One More Broker Defaults under SEBI's 'Stern' Watch
Moneylife Digital Team 14 November 2024
Even as investor clients of defaulter brokers are struggling to get their money back, one more broker has defaulted. BSE declared its trading member (broker) Maxgrowth Capital Pvt Ltd has been declared a defaulter for violating several rules and regulations. 
 
"Investors having any outstanding claims against Maxgrowth Capital are advised to file their claims with the Exchange, if they so desire, within one year from the date of issue of this notice (specified period), and no claims filed after one year will be entertained by the Exchange against the above defaulter member and it shall be deemed that no such claims exist against the defaulter member or such claims, if any, shall be deemed to have been waived. The claims filed against the above defaulter member will be dealt as per the norms for eligibility of claims for compensation from Investors Protection Fund (IPF) to the clients of the defaulter member," BSE says in the public notice issued on 25 October 2024.
 
Moneylife has been writing about the sudden increase in broker defaults since 2019, leading to thousands of investors losing big chunks of their savings. While most of the earlier defaults happened on the National Stock Exchange (NSE) first, this one, after a considerable gap, is on the BSE. 
 
In fact, this is perhaps the first big broker default after the market regulator tightened the rules to ensure better compliance and reporting systems.
 
After a spate of 32 defaults,  especially Karvy Stock Brokers, Madhavi Puri Buch, chairperson of the Securities and Exchange Board of India (SEBI), had declared, "There will not be another Karvy issue in our capital markets... If another Karvy-like instance happens, it will be on our dead bodies..." 
 
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 in the derivatives market leading to losses. 
 
Karvy Stock Broking banned by SEBI for defaulting clients for around Rs2,000 crore, was banned in 2019 and has been the biggest broker default in India. The handling of Karvy and the long rope given to the promoter, who operated several market intermediary companies was a poor reflection on the supervision and oversight by all market infrastructure institutions as well as the regulator. The other major defaults include Modex International Securities, Anugrah Stock and Broking Pvt Ltd, Karvy Stock Broking, BMA Wealth Creators and Fairwealth Securities.
 
NSE expelled four brokers in 2019, 14 in 2020, ten in 2021 and four in the first four months of 2022, taking the total number of brokers who defaulted and were expelled by NSE to 32. Earlier in August, taking stern action for failing to meet regulatory requirements, SEBI cancelled the registration of 39 stockbrokers and seven commodity brokers. Further, SEBI cancelled the registration of 22 depository participants (DPs) who are no longer affiliated with any depository. Punjab and Maharashtra Co-Operative (PMC) Bank Ltd and Arcadia Share and Stockbrokers Pvt Ltd are among the DPs whose registration has been cancelled by SEBI. 
 
SEBI issued three separate orders, one for stockbrokers, one for commodity brokers and the last one for DPs. It says the main reason for cancelling the registration certificate of these entities is to prevent them from misusing their SEBI registration without being an active participant of a depository or a member of a recognised stock exchange, thereby protecting unaware investors.
 
 
You may also want to read…
 
 
 
 
 
 
Comments
kalkrish
1 year ago
This is what happens when people who get fat salaries and are supposed to keep a close eye, sleep in their air conditioned rooms. Everyday, the market is suddenly brought down a gang and yet SEBI is least bothered to find out the culprits
Free Helpline
Legal Credit
Feedback