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.
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