Penalty worth crores levied on brokers; what are they appealing to market regulator SEBI?

Brokers’ association in India the Association of National Exchanges Members of India (ANMI) have sought relaxation in rules governing short allocation penalty from the market regulator. ANMI has written a letter to the Securities and Exchange Board of India (SEBI), BSE, NSE and the clearing corporations with regards to this.  

In the letter, the association has put a demand seeking relaxation on the penalty on issues related to short allocation done between 1 August and 15 August. It has demanded that the brokers must be refunded the penalty amount. Apart from this, the timing of final file allocation must be increased from 8 pm to 12 pm next day.

 The brokers argue that they should not bear the brunt of technical faults and confusion. The association has said that the brokers have not been getting information regarding the final margin in the stipulated time period. This led to problems in margin calculation.

The brokers have further said that technical issues in the system have also resulted in difference in the margins from the final margins on many occasions.

For e.g. if the margin requirement to any client was said to be Rs 1 lakh in the morning, surprisingly went up.

Under these circumstances, brokers should not be held responsible.

All this has resulted in confusion as to how much the margin should be taken from the investors. Brokers are also not in agreement with the arrangement of giving information with respect to different segments.

According to them, if there is a situation of default, it will not be on the basis of segments but will be on overall basis.

In view of this, brokers must be allowed to send a combined ledger instead of sending it on the basis of segments. The clearing corporation could segregate them, the association has argued.

ANMI has said that a survey was conducted among the broker members of the association. At least 204 brokers participated in the exercise and problems faced by them were highlighted as a result of this.

The problems have been appraised to SEBI, exchanges and clearing corporations.

According to ANMI, out of the 204 brokers who participated, 29 brokers have said that a penalty of Rs 36.23 cr has been levied on them.

The SEBI rules were implemented in May this year where the brokers were asked to inform the clearing corporation about the fund of clients. The rules prescribed penalty in the even of non compliance from 1 August.

The objective of the new margin rules was to ensure that the brokers do not misuse the funds of their clients for other clients for themselves.

Earlier, the rule was full margin could be kept for buying shares. The rule was introduced so that the clearing corporation could limit the trade that a client could do so that the brokers and clients do not take undue risks.

Previously, it was the broker who decided the limit of the trade.