NSE Cites SEBI Notification To Quash Anugrah Investors’ Plaints. What Does the Notification Say on Defaulters?
Several investors of Anugrah Stock & Broking Pvt Ltd are finding their arbitration complaints getting rejected by the National Stock Exchange (NSE). The reason? Many of the complaints are being quashed citing a notification issued on 1 July 2020 by the Securities and Exchange Board of India (SEBI). NSE is rejecting investor complaints stating that once the member is disabled or issued a show-cause notice (SCN) declaring a trading member (TM) or a clearing member (CM) a defaulter no further investor grievance redressal committee (IGRC) or arbitration meetings can be conducted.
 
In its reply to Anugrah investors, NSE says, “As the member has been disabled in all segments of the exchange vide Circular No.NSE/COMP/45536 dated 1 September 2020 and Circular No. NSE/COMP/45591 dated 4 September 2020, we are unable to take any arbitration application.”
 
However, during a webinar arranged by Moneylife Foundation on Wednesday evening, senior officials from NSE clarified that investors of Anugrah can continue to file their complaints with the Exchange. Nisha Subhash, head of NSE Investor Services say the Exchange is ready to share trading data with the investors, provided they can send an email to the NSE investor services cell (NISE).

The NSE team, including Ms Subhash, says that the Exchange will assess the assets of the defaulting broker and will settle claims of investors from the proceeds. Usually small amount claims are settled first. If there is not enough money to pay investors, then they can file claims to Investor Protection Fund (IPF).

For claiming investment from the IPF, the NSE officials say that they will send intimation and then investors need to file claim with the IPF. (For more details, investors can download Investor's guide to making a complaint form NSE website. Here is the link https://archives.nseindia.com/invest/resources/download/Investor_guide_complaint.pdf
 
Coming back to the SEBI notification which specifies a standard operating procedure (SOP) for defaults by a TM or a CM. Since NSE is rejecting investor complaints for arbitration, let us see what exactly does the SEBI notification say.
 
On 1 July 2020, the market regulator had notified the SOP in case of defaults by TM or CM. Earlier, SEBI had specified an early warning mechanism to prevent the diversion of a client’s securities and consequential actions to be initiated by the stock exchanges (SEs), clearing corporations (CCs), and depositories.
 
The SEBI notification says, "With the introduction of uniform membership structure of TM and CM across all segments, the TM shall make good the default of its clients to the CM and the CM shall make good the default of its clients to the CM and the CM shall make good the default the default of its clients / TM to the CC. 
 
“The default of TM may not necessarily lead to default of CM, if the CM continues to fulfil the settlement obligation with the CC. To protect the interest of non-defaulting clients of a TM and /or non-defaulting clients/ TM(s) of the CM, in the likely event of default by TM or CM, there is a need for SOP enumerating the steps to be taken by the SEs, CCs/ depositories in such cases where SE or CC is of the view that TM or CM is likely to default in repayment of funds or securities to its clients."
 
Apart from the early warning mechanism, the regulator has also mentioned certain other triggers for initiating actions, including when there is a shortage of funds or securities payable to the clients by Rs10 crore. Stock exchanges might have a different criterion in terms of the quantum, the regulator says.
 
The SOP lays down the actions to be initiated by the stock exchanges or clearing corporations or depositories within a time frame after detection of the early warning signals and certain other triggers, as per the notification.
 
The actions have to be initiated by the initiating stock exchange, stock exchanges, clearing corporations and depositories.
 
As per the notification, another trigger would be that a trading or a clearing member has failed to meet the settlement obligations. Also, sudden increase in the number of investor complaints against a trading or clearing member for non-payment of funds and or transfer of securities is included among the triggers.
 
It says, "When a show cause notice is issued for declaring a trading or clearing member as a defaulter by any exchange, its subsidiary and associate companies, which are also members on other segments, exchange or clearing corporation, should also be put in suspension mode. Further, all their open positions shall be squared off and their assets shall be frozen."
 
However, until the default proceedings are completed, the stock exchanges cannot expel a trading member, the SOP says.
 
With the introduction of a uniform membership structure of the trading member and clearing member across all segments, SEBI says a trading member should make good the default of its clients to the clearing member.
 
Also, a clearing member should make good the default of its clients or trading members to the clearing corporation, it added.
 
In August this year, NSE had withdrawn all trading rights of the crisis-hit Anugrah Stock and Broking. Earlier, on 1st September, the stock exchange had withdrawn Anugrah's trading rights in future & options (F&O), currency derivatives and the commodity derivatives segment.
 
In a circular, NSE says, "On account of the regulatory concerns observed, the relevant authority of the Exchange has decided to withdraw the trading rights of the member in all segments of the Exchange with immediate effect.
 
"Accordingly, in addition to the aforementioned segments, Anugrah Stock & Broking Pvt Ltd shall also be disabled in all other segments of the Exchange from 4 September 2020 before market hours."
 
Anugrah Stock and Broking, which secured a reprieve from the Securities Appellate Tribunal (SAT) on 17th August, was unable to deposit Rs165 crore with the NSE by 1st September. The Exchange then withdrew its trading rights and also seized its computers and books, the brokerage firm told investors thronging its office. 
 
Last month, NSE had shut down the derivatives business of Anugrah. However, when Anugrah approached the SAT in August after its derivatives business was shut down by the NSE, the Tribunal noted that it has been running an unauthorised derivatives advisory scheme (DAS), which collected over Rs165 crore through an associate firm call Om Shri Sai Investments (OSSI). That scheme, the order noted, was shut down in 2019.
 
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    COMMENTS

    s5rwav

    2 weeks ago

    Why NSE has Not Challenged the Constitutionality of SEBI Circular in Bombay High or at Supreme Court of India is Unanswered Question. I am Babubhai Vaghela from Ahmedabad. Thanks.

    i_sakarwala

    2 weeks ago

    Such is the state of Indian investors, Na Ghar Ka Na Ghat Ka......

    SEBI Move To Churn Mutual Fund Portfolios, Also Necessitates Review of Underlying Benchmarks, Says CRISIL
    The latest move by Securities and Exchange Board of India (SEBI) to usher in uniformity in categorisation of multi-cap equity funds augurs well for investors as it will make it easier for them to choose between and within categories, feels ratings agency CRISIL.
     
    One of the largest equity mutual fund categories, multi-cap funds had average assets under management (AUM) of Rs1.46 lakh crore as of August 2020.
     
    The regulator has modified the definition of the category and mandated market-capitalisation requirement to make the schemes more diversified. Fund houses have till January 2021, to comply with this change in market-capitalisation criteria for multi-cap funds.
     
    Piyush Gupta, director for funds research at CRISIL says, "In the short term, therefore, the regulator's move to make schemes true to their label could set the industry aflutter and result in merger, movement and new scheme launches."
     
    The ratings agency says its analysis shows mutual funds have the following options available to comply with this rule.
     
    Realigning the portfolio – Most multi-cap funds will have to sell off their large-cap investments to meet the new investment limits for mid- and small-cap stocks. This could result in about Rs41,000 crore of net outflows from large-caps and net inflows of around Rs13,000 crore and about Rs28,000 crore in mid-cap and small-cap segments respectively.
     
    "Finding that order of investments in lower caps could be uphill task for fund managers, especially given the illiquidity in the segment and the downbeat economic forecasts amid the Covid-19 pandemic," CRISIL says.
     
    Facilitate unitholders’ switch to other schemes – This has tax implications especially for investors with less than one-year holding period. Further, even for investors with a long-term investment horizon, capital gains of more than Rs1 lakh per year is subject to long-term capital gains tax.
     
    Merge multi-cap schemes with other category – A fund house can merge its multi-cap scheme with its large-cap scheme or convert its multi-cap scheme category to say large-cum-mid-cap scheme. 
     
    There are 35 multi-cap open ended schemes in the mutual fund industry and within those asset management companies (AMCs), 27 have large-cap schemes, while 26 have large- and mid-cap schemes in their portfolio. 
     
    Merging of schemes into other categories will, however, make their own multi-cap category offering vacant, requiring them to launch a new scheme as per the new provision – an option bereft of vintage and requiring time to build up scale in terms of assets and investor base.
     
    Nagarajan Narasimhan, senior director for research at CRISIL says, “Rebalancing of the scheme portfolio would also need review of existing benchmark indices to reflect the new market capitalisation requirement. This is because, currently, most broad-market indices are skewed towards large-cap stocks.”
     
    Meanwhile, the ratings agency says, there are calls within the industry to allow a flexi-cap category that can invest freely across market capitalisation. However, it says, whether the regulator obliges remains to be seen as there is already a focused fund category that allows flexible investments, albeit for a concentrated portfolio.
     
    "As for investors, it is important to wait and watch what their fund house does with its scheme and then make changes to their portfolios based on overall risk-return profile, taxation impact and investment horizon," the ratings agency concludes.
     
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    COMMENTS

    Ramesh Popat

    1 week ago

    bad and silly moves by SEBI, detrimental to investors.
    next one already declared. of NAV on fund realization!
    retail investors suffering in many such ways.

    COVID-impacted Economy, May See Gradual Recovery: RBI Governor
    The recovery of the economy reeling from the impact of COVID-19 pandemic will be gradual, Reserve Bank of India (RBI) Governor Shaktikanta Das said on Wednesday.
     
    Addressing the FICCI national executive committee meeting, the central bank chief said that the country is still reeling under the impact of COVID-19 and will gradually come back on normal growth path.
     
    He, however, said that things have considerably improved in the second quarter after adverse impact the pandemic had on economic activity in the first quarter.
     
    Citing World Bank assessment, Mr Das said that recovery globally would take a longer route as it is not fully entrenched.
     
    On its part, Mr Das said, RBI has persistently done large liquidity infusion and this has ensured large borrowing by the government at low rate and in non-disruptive manner. The liquidity infusion in other sectors have also worked well.
     
    Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.
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    COMMENTS

    soundararajanmk

    1 week ago

    SEBI is fully correct in capping large cap investment in their Multi-cap Funds. The dividend yield is very low and price to book value is very high in respect of large cap stocks, compared to mid cap shares. The abnormal investment in the investment of large caps is only causing violent fluctuation in stock prices besides violent volatility. It is nothing but authorised gambling at the cost of mid cap shares whose dividend yield is excellent besides the fact that their market price is very cheap compared to their book value. The orders of SEBI will now ensure fair trading and protect long time investors bringing faith in the stock market.

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