The Hindu Business Line : What is arbitration?

To this effect, SEBI has been continuously reviewing its policies and drafting risk management policies to mitigate these risks, thereby enhancing the level of investor protection and catalysing market development.

The key risk management measures initiated by SEBI include:-

Categorisation of securities into groups 1, 2 and 3 for imposition of margins based on their liquidity and volatility.

VaR based margining system.

Specification of mark to Market margins

Specification of Intra-day trading limits and Gross Exposure Limits

Real time monitoring of the Intra-day trading limits and Gross Exposure Limits by the Stock Exchanges

Specification of time limits of payment of margins

Collection of margins on T+1 basis

Index based market wide circuit breakers

Automatic de-activation of trading terminals in case of breach of exposure limits

VaR-based margining system has been put in place based on the categorisation of stocks based on the liquidity of stocks depending on its impact cost and volatility. It addresses 99 per cent of the risks in the market.

Additional margins have also been specified to address the balance 1 per cent cases.

SEBI has recently issued a circular modifying the above-mentioned present risk management framework to move to upfront collection of VaR margins (instead of margin collection on T+1 basis).

In the revised framework, the liquid assets deposited by the broker with the exchange should be sufficient to cover upfront VaR margins, Extreme Loss Margin, MTM (Mark to Market Losses) and the prescribed BMC.

The Mark to Market margin would be payable before the start of the next day's trading. The Margin would be calculated based on gross open position of the member.

The gross open position for this purpose would mean the gross of all net positions across all the clients of a member including his proprietary position. The exchanges would monitor the position of the brokers online real time basis and there would be automatic deactivation of terminal on any shortfall of margin.

What happens if I do not get my money or share on the due date?

In case a broker fails to deliver the securities or make payment on time, or if you have complaint against conduct of the stockbroker, you can file a complaint with the respective stock exchange.

The exchange is required to resolve all the complaints.

To resolve the dispute, the complainant can also resort to arbitration as provided on the reverse of contract note /purchase or sale note.

However, if the complaint is not addressed by the Stock Exchanges or is unduly delayed, then the complaints along with supporting documents may be forwarded to Secondary Market Department of SEBI.

Your complaint would be followed up with the exchanges for expeditious redressal.

In case of complaint against a sub broker, the complaint may be forwarded to the broker concerned with whom the sub broker is affiliated for redressal.

What recourses are available to me for redressing my grievances?

You have following recourses available:

Office of Investor Assistance and Education (OIAE): You can lodge a complaint with OIAE Department of SEBI against companies for delay, non-receipt of shares, refund orders, etc., and with Stock Exchanges against brokers on certain trade disputes or non receipt of payment/securities.

Arbitration: If no amicable settlement could be reached, then you can make application for reference to Arbitration under the Bye Laws of concerned Stock Exchange.

Court of Law

What is Arbitration?

Arbitration is an alternative dispute resolution mechanism provided by a stock exchange for resolving disputes between the trading members and their clients in respect of trades done on the exchange.

What is the process for preferring arbitration?

The byelaws of the exchange provide the procedure for Arbitration. You can procure a form for filing arbitration from the concerned stock exchange.

The arbitral tribunal has to make the arbitral award within 3 months from the date of entering upon the reference.

The time taken to make an award cannot be extended beyond a maximum period of 6 months from the date of entering upon the reference.

Who appoints the arbitrators?

Every exchange maintains a panel of arbitrators. Investors may choose the arbitrator of their choice from the panel. The broker also has an option to choose an arbitrator.

The name(s) would be forwarded to the member for acceptance. In case of disagreement, the exchange shall decide upon the name of arbitrators.

What happens if I am aggrieved by the award of the arbitrator?

In case you are aggrieved by the arbitration award, you can take recourse to the appeal provisions as given in the bye-laws of the Exchange.

What is Investor Protection Fund (IPF)/ Customer Protection Fund (CPF) at Stock Exchanges?

Investor Protection Fund is the fund set up by the Stock Exchanges to meet the legitimate investment claims of the clients of the defaulting members that are not of speculative nature. SEBI has prescribed guidelines for utilisation of IPF at the Stock Exchanges.

The Stock Exchanges have been permitted to fix suitable compensation limits, in consultation with the IPF/CPF Trust. It has been provided that the amount of compensation available against a single claim of an investor arising out of default by a member broker of a Stock Exchange shall not be less than Rs. 1 lakh in case of major Stock Exchanges viz., BSE and NSE, and Rs 50,000 in the case of other Stock Exchanges.

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