It has been observed that both the major exchanges & SEBI do receive lots of cases in Arbitration, however it is also seen that it is uncommon to go for arbitration by lot of investors due to lack of knowledge about their rights when they get cheated. Both the exchanges i.e. BSE & NSE have made links available on their website for investors when the investor wishes to file the arbitration against any broker/ intermediary. The arbitration process is simple compared to going to court & the cases can be filed in 2 categories upto Rs.25 lakh & beyond Rs.25 Lakh loss incurred by the investors. There is a provision for appointing a lawyer by the investor, if he/she is not confident of handling the case on their own. There is separate form to be filled for declaring the name of the lawyer. Also the lawyer has to give the undertaking that he would appear on behalf of the investor to represent his case. The time period for lodging the complaint has been extended by SEBI from 1 year to 3 years, from the date of misappropriation by the broker/intermediary.
The reasons for going into arbitration:
1) Non Receipt/delay in receipt of funds & securities
2) For matter relating to closing out/squaring up of positions without consent of investor
3) For matter relating to execution of trade without authorization
4) For matter relating to issue of brokerage/interest/penalty/commission or other charges
5) For matter pertaining to recovery of outstanding debit balance.
Out of the above five situations, it has been observed that maximum cases fall under item number 3. This is mainly due to following reasons.
1) Power of Attorney given by the investor is used wrongly by the sub-broker/broker.
2) Ignorance of investor about his rights in these situations.
3) Mostly the investor initially permits the sub-broker/broker to trade on his/her behalf in his own account (especially in Futures & Options segment) and later on he loses his cash component and then his shares are also sold off due to debits arising out of the trades done on behalf of him by the sub-broker/broker.
4) The investors who do not permit the sub-broker/broker, however he is not aware that trades have happened in their account without their consent. They come to know only when they are informed that their shares in demat accounts are being sold to clear the debit due to negative balances in their ledgers due to wrong trades.
5) Balances from demat account are transferred by the sub-broker/broker to the margin account of the broker. This has to be done with the consent of the investor.
However, later on trades are done by the sub-broker/broker without knowledge /consent of the customer by using these shares as collateral for doing trades in Futures & Options segment. Again out of the five situations given above, under point number three, if the investor who has given the permission to trade on his behalf, is always at fault & cannot even complain or go for arbitration, since he has voluntarily permitted to trade on his behalf in his account. Mostly due to expectation of higher gains promised by the sub-broker/broker, investors allow brokers to trade on their behalf. But in rest of the categories, the investors definitely has right to go for arbitration with the exchanges in which the trades are executed & get the reimbursement of losses due to wrong trades. Also there is a website by SEBI i.e. www.scores.gov.in Sebi Complaints Redress System. which allows investor to file his complaint, in case if he feels that broker/intermediary has failed to give him justice, in spite of giving adequate proof for cheating. As per the provision made by exchanges, investors have right to choose the arbitrators as well & they can choose the names of the arbitrators out of the list provided on the website of exchanges. The reasons for mis appropriation in the investor’s account & the precaution to be taken by the investors. In order to protect losses arising due to such situations (especially wherein the power of attorney has been given by the investor to the broker) following precautions are required to be taken by the investors. 1) The investor is compulsorily required to register his mobile number for SMS alerts, through his depository participant. The SMS are are sent by the depositories where he/she maintains the accounts. These SMS are normally sent by the depositories, whenever there is a debit arising due to transfer of shares when shares are sold by the sub-broker/broker. The investor is expected to see these SMS & get himself satisfied whether trades are done as per investor’s instructions. 2) Most of the times, without disturbing investors demat account as well, there is a possibility of executing trades in the FNO segment of the client. In such cases, if the customer is not sent with ledger of such trades & investor will never know that there are trades happening in their account. Hence, investor has to check his transaction statement in FNO segment periodically to see whether any such trades have happened in their trading account, without their consent/knowledge. 3) The contract notes are required to be issued for each & every trade done in the investor’s account, under various segments. However, due to laziness or inadequate time these are not checked by the clients. Nowadays, the sub-brokers /brokers are issuing these contract notes in the mail ids provided by the investor to save the cost of postage/courier etc. However, if the mail id given by the investor is changed/ not checked, investor’s stand get diluted as broker/sub-broker always claim that the contract notes were sent to the investor on their mail but they have not objected that time etc. Now since the losses are incurred in the account, investor is complaining & so on. 4) Running authority letter issued by the investor to transfer the funds from his cash segment to FNO segment & vice versa. – Most of the times, the broker takes this type of authorization from the investor, wherein he has right to transfer the funds from the cash segment to FNO segment & vice versa. The investor if he/she has signed such authorization letter, needs to check his both the ledgers carefully, when the funds are transferred by the sub-broker/broker due to such authorization & whether it is done due to instructions given by him or without his consent. 5) The investor has right to demand following documents from the broker while filing his case under arbitration. a) Statement of account for funds/securities b) Ledger statements c) Margin statements d) Contract Notes e) Telephone recording done by the broker (with investor’s voice) To curb the trading activities in FNO segment by retail investors who do not know the implications of the same, SEBI has increased the value of contracts from Rs.2 lakh to minimum of Rs.5 lakh. However, in currency segment, the contract values are still reasonable & investors can be lured to trade in such segments due to less margins. There are legal firms which can professionally file the cases under arbitration, since most of the times retail investors do not have requisite knowledge to fill up the necessary arbitration forms as well. The information about the same can be checked online & the place where investor wishes to file his arbitration. BSE & NSE has opened centers in various metro cities wherein investors can file their cases through such centers.
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