In the equity markets, a frequent complaint is that arbitration as a grievance resolution mechanism usually works against investors. However, Joseph Massey, chief executive and managing director at MCX Stock Exchange (MCX-SX), said that they are resolving more disputes through conciliation and mediation and very few go for arbitration
Moneylife (ML): Having gone through the MCS-SX website—arbitration does not appears to be the widely used mechanism for solving disputes here. Can this be attributed to mediation and conciliation?
Joseph Massey (JM): At MCX-SX, every dispute goes through the conciliation process first, but if the parties (broker and investor) want to go directly for arbitration they can. They have the right to do so and it cannot be denied by anyone. However, we think if the rights can be preserved by exchange of words then why to go for arbitration.
In most cases, the dispute first comes in the form of a complaint. On receipt of the complaint and evidences from the client (investor) a letter is sent to the broker. If the brokers feel that the complaint is genuine then he out rightly settles the dispute. However, if the broker does not agree with the nature of the complaint, he too can send his evidences and then there is conciliation. Each exchange has a conciliator officer. MCX-SX also has investor protection centres in four metros. The cost for conciliation is borne by the exchange.
If the dispute is not resolved during conciliations, then it goes into arbitration. Depending on the value or disputed amount, both the parties have to deposit some amount with the exchange. Also, the bench of the arbitrators is determined on the value of the disputed amount. Once the arbitration is done, an award is passed which needs to be abided by both the parties.
The payment to the arbitrators is decided by the exchange itself which is around Rs5,000 per hearing. So this process is not at all expensive. The clients do not have to pay money to the arbitrators and it is the exchange that pays them.
This system, which we follow at MCX-SX for grievance redressal is legally considered to be a secure and valid system. The implementation of the award is much easier and quicker than courts. I can say, today’s exchanges are running efficiently because of an efficient and speedy grievance redressal mechanism.
ML: What are the judicial remedies available for a resolving dispute?
JM: One cannot go for judicial remedy because if someone is doing business then he has agreed to the rules and bye-laws of the exchange. The rules and bye-laws say if there is a dispute then the aggrieved party will have to first go for conciliation then arbitration and the appeal at the exchange itself. The judiciary has accepted this redressal method because it is a specialized activity. So for redressing the dispute through the alternate dispute redressal (ADR) at the exchange, the matter can be settled within a month whereas in regular courts it may take more time. Also the Securities Contracts (Regulation) Act, 1956 or SCRA says that each (exchange) should have its own dispute settlement mechanism.
ML: Regulation 14.11 of the MCX Stock Exchange (currency derivatives segment) states no hearing shall be provided to parties if the disputed amount is Rs25,000 or less. So in such cases is ex-parte the norm?
JM: It has been observed that in some of the arbitrations, either of the party remains absent, which indicates that he may be wrong or that he is not interested in the remedy system. In such cases ex-parte order is the given but before that, we give the party three chances to come forward and be present during the proceedings.
ML: At MCX-SX, how many cases goes into arbitration and what is the time frame for their resolution? How many go into appeal?
JM: At MCX-SX very few cases go for an appeal because ADR works like what we call as fast-track litigation. In an arbitration process, evidence is checked, submissions are made and both sides get an equal opportunity to be heard. So after this rigorous process, when one opts for appeal, the grounds for appealing would be limited because all that he had to say would have already been said during the arbitration. In rare instances one party had gone for an appeal at MCX-SX.
Time taken for completing the arbitration is determined in advance. It has been stated that the arbitration should be completed within three months from the time it begins. However, in few cases the time limit can be increased. Also, there is no pecuniary jurisdiction for taking matters for arbitration.
The appeal is made to the board of the exchange, which comprises public sector representatives, shareholder representatives, and representatives from public sector enterprises nominated by SEBI (Securities and Exchange Board of India). It is therefore a very balanced board.
ML: Has MCX-SX put in place any special regulations or processes to reduce disputes between brokers and investors? What, according to you, are the reasons for dispute in the currency segment?
JM: Cases like settlement of accounts is one of the major reasons for dispute between brokers and investors. Many times this happens if the markets are too volatile, leading to big losses for the investor.
To reduce such disputes, we at MCX-SX have put in a robust risk management system that follows strict norms and procedures. For example, if on a particular day a broker sustains losses of 75% out of his deposited amount with the exchange, he cannot do any further business unless he deposits more money. MCX-SX is the only exchange to have this kind of risk management system. This keeps our exchange safe and so are the brokers and investors. The margins are determined at client level so this gives protection to them as well. This mechanism therefore saves up to 90% of the litigation.
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