Concunsmart Shares and Stock Brokers Pvt Ltd (Concunsmart) has become the 31st broker, since May 2019, to be expelled by the National Stock Exchange (NSE) for non-adherence to regulatory provisions. According to NSE, the Mumbai-based broker's trading rights have been withdrawn in equity, futures & options (F&O) and commodity segments from 18 April 2022.
The NSE notification says, “The Exchange has withdrawn the trading rights of the following member in all segments, with effect from 18 April 2022 (before market hours), on account of non-adherence to the regulatory provisions, till further notice.”
Concunsmart claims to serve 8,000+ clientele across the country on a trading platform backed by its partners Prashant Angane and Pallavi Angane. Concunsmart operated as a sub-broker for 11 years before becoming a member of NSE and BSE vide SEBI registration number INZ000205429.
This is the 31st time, NSE has taken action against is member-broker. Since May 2019, there have been a series of 31 broker defaults (including Modex International Securities, Anugrah Stock and Broking Pvt Ltd, Karvy Stock Broking, BMA Wealth Creators, Fairwealth Securities) on NSE.
Since January 2020, the beginning of the COVID pandemic, the number of broker defaults, most of which are found to be misusing client funds or securities, has reached 26. NSE expelled four brokers in 2019, 14 in 2020, 10 in 2021 and two in the first two months of 2022, taking the total number of brokers defaulted and expelled by NSE to 30.
Most broker defaults have inflicted crippling losses on investors, although the settlement guarantee ensures no impact on the market itself. In many cases, brokers used investors’ shares to obtain leverage and take speculative positions on the derivatives market leading to losses.
Sometimes, they passed back a little interest for the pledged shares; but, in many cases, investors were unaware of their shares being pledged.
For instance, in 2019, Karvy Stock Broking was banned by the Securities and Exchange Board of India (SEBI) for defaulting clients for around Rs2,000 crore, making it one of the biggest such cases in India.
This list does not include the two firms which abruptly closed their capital market business of their own accord (voluntarily). One is IndiaNivesh, whose voluntary closure has led to litigation between HDFC Bank and Edelweiss Custodial Services and exposed the shady practice of ‘funded fixed deposits’ being accepted by the clearing corporation as collateral. In this case, the dispute is over a Rs100 crore funded FD, which HDFC Bank refused to honour. The other was Action Financial, which initially claimed to have done a voluntary closure but was later expelled by the exchange since it had failed to refund investors money. (Read: IndiaNivesh, Edelweiss & HDFC Bank: The Curious Case of Rs100 Crore Fixed Deposit Receipts
In June last year, SEBI issued a framework to minimise the risk of misuse of investor funds by stockbrokers. The new measures are part of the market regulator’s effort to prevent misappropriation and misuse of client funds by brokers and also to protect the clients in the event of a default by the brokers. (Read: SEBI Develops System to Detect Misuse of Client Securities by Brokers
This follows several instances of brokers misusing clients’ securities for trades that were not authorised by them and submitting false information to stock exchanges.
Unfortunately, nothing seems to stem the spate of broker defaults and voluntary closures of business by brokerage firms—especially among commodity brokers.