Investors furious over SEBI’s hike in arbitration fees, tilting the ground in favour of NSE

With less then 24 hours to the implementation of a SEBI-mandated hike in arbitration fees, investors appeal to the finance ministry for help; they point out that 84% of arbitration cases are decided against them

On 1st September, filing arbitration proceedings against a stockbroker will cost investors a lot more in fees if the claim is above Rs10 lakh. The Securities and Exchange Board of India (SEBI) has decided that arbitration fees will be a percentage of the claim - this will result in a hike of as much as 11 times the current fee for higher claims.

All this while, the arbitration charges were set by the exchanges. Market sources are astounded that SEBI, which always argues that the exchanges are the first line of regulation and supervision, has decided to step in to micro-manage and decide on the arbitration charges and that too with such negative impact for investors. The main beneficiary of the SEBI action, as usual, is the NSE because it has 10 times more arbitration cases filed than BSE. It is also not clear why SEBI should mandate the exact fee, rather than prescribe a cap, as is usual while dealing with competing entities in the marketplace.
For investors, it is a double whammy. Not only does the SEBI move remove the differentiation between the exchanges in terms of fees, but it shows that SEBI either hasn't bothered to look at the trend of arbitration decisions or has decided that investors who dare to file a claim, deserve to be slapped with costs. Consider this. Until now, the Bombay Stock Exchange (BSE) charged a nominal fee of Rs3,970 for claims up to Rs10 lakh while the National Stock Exchange (NSE) did not charge any fee. Now, NSE and BSE will not charge a fee for claims up to Rs10 lakh. On 11th August 2010, a SEBI circular was issued under which, if investors file a claim after six months, they will end up paying a minimum fee of a little over Rs33,000 (inclusive of service tax) and a maximum of Rs43,000.
Amit Bhargava, an investor who has several claims pending arbitration with stock exchanges says, that fees based on the claim amount makes it seem as if seeking justice is akin to asking for a loan. How can the principles of lending be applied to a quasi-judicial process? Mr Bhargava has written to SEBI and the finance ministry and even has a letter from a Whole Time Member of SEBI saying that it will consider his plea and act on it if considered fit. Moneylife forwarded Mr Bhargava's detailed calculations to NSE's non-executive chairman, Dr Vijay Kelkar, who has also agreed to look into his plea.

The six-month timeframe for escalating the fees is also arbitrary. No investor wants to enter into a formal arbitration process without exhausting other options such as persuading the broker to be reasonable, complaining to the stock exchange investor cell or the market regulator. This process would normally take at least six months or more. Sources tell us, the only time arbitration is filed very quickly is when a broker defaults and the claims can be recovered from the contingency funds for investors lying with stock exchanges. In such cases, the issue is resolved very quickly too.
A compilation of arbitration statistics is quite depressing from the investor perspective. The year FY2008-09 saw a massive 3,235 arbitration cases filed on the NSE; of these only 327 (15.83%) proceedings were decided in favour of investors. Of these, only 146 (7.10%) were actually implemented. The BSE saw 309 decisions in arbitration proceedings filed on the bourse, of which 31 only went in favour of the investor and of these only 13 were implemented.

FY 2009-10 saw arbitration awards drop to 1,163 on the NSE. Of these only 281 were decided in favour of investors and here too only 113 awards were implemented. The BSE announced 819 arbitration awards in 2009-10 of which only 224 were in favour of investors and of these a mere 126 awards were implemented. This year 2010-11, there have been 30 arbitration awards on the NSE, of which two have gone in favour of investors. On the BSE, of the 79 awards so far, only 27 have favoured investors and none of these have been implemented. If you total up all the awards in the past three years, it shows that barely 15.8% of arbitrations have gone in favour of investors.
The question is, why then would SEBI tinker with the fees in a manner that it is bound to discourage investors from filing arbitration? It is another decision that is clearly geared to drive retail investors out of the market. Moneylife has repeatedly pointed out that it is such unthinking policies that are largely responsible for India's investor population shrinking from around 20 million when India started its economic liberalisation programme to a mere 8 million today (Swarup Committee report).

Already, investors complain that stock exchanges routinely hustle investors into filing arbitration, rather than attempt to resolve issues through mediation and conciliation. Investors are always at a disadvantage in arbitration proceedings, because they are grappling to understand the rules, while the broker has a core competency to handle arbitration, which includes qualified staff and lawyers and a friendly equation with stock exchange officials and often arbitrators themselves.
According to an analysis by investor Mr Bhargava, for claims of Rs10 lakh to Rs25 lakh, filed within six months, the BSE used to charge an arbitration fee of Rs8,934 while the NSE charged Rs12,000. This is set to rise to a minimum of Rs14,400 and a maximum of Rs19,402. The fee escalates sharply to a minimum of Rs43,118 and a maximum of Rs58,007 if the claim is filed after six months.
For claims above Rs25 lakh, the arbitration fee used to be Rs8,934 on the BSE and Rs18,000 on the NSE. Under SEBI's circular, the fee will shoot up to a minimum of Rs19,403 and a maximum of Rs33,190 on both exchanges. If filed after six months, the fees shoot up to Rs58,008 (minimum) and Rs99,370 (maximum). All these figures include service tax and stamp paper costs.

The cost rises even further and steeply if the investor chooses to appeal - the NSE does not even have a process of appealing against arbitration proceedings and plans to introduce one shortly. The fees for filing an appeal, which range from Rs18,000 to Rs22,000 today (BSE) can rise to as much as Rs91,000 (below Rs25 lakh) to Rs1,32,000 if filed after six months (on claims of Rs25 lakh) after a dispute.




6 years ago

very good i am inst


6 years ago

All the actions of Mr.Bhave gives us an impression that he is loosing his mental balance. All his thinkings are negative and distructive.

Sunil S Bhagat

6 years ago

this very clearly illustrates SEBI's contention of enacting on behalf of the investor and behaving like their messah is also based on vested interests.
By removing entry load , in the name of investor protection, SEBI has destroyed the mutual fund industry as the no. of investors have further reduced.The vested interest seems to be to promote NSE and trying to implement compulsdary demat so theat the small advisor is completely killed.


6 years ago

Actually NSE is regulating SEBI-by asking the sold out SEBI chairman to issue circulars which will generate more and more profit to NSE-so indian stock market me ULTI GANGA BAH RAHI HAI-kotwal chor ko puch raha hai ki bhai mere tujhe kya taklif hai-koi taklif ho to mujhe order dena-

Number of online frauds high: RBI official

Madurai: The Reserve Bank of India (RBI) has cautioned the public to be aware of online frauds, especially involving lotteries, and fraudsters who were faking websites of banks and RBI documents and circulars, reports PTI.

"While the RBI picks up only secondary information, the number of complaints of such online frauds is high... in Chennai it is one a day," RBI general manager (foreign exchange department) S K Maheswaran said.

Stating that even fake websites of RBI or commercial banks were being created to lure unsuspecting individuals, he asked the public to cross check anything purported to be RBI circular with information on its website ''

A common online fraud was informing a person that he had won a lottery in London and asking him to deposit a sum towards processing charges. The tricksters get somebody to open a bank account and give him a share. The money gets withdrawn immediately. But such transactions were a violation of Foreign Exchange Management Act, 1999, he said.

Mr Maheswaran, who was here to conduct an awareness campaign recently, said some tricksters cheat exporters by promising better prices in exchange for a registration fee or offering loans at cheaper interest rates.

RBI AGM A J George said website of all banks had "https" in the prefix of their website with the "s" standing for secured websites. While fraudsters could create fake bank websites with similar designs and identical address such fake sites would have only "http" prefix.

He said the banks would never ask the customers the PIN details of their accounts, especially over the telephone except while using their website. He also urged the people to avoid conducting bank transactions from internet cafes.


Wednesday Closing Report: The bulls are at it, but for how long?

The market opened in the green on positive cues from its regional peers. It was supported by gains in auto, realty and metal stocks in early trade. However, after touching the day's high, the indices were range-bound. The positive opening of the European markets sent the domestic benchmarks higher in the post-noon session. The indices closed with gains of over 1.25%.

The Sensex settled 234.75 points (1.31%) higher at 18,206. The index touched a high of 18,227 and a low of 18,027, intraday. The Nifty was up 69.45 points (1.29%) at 5,472. The benchmark swung between a high-low of 5,478 and 5,403, respectively.

The market breadth continued to be positive for the second day. The Sensex had 27 stocks in the green while three stocks ended lower. The Nifty had 43 advancing stocks while seven ended in the red. The broader indices outperformed the key benchmarks today. The BSE Mid-cap index gained 1.67% while the BSE Small-cap index jumped 1.81%.

The top Sensex gainers were Reliance Communications (RCom) (up 4.94%), Hindalco Industries (up 4.48%), Sterlite Industries (up 3.57%), Bharti Airtel (up 3.1%) and Tata Steel (up 2.94%). The laggards of the index were Hero Honda (down 1.8%), HDFC (down 0.42%) and Oil & Natural Gas Corporation (ONGC) (down 0.38%).

BSE Metal index (up 3.02%), BSE Realty (up 2.98%), BSE TECk (up 2.25%), BSE IT (up 2%) and BSE Public Sector Undertaking (PSU) (up 1.64%) were the top sectoral gainers. There were no losers in the sectoral space today.

Markets in Asia, with the exception of Shanghai Composite, ended in the positive zone today. Data for two purchasing managers' indexes in China showed that factory activity grew in China, set to be the world's second-biggest economy this year. The official China PMI rose to 51.7 from 51.2 in July, its first rise in four months. HSBC's China PMI rebounded to a three-month high of 51.9 from 49.4.

The Hang Seng was up 0.43%, Jakarta Composite was up 1.73%, KLSE Composite was up 0.67%, Nikkei 225 was up 1.17%, Straits Times was up 1.10%, Seoul Composite was up 1.26% and Taiwan Weighted was up 0.68%. On the other hand, the Shanghai Composite was down 0.60%.

India's exports grew by 13.2% to $16.24 billion in July compared to the same period of the last fiscal, posting growth for the 9th month in a row. Imports, too, jumped by 34.3% to $29.17 billion in July compared to the same month last fiscal, according to the official data released today.

During the April-July period of this fiscal, exports posted a growth rate of 30% to $68.62 billion on year-on-year basis. Imports during the April-July period grew by 33.3% to $112.2 billion.

Wall Street ended almost unchanged on Tuesday. Stocks made early gains after housing, manufacturing and consumer-confidence data came out slightly better than expected. But those gains vanished after minutes of the August Federal Reserve meeting showed policymakers disagreeing over how to support the faltering economic recovery. The Dow advanced 5 points (0.05%) to 10,014.72. The S&P 500 gained 0.41 points (0.04%) to 1,049.33. The Nasdaq fell 6 points (0.28%) to end at 2,114.03.

Foreign institutional investors were net buyers of stocks worth Rs288 crore on Tuesday. Domestic institutional investors were net sellers of equities worth Rs595 crore on the same day.

Chennai-based TVS Motor Company (up 1.30%) today reported its highest-ever monthly sales at 1,70,735 units in August, registering a 33.52% jump over the same month last year. The company had posted a total sales of 1,27,875 units in the corresponding month of 2009, the company said in a statement.

TVS Motor's two-wheeler sales last month witnessed a 31.75% increase at 1,67,109 units compared to 1,26,842 units in the same month last year, it added.

Consumer goods major Colgate Palmolive India (down 0.02%) today said it has received the judicial approval to merge its wholly-owned subsidiary, CC Health Care Products with itself.

The Andhra Pradesh High Court has sanctioned the scheme of amalgamation of CC Health Care Products by its order dated 11 August 2010, the company said in a filing to the Bombay Stock Exchange.

Automaker Tata Motors (up 0.11%) today reported a 32.38% increase in its total sales during August at 65,938 units compared to 49,810 units in the same month in 2009.

The home-grown firm's total passenger vehicle sales in the domestic market stood at 25,196 units in August against 17,364 units in the same month last year, a jump of 45.10%, the company said in a statement.


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