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In a shocking move, the market regulator has jacked up arbitration fees multi-fold; enough to deter already harassed investors from seeking justice
The capital market regulator, the Securities and Exchange Board of India (SEBI), has done it again. As part of its attempts to 'streamline' the arbitration mechanism available at stock exchanges for disputes arising between a client and a member, SEBI has massively jacked up the fees for this compulsory arbitration procedure.
Investors point out that this is yet another insensitive move by the market watchdog in the name of providing justice to the harassed investors, who are now likely to be further deterred from approaching the exchanges for arbitration.In its circular dated 11 August 2010, SEBI has revised the fees charged for the compulsory arbitration mechanism at stock exchanges.
Earlier, no fees were charged on investor claims up to Rs10 lakh at the National Stock Exchange (NSE), while the Bombay Stock Exchange (BSE) charged Rs3,970. Now, SEBI has proposed a minimum charge of Rs11,130 and a maximum of Rs14,439 for claims filed within six months from the end of the quarter during which the disputed transaction was executed or settled. For an application filed after six months, the charges may shoot up to Rs43,117. For claim amounts greater than Rs25 lakh, the fees charged could touch Rs99,370, almost 11 times the current charge of Rs8,934 levied by the BSE.
Worse still, any application filed after six months would attract three times as much fees if the award is against the investor and he chooses to appeal. The total costs of arbitration for the investors (claim up to Rs10 lakh) in case the award is against him/her will be at least Rs66,380, up from Rs22,280 earlier. For claim amounts between Rs10 lakh-Rs25 lakh, the fees charged would be Rs76,308. For claim amounts greater than Rs25 lakh, the investor will have to shell out up to Rs1,32,560 for arbitration! Also, factor in the cost of hiring a lawyer, preparing the case, conveyance etc, the investor will be set back by an even bigger amount.
What exacerbates this move is the fact that the arbitration mechanism itself usually results in a drain of investors' money, time and resources. More often than not, the decisions taken are biased and heavily loaded in favour of the brokers. It is very well known that there is an immense conflict of interest between the exchanges and its trading members, the stock brokers, which tilts the scales unfavourably against the investors. Exchanges are also notorious for taking ages to respond to the complaints made by investors.
In their lackadaisical approach to attending to investor complaints, six months get over easily - which under the revised guidelines spells doom for investors. By imposing such hefty fees, SEBI has only sought to put another spanner in the works for investors, and added another revenue stream for the exchanges, least bothered about the wellbeing of the investor population.
Amit Bhargava, a regular investor, told Moneylife, "I am shocked to note how insensitive SEBI can be towards investors. The proposed fee is based on percentages of the claim amount as if asking for justice was like asking for a loan. Principles of lending money are being applied on fees for seeking justice!""This move suggests that SEBI is making sure that no complaints against stock brokers be made, and if made the costs be so prohibitive that they die a natural death even before justice is delivered. When it is compulsory for the investors to trade through a broker, it is only fair that this whole process of seeking justice through the exchanges is provided free of cost to investors," pointed out Mr Bhargava.
This move by SEBI marks yet another chapter in its recent chequered past, where a series of ill-timed and ill-conceived initiatives on its part have virtually put the brakes on the mutual fund industry. Retail investor participation in this segment has already taken a huge hit as a result. With such high arbitration fees, retail investors in equities will also find a reason to steer clear of the markets.