 2003, the work on drafting the tripartite agreement is yet to start.

SEBI, in its order last year, had banned the routing of payments and delivery of shares through sub-brokers, noting that deals should be directly between the broker and the client. The sub-broker is to receive his commission only from the broker for which a standard tripartite agreement has to be signed between the broker, the sub-broker and the client. Accordingly, the exchanges were asked to draft the agreement that was to be finally approved by the market regulator.

"We do not yet have the specimen copy ready," said an official in one of the exchanges, and added "senior brokers are making presentations so that the exchanges write to SEBI for some sort of a relaxation."

Another official pointed out that all this confusion is owing to a strange situation that has been created since some of the regional stock exchanges have floated subsidiary companies that have become members of the BSE and NSE. "As a result, the same entity simultaneously enjoys the status of a broker and a sub-broker on the same exchange which is very confusing for the ordinary investor," the official said.

This, according to NSE sources, is an outcome of zero trading in a majority of the regional stock exchanges. Earlier, many big brokers of regional stock exchanges were also members of the BSE or NSE, or both. Following no trade on the regional bourses, these exchange have formed subsidiary companies which have become member-brokers of BSE and NSE. The erstwhile members of the regional exchanges have the right to trade on the NSE and the BSE in their capacity of being sub-brokers of the subsidiary companies while many of them are already brokers of either of these two major exchanges.

"This is leading to a very confusing state of affairs as the same person or firm cannot officially be a broker as well as a sub-broker of the same exchange and is providing a loophole for exploiting the ordinary investor because he will never be able to figure out whether his transaction is being handled through the broking outfit or the sub-broking outfit," the official said.

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