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98 BSE Brokers and 82 NSE Brokers Surrender Membership in Past 2 Years as Smaller Brokers Struggle with Increased Compliance Rules
Yogesh Sapkale 21 May 2022
Investor Interest
The past two years after global lock-downs were triggered by the COVID-19 pandemic, India's investor population has almost doubled due to the rush of new investors. Strangely, however, the brokerage business is seeing a huge churn with scores of broker defaults and even more trading members voluntarily shutting down their business and surrendering their membership cards. These are in addition to the 32+ broker defaults on the National Stock Exchange (NSE) accompanied by the termination of their membership on other exchanges. 
 
As many as 98 brokers from Bombay Stock Exchange (BSE) and 82 brokers from NSE have either resigned or surrendered their membership cards. Since many brokerage firms are members of both Exchanges, there will be some overlap in the numbers above. 
 
Most of these are smaller brokerage firms that are finding it difficult to stay in business due to increasing regulatory compliances. Some of the smaller brokers have merged their business with a large brokerage and then surrendered their membership to BSE and NSE.  
 
On BSE, as many as 54 brokers surrendered their membership in FY20-21 and 44 in FY21-22, taking the total for the past two years to 98. On NSE, 39 stockbrokers surrendered membership in FY20-21 and 43 more in FY21-22, bringing the total to 82 brokers during the past two years. 
 
Recently, four brokers—Indo Asian Securities Pvt Ltd, New Age Wealth Management,  Pee Dee Kapur Stock & Securities Ltd and Satish Ashok Sabnis—have surrendered their membership to NSE. However, we could not find any further information about this or other brokers who are no longer members of NSE.
 
In March 2019, SEBI levied a penalty of Rs3 lakh on Pee Dee Kapur Stock & Securities for irregularities in client agreements and indulging in unauthorised margin funding by the broker.
 
When a broker decides to surrender or resign from membership of a bourse, he has to follow a specific procedure. This is because all his clients need to migrate their trading and demat accounts to another broker along with the release of any power of attorney (PoA) they may have signed or funds and securities held by the firm. So the exchange requires an exiting broker to obtain a no-objection certificate (NOC) from various departments of the exchange, which is done after ensuring that no money or securities are outstanding of clients.
 
"Since we make sure that there are no dues of the broker member towards any client, there is no question of any investor filing claims post the surrender or resignation of the broker from membership," says an NSE official.
 
"If the broker had decided to merge with another broker, we have an automated process, where all clients of the resigning member are moved to the other broker. In such cases, there is no change in the unique client code (UCC) for the investor-clients," he added. 
 
After completing all procedures, the broker's application is sent to the Securities and Exchange Board of India (SEBI), which decides whether to approve or reject it, says an official from the Exchange. NSE holds back a certain percentage from the deposit of the broker member until the formalities are completed. 
 
Investor Complaints against Brokers
 
As of 30 April 2022, NSE has received 665 complaints against 98 trading members. Out of these, the Exchange and its investor services cell (ISC) resolved 235 complaints. According to NSE data, 57 complaints are not maintainable, while 373 out of 665 complaints are still pending. In seven cases, the clients have filed for arbitration. However, all these cases are also pending.  
 
Penal Actions against Trading Members 
 
NSE says, as of 30 April 2022, it took penal action against 19 broker members by issuing orders for monetary penalties.
 
Moneylife has been writing about the sudden increase in broker defaults in the past three years, leading to thousands of investors losing big chunks of their savings. Our 'well-regulated capital market', which boasts multiple safeguards such as investor protection funds and settlement guarantee funds, has turned out to be a mirage. 
 
Last month, Sunness Capital India Pvt Ltd (Sunness Capital) became the 32nd defaulter broker since May 2019, to be expelled by the NSE. (Read: 32nd Broker Default in Just 3 Years as NSE Expels Sunness Capital)
 
Comments
rameshjrdhr5
3 years ago
Lack of integrety and responsibilty make SEBI and NSE white elephant.
Reply
kalemohan
3 years ago
KARVY GROUP is a fraudalant company.It is working with changing names always. Why SEBI isinactiveabout this company?is there any intimate relations between sebi officials and karvy officials?
Reply
kamalarangan
3 years ago
Sebi is tge most corrupt irganisation and like a typical govt office asking lot of figures frequently fir no purpose and sebi does nothing with the be chitranarayan case or scam at mutual fund .mutual fund us a big scam suppresed by sebi since sebi dealing with mutual fund in a friendly manner for obvious reasons it us high time a commitee should be appointed as to what are firms to be submitted only once a month and on between nothing should be asked brokers i find spending more time in observance of so called regulatory compliance instead of concentrating on seevices sebi is over staffed and large amounts are paid to employees since they collect on daily basis from brokers infact ifi am correct on each contract some amt goes to sebi officially and all suster organisations have been on revenue model making do collect money from individual shareholders all nonsense and horrible
Reply
saharaaj
3 years ago
compliance burden is crushing one man show establishment and is forcing them to become employee of corporate like in Agriculture small land holders becoming agri Labors ..Govt should examine the compliance burden not through file warriors but sending some to fields
Reply
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