Brokers to sell MFs, but many are not qualified

Both the BSE and NSE recently announced their own MF trading platforms, immediately after SEBI gave its nod for introducing stock exchange based trading platforms for MFs (first reported by Moneylife). This has come as a delight to the broker community as they now stand to gain from another revenue stream.

Interestingly, however, many brokers do not even have the mandatory qualifications to be eligible to deal in MF products.

Moneylife had earlier pointed out that, for brokers, switching over to the complexities of MF schemes will involve a huge learning curve, given that their expertise lies in dealing with equity instruments. MFs represent a broadly different line of business altogether. This gap can only be bridged by passing the necessary Association of Mutual Funds in India (AMFI) test that would make them eligible to buy and sell MF units on behalf of clients.

Chandrashekhar Layane, senior vice president, FairWealth Securities said, “I think almost all the brokers would qualify to trade MF units on behalf of their clients; it is not that difficult to pass the AMFI distribution module. It depends ultimately on the broker’s business model. Apart from equity and commodity business, if he finds good opportunity in this platform, then he will surely get it done to qualify.” He recalled that in the past, brokers were hesitant to pass the NCFM exam introduced by NSE to run authorised trader terminals at their branches or franchisee locations. Now it has become a practice and almost all employees of the brokers are NCFM qualified.

The success of an MF trading platform would hinge on the ability of brokers to give quality advice to clients, tailored to their specific individual requirements. In such a scenario, brokers’ lack of expertise in MF products would only further alienate an already miniscule retail MF investor base. Mr Layane is of the opinion that absence of AMFI certification won’t hinder the implementation of MF platforms. “Many of the brokers who don’t have the AMFI distribution module certification will hire those candidates who have passed this exam to qualify to trade in MF units,” he added.

It is the responsibility of the Securities and Exchange Board of India (SEBI) to ensure that all terminal operators possess the necessary qualification before giving them the green signal.



Amitkumar Shah

6 years ago

SEBI, IRDA is like a money Collection Center.. The CEO of MNC's company visit the SEBI and IRDA office, Approeved the Products and Launch in Market with Suppport of very high Coomission.. In such a scenario, brokers’ lack of expertise in MF or Insurance Products or any investment products. Many of the brokers who don’t have the AMFI or IRDA distribution module certification will hire those candidates who have passed this exam to qualify to trade in MF/ Insurance Products with the higher Commission,”


7 years ago

When the fund manager does not require any bloody license, does it really matter that the seller should pass some exam which is so silly that you have to get less than 50 percent to pass? Even today, the so called national distributor sends people who have no qualifications to sell mf's. So, let us drop this requirement.

Only 426 LLPs have been registered since 2008

Ambiguity in the tax structure and inefficient functioning of the Limited Liability Partnership (LLP) portal are the two factors that have made it difficult for lawyers to register these arrangements

Despite lower cost of formation and reduced compliance requirements, the LLP Act—enacted in 2008—has not generated much interest among individual businessmen and lawyers. According to the data available on the LLP website, there have been only 426 registrations for LLPs till 30 November 2009.

Industry sources reveal that ambiguity in LLP laws have made it difficult for lawyers to register LLPs. “Although the Act was enacted in January 2008, the tax component was only clarified in June 2009. The law was in effect from
1 April 2009,” said Sharada Balaji, founder of NovoJuris Services.

“If clients approach us for registration of an LLP, we tell them to register as a private limited company because of the complicated procedure (involved in LLPs),” said Ashfaq Baig, company secretary, A Baig & Co, a firm of practicing company secretaries.

Another factor behind the low LLP registration figure is believed to be the inefficient functioning of the LLP portal. “We are finding it easy to register a private limited company compared to an LLP. The portal of the ministry of corporate affairs is more user-friendly compared to the LLP portal,” added Mr Baig.

An LLP is a partnership in which some or all partners have limited liability. It is useful for small and medium enterprises in the general and services sectors like professionals (lawyers, chartered accountants) and knowledge-based enterprises.

LLPs can lead to considerable savings and can avoid the cumbersome procedures involved in setting up private limited companies.  LLPs, however, cannot raise funds from the public.

Ms Balaji added that there will be a growth in the number of LLP registrations once the awareness about the law spreads.


SEBI board cannot quash order against NSDL: ex-CJI

Justice JS Verma says such quasi-judicial orders can only be reviewed and quashed “by a judicial forum with requisite jurisdiction, at the instance of a petitioner with standing to seek relief.”

Justice JS Verma, former Chief Justice of India and one of the most respected names in the judicial world, has said that the SEBI (Securities and Exchange Board of India) board of directors cannot simply declare the order of the Mohan Gopal-V Leeladhar bench as ‘non est’ or null and void and the orders will continue to stand, unless challenged in a judicial forum by the appropriate petition. Such quasi-judicial orders, he said, can only be reviewed and quashed “by a judicial forum with requisite jurisdiction, at the instance of a petitioner with standing to seek relief.”
This refers to SEBI’s indictment of the National Securities Depository's (NSDL) role in the IPO scam of 2006 when NSDL was headed by the current SEBI chairman, CB Bhave. This was followed by a one-year effort to bury the orders of the Gopal-Leeladhar bench. Finally, under pressure from a public interest litigation filed in the Andhra Pradesh High Court, the SEBI board met and was forced to release the three orders of the Bench into the public domain; but the Board sought to kill the application by declaring that two of the orders were void or 'non est' since the Bench had gone beyond its brief in criticising the regulator itself. It also decided at the same meeting that the full SEBI board will review the NSDL issue and decide on it.
The opinion by Justice Verma is an important development, just as the SEBI board is set to meet on 22nd December under the chairmanship of Infosys director Mohandas Pai and will, in all probability, give SEBI a clean chit. Justice Verma is not known to give legal opinions or arbitration matters commercially; this opinion is hence a reflection of his strong views on the issue. According to him, “The recent decision of the SEBI board to review and declare as 'non-est' two quasi judicial orders of SEBI violates established legal and Constitutional principles. These quasi judicial orders may be reviewed only by a judicial forum with requisite jurisdiction, at the instance of a petitioner with standing to seek relief.”

Justice Verma further says, "The decision to declare these quasi judicial orders as void is meaningless in any absolute sense. Its meaning is relative, depending upon the courts' willingness to grant relief in any particular situation. Even if a decision is 'void' or a 'nullity', it remains in being unless and until some steps are taken before courts to have it declared void. Lord Radcliff said in Smith v/s East Ellse, 1956 A.C. 736 at 769."

In fact, according to the learned judge, "An order, even if not made in good faith, is still an act capable of legal consequences. It bears no brand of invalidity upon its forehead. Unless the necessary proceedings are taken at law to establish the cause of invalidity and to get it quashed or otherwise upset, it will remain as effective for its ostensible purpose as the most impeccable of orders.
“The necessity of recourse to the court has been pointed out repeatedly in the House of Lords and Privy Council, without distinction between latent and patent defects.  Supreme Court of India has taken the same view.
“The order would be presumed to be valid unless the presumption was rebutted in competent legal proceedings by a party entitled to sue.
“The court will invalidate an order only if the right remedy is sought by the right person in the right proceedings and circumstances. The order may be hypothetically a nullity, but the court may refuse to quash it because of the plaintiff's lack of standing … or for some other legal reason. In any such case, the 'void' order remains effective and is, in reality, valid. (see pg. 341-344, Administrative Law, 7th Edn., by Wade and cases in footnote).
“All official decisions are presumed to be valid until set aside or otherwise held to be invalid by a court of competent jurisdiction (de Smith, 5th Edn.- See Chapter 5-048 at pg. 259-260 and cases in footnotes 17&18).” (emphasis is Justice Varma's)

On a broader note, Justice Verma starts his succinct two-page opinion by expressing concern at "executive interference in the independence and integrity of the judicial process" which, he says, is a "central requirement for upholding the rule of law".
Justice Verma further says, "The rapid expansion of the power and jurisdiction of quasi judicial bodies raises new challenges in this regard. Great caution is called for on the part of the Government, the judiciary and society to ensure that the independence of quasi judicial bodies is fully protected and that executive power is not misused to interfere with their decision-making, their independence and their integrity. It is essential to ensure that quasi judicial orders should not be subject to review or interference by executive authorities that have neither the power nor the requisite expertise to review, alter or nullify quasi judicial orders. Quasi judicial orders should be subject to review only by lawfully authorised tribunals or by courts, based on well established principles of law."
Moneylife Digital broke the news last week that SEBI was all set to hold a board meeting on 22nd December at which the NSDL had been called for a hearing. Incidentally, SEBI's actions are apparently based on a legal opinion by C Achuthan, former presiding officer of the Securities Appellate Tribunal (SAT), who is a director on the board of the National Stock Exchange (NSE)—a SEBI-regulated entity which is the promoter and major shareholder of the NSDL.

For the text of Justice Verma's opinion Click Here




7 years ago

Imp:Aquasi judicial body's opinion cannot be overruled even by the board which constituted the quasi judicial body in the first place. This deserves to be given due publicity

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