“INVESTOR PROTECTION GROUP” is a Non-Profit Association / group of investors that, out of which mostly have suffered/ suffering to the ambiguity in the directions / Circulars of SEBI / NSE and the one sided agreements and Illegal acts /Unauthorized Trading/ Organized Crime of Stock Brokers that goes unnoticed/ Overseen despite a series of regular, repeated, pattern of violations of Bye-laws, Guidelines of SEBI/NSE. Investors are being sacrificed and are paying the price of the Brokers not following the SEBI / NSE Rules and interestingly SEBI and NSE are silent on the same.
Not only the Stock Brokers are generating the huge Brokerages by doing discretionary trading in clients account ( eg- 500 Crores turnover, 200 crore turnover in single client’s account ) without any authorization / instructions of Client but are also involved in shifting the profit and losses in the clients accounts by way of Client Code Modification at the back end.
Please Join the association, and let’s Fight together to get justice for Poor Investors against the Powerful and influential stock broker and the government authorities sleeping on the issue to protect the small Investors.
Contact: sachin0702@yahoo.com
M - 8802229962
Sachin Bhardwaj
Honorary secretary
INVESTOR PROTECTION GROUP
A2 / 116, I Floor, Sector- 5, Rohini
Delhi -110085
Find attached the complaint to SEBI as an initiative to highlight the facts and to awaken them to take steps in order to rescue the Investors and regulate the Brokers who have been given free hand.
To,
The Regional Manager,
5th Floor, Bank of Baroda Building,
16, Sansad Marg, New Delhi,
SUBJECT: Drastic Immediate corrective measures / action required for the following to protect the interest of Investor in the Stock Market.
(a) Declaring the Clause no. 15, 16, of Clarification by NSE circular NSE/INSP/2010/91 dated 3 Feb 2010 declared null and Void “ab initio” as the same are one sided to provide benefits to broker and over rules the SEBI regulations / Guidelines made to protect the interest of Investor.
(b) To quash the illegal and one sided agreements/ contracts (Annexures P, P1) of Brokers as the same being wholly arbitrary, illegal, against SEBI regulation and ultra vires the provisions of the constitution of India and the same to be declared unfit for use in the Judicial forums to prevent the abuse of process of law.
(c) Failure of NSE in proper enforcement of SEBI Guidelines and the Byelaws in the practical as well as the arbitration / judicial process. Negligence of not maintaining records as per NSEIL Bye-Laws 3.4 Trade operation 3.4.1 is continuously carried out by Trading members along with the violation of NSEIL Bye-law 4.5.3 Trading Principles (h) whereby it is understood that the Trading Member are doing illegal Unauthorized discretionary trading in the constituent’s account without any written authorization.
(d) To issue guidelines that can serve as a reference manual for the judicial forums/ arbitrators, to assist them understand the practical aspects in dealing with complex unauthorized trading claims in arbitration in competence with the Arbitration reference manuals being followed internationally to fight with the organised white collar crime scenario being unnoticed in India.
Dear Sir / M’am,
Most Respectfully Showed:
1. That it is pertinent to mention here that the “Investor Protection Group” ( complainant) herein is an Association / group of investors that, out of which mostly have suffered/ suffering to the ambiguity in the directions of SEBI / NSE and the Illegal acts / Organised Crime of Trading member that goes unnoticed despite a series of regular, repeated , pattern of violations of Bye-laws, Guidelines of SEBI/NSE. It is further pertinent to mention here that the stock broker /trading member are getting benefit out of the circulars and directions issued by NSE as they are the author of the documents which are required to be signed by the clients at the time of registration and the stock brokers are allowed to make documents on their whims and fancy and without disclosing that document is voluntary and is not mandatory required to be filled by the client they obtain the signature of the client on the set of documents which in case of dispute bound the client as the client signed the same without doubting because it stated on the documents that the documents are as per Guidelines / Circular of SEBI / NSE. However, the same set of documents are not only violating the terms of SEBI/ NSE but are also against the statutory basic laws / unconstitutional.
2. That SEBI from time to time issued several circulars regarding the dealings with a client and a stock broker, one such circular is SEBI/MIRSD/DPS-1/Cir-31/2004 dated 26.08.2004 issued by the respondent no.1, wherein the respondent no.1 prescribed the uniform Model formats of the client registration form and broker client agreements. Respondent no.1 in the said circular provided the exact formats of documents to be signed between the client and the trading member. Here, the respondent no. 1 Allowed the stock exchanges / stock broker to incorporate any additional clauses in these documents provided these are not in conflict with any of the clauses in the model document, as also the Byelaws, circulars, and guidelines. But, instead of adding certain clauses the Brokers are creating / adding / deleting or making their own one sided agreements / clauses and the objective of having uniform formats is yet not achieved.
The formats issued by NSE for Non - Mandatory documents is suggestive - and States that - Please Note that all Document in Docket B are Voluntary in nature and Need to be signed and executed by the client as per their need and if they want to avail the service / facility. Format given are of Indicative nature and can vary as per the requirements and needs.
What is the need and importance of providing “ indicative nature of formats” , It only indicates that the additional leverage is given to brokers to create / make/ amend the documents as per their choice on their whims and fancy and the purpose of having structured / uniform formats is defeated. Every broker is having his own set of documents and each one not stating it Voluntary as per SEBI Norms. Carelessly NSE has kept one end loosened for brokers to create the documents favoring them. Amongst all Misuse of Non-Mandatory document is the most abused and the most fatal parameter in protecting the interest of Investor.
3. That NSE issued circular no. NSE/INSP/2006/52, dated 05.07.2006 stating that non-mandatory documents are required to be shown in bold as voluntary document. Ever since the clause is made it is continuously abused by the Brokers and taking the signatures on all the voluntary pages stating it to be mandatory has become the habit of Share brokers. Some of Such formats of Stock Broker is annexed herewith as Annexure P, P-1,P6,P7, which clearly shows that the guidelines issued by SEBI / NSE is not followed by the trading members even after 5 years and despite the fact that it is in full knowledge of NSE, it does not take any strict action against the said brokers deliberately to protect the broker’s interest.
4. That further more SEBI issued circular no. MIRSD/SE/Cir-19/2009 dated 03.12.2009 wherein the respondent no.1 prescribed that the format of client and trading member agreement and client registration procedure should have two sets of documents mandatory and non-mandatory all listed and contained in a Booklet / folder. It was further prescribed by SEBI and the dead line fixed for implementing the said circular was latest by 31.03.2010. Surprisingly SEBI extended the time limit for Brokers from 31.03.2010 to 30.06.2010 stating that as the market participants are facing difficulties in implementation, they in consultation with major stock Exchanges decided to extend the time limit by three months. The end of circular says- this circular is issued to protect the interest of investors in Securities. Whereas this step of delaying the implementation was only in favor of the Brokers and not investors.
5. That in contradiction of the aforesaid circular NSE issued a clarification via circular no NSE/INSP/2010/91 dated 03.02.2010 where it can be clearly seen that certain Critical clauses of the guidelines of SEBI is over ruled by the circular of the NSE. NSE further amended the original guidelines issued by SEBI in respect of the dispatch/ delivery of the documents by the trading member to the client. In earlier circular it was the clear direction of the respondent no.1 that the executed documents between the trading member and client are required to be given to the client and acknowledgement should be taken for same. However, in the present circular of the respondent no.2 in point no 15 again enacted new clause in variance of earlier clause against the interest of the investor and as under:-
“ In case of Internet Trading Clients, if documents are made available to the client through secured access electronically the trading member may not send physical documents.”
6. That further more in Point no 16 NSE once again provided leverage to the trading members by inserting the following clause:-
“Trading members having their own website shall display the set of standard documents on the website for information”
The language of above clause clearly shows that the direction of NSE are totally biased towards the trading member and against the investor. As per earlier circular by SEBI the documents which are required to be dispatched / delivered with proof of delivery are exempted and merely it is mentioned that only the standard document will be shown at the website of the trading member. It is pertinent to mention here that the definition of the standard document is not given by the respondent no.2 deliberately to allow the trading member to upload or not to upload whatsoever document the trading member’s wish in their own interest and the regulatory directions given by SEBI in this regard were overridden to the effect that investors are left totally unprotected & entirely on discretion of trading member to provide the client his choice of documents.
7. That further, as per NSE/INSP/2008/67 dated june 23, 2008, all the Clients (normal and Online both) had the right to get a copy of all the documents signed by him and executed by broker but now as per the clarification of circular referred above if he is an on-line customer he loses the right to get executed documents in physical form. And he can have only standard documents on the website and the best part is that Brokers himself can define standard documents.
8. That impact of chain of circulars / guidelines and its clarifications can be seen that if client needs an account, the client is made to sign all the documents by Stock Brokers stating to be mandatory (since the declaration Voluntary is absent on documents). By signing all the documents, he automatically becomes an on line client. By becoming on line client, trading member is not bound to provide a copy of executed document. Trading member is only required to upload “Standard documents” on his own website for which he himself is having full control on adding or deleting documents any time. Moreover, Trading member can define standard document himself as the definition of ‘standard documents’ is deliberately not given in the circular. Now the client is left with no proof of documents that he has signed to be executed. Moreover, the rules that were somewhat binding on Trading members (on papers) have now been made optional for trading members to follow.
9. That, In the light of the above facts, the Clause no. 15 & 16, of Clarification by NSE circular dated 3 Feb 2010 Over ruled the SEBI guidelines and hence should be declared null and void “ab innitio” to safeguard the interest of Investor.
10. That the investors are getting slaughtered and the same in the knowledge NSE as majority of the matters are listed in the NSE Arbitration / ISC where it can be clearly seen the violations carried out by brokers but the same remain unnoticed. Only the persons who are powerful /influential are being heard. NSE is rather providing cushion to the brokers by issuing clarification of circulars, issuing formats that are only indicative / suggestive (not binding) , and plotting the loopholes in the system. It is the common practice that the brokers are drafting the set of documents in such a manner that the language in case of ambiguity between the broker and the client will usually be in favor of the brokers and SEBI should take strict action against brokers as it is empowered by the Act of 1992 to take action.
11. That It can be clearly seen in NSE circular no NSE/INSP/2010/92 dated 15 February 2010, that NSE in case of non compliance only levy small financial penalty on the trading members starting from 500/- onwards. The list clearly indicates that they know what are the the most violated provision of Act and what all violations are carried out regularly by the Trading members. Instead of aiming towards making a fool proof system they have been successful in made a mechanism of covering up the faults of broker by just levying a penalty that starts with 500/- onwards at the cost of poor Investor. Now Every fault/ illegal act of Stock Broker is mere an irregularity (No matter how Serious the fault is) and can be set off / regularized by paying a small fee without providing any relief to investor. It is interesting to note that certain provisions have been almost always violated since inception but NSE is careless and insensitive towards the implementation of Byelaws, guidelines for the effective protection of interest of investor and instead of enforcing it properly, is happily seeing this happen by merely levying certain fine/ penalty.
12. That Unauthorized Trading is becoming a regular practice by the trading member because they know how to take the advantage of the loop holes of the system that still remain loosened by Exchanges and because of lack of proper enforcement of SEBI Guidelines / Bye-laws in the NSE ISC/ arbitration / Judicial process. Successful implementation of one Basic byelaws can sort at least 80% of the cases of unauthorized trading 3.4 Trade operation 3.4.1 (Trading Members shall ensure that appropriate confirmed order instructions are obtained from the constitutes before placement of an order on the system and shall keep relevant records or documents of the same and of completion or otherwise of these orders thereof.) This can serve as the basis to check all the illegal trades executed on the terminal. Proper enforcement of this clause by the trading members / Exchange / arbitration will redress 80% of the complaints of unauthorized trading complaints and should be ensured that it is not overseen under any circumstances in the process of law. It is observed that rarely arbitrators exercise this clause (e.g. Arbitration Matter - CM/M-0066/2010 Between Mrs. Sarojben V. Patel and Karvey Stock Broking Ltd. dated 29 Nov 2010) and awarded in favor of investor rest others oversee it or remain ignorant or silent about this. It is again to mention that it is not optional for the brokers to keep the record of order placement but is a binding condition of the NSE Bye-Law. Client cannot be made to suffer for the wrong’s of broker failing to keep the mandatory Records of order placement as stated by NSE Bye-law. The reason for not able to provide order placement record is that the employee of trading member is involved in the discretionary trading in client’s account without taking any written authorization.
This NSE Bye-Law is framed in accordance with the trading principle to prevent the misuse of member exercising discretionary power without the written authorization by client as : 4.5.3 Trading Principles (h) No Trading Member shall exercise any discretionary power in a constituent’s account unless such constituent has given prior written authorization to a stated individual or individuals and the account has been accepted by the Trading Member, as evidenced in writing by the Trading Member.
The brokers are habitual of ignoring the basic rule of keeping the relevant records of placement of
order and are still managing to taking the advantage of the loop holes of the system that remain
loosened by Exchanges in deliberate attempt to provide them benefits .
13. That It has also been observed that All the Major / Big Trading Members are using voice loggers to record the orders being placed by Client in the trading hours (from 9.00 AM to 3.30 Pm) for the clients who have opted for verbal order placement facility. They also use them for providing misleading summary in the form of evening confirmations after the trade hours. However, quite surprisingly, it is observed that they take an excuse in arbitration that the voice recording is optional and they are able to retrieve some selected recordings of evening confirmation whereby the information was provided to the client. It is interesting to note that such technical information at times are provided to the anyone available (mother, sister, father) and the same is used to mislead / the arbitration / Judicial Process. Whereas, It is important to highlight that it is mainly used to hide the reality that discretionary trading is being carried out by the Broker itself in the client’s account. This activity of mere providing incomplete information cannot be considered as a replacement of proof of placing orders or as a proof that the client has done trading himself. ON the Contrary, the fact is that the only reason that the broker is not able to produce the order placement recording is because he himself has carried out discretionary trading in clients account as it is clear that there is no voice logger that stops working from 9.00 am to 3.30 Pm and again starts recording in the evening (After Trading hour). There are many case which have been reported on the same pattern and an immediate circular should be sent to the Exchanges on the clarity of the subject and how the clients may get cheated. On the lines of Master circular 17 Dec 2010. This form of Planned Illegal Discretionary trading started 15-20 years before in other countries but till date in India we do not have a system to understand the games played by Brokers and how they mislead the arbitration tribunals. (Pls. refer Annexure P5 - page 18 - UNAUTHORIZED TRADING CLAIMS IN ARBITRATION). It may be noted that the manual states the crime that used to happen in 1994 in other countries, India do not have any such means and measures/ reference manual to understand / probe such illegal activities done by the Brokers even after 18 years.
14. That it is observed that not only the the company is generating the huge Brokerages by doing discretionary trading in clients account ( eg- 500 Crores turnover, 200 crore turnover in single client’s account ) without the written authorization and instructions of Client but are also involved in shifting the profit and losses in the clients accounts by way of Client Code Modification at the back end.
This Organised crime is conducted in such a beautiful manner that the client falls in the trap of Company and before he could understand anything all the losses are transferred / incurred in the clients account and all the money in stocks is taken away by the Stock broker. The same was highlighted by Tax department to SEBI that the profit and loss shifting is happening in the clients account but the client’s not having the access to the backend process can not understand the game that has been played from behind. NSE is directly responsible for the carelessness in inspection of Brokers and to check this activity but are neglecting their duties and is avoiding to do the investigation of the cases even highlighted to them. E.g The contract Note (F & O) dated 30/04/10 is false / Tempered /forged document and there is a serious discrepancy / manipulation or modification that the order time and order number are not in ascending order which is sufficient to prove that a big Scam that is going on at the back end in the company that remains unnoticed. (Annexure – P2). E.g - One order number 01509609 as stated is having two order time 11:43:51 and 11:46:13 which is not possible and Order captured at 14:45:54 should be less than order captured at 14:46:47 etc.
15. That the Hon’ble Supreme Court of India in the matter of SEBI Vs. Shri Ram Mutual Fund [2006] 68 SCL 216(SC) held that “once the violation of statutory regulations is established, imposition of penalty becomes sine qua non of violation and the intention of parties committing such violation becomes totally irrelevant. Once the contravention is established, then the penalty is to follow.” And futher under Section 15HA of the SEBI Act which states as under :- Penalty for fraudulent and unfair trade practices. 15 HA. - “If any person indulges in fraudulent and unfair trade practices relating to securities, he shall be liable to a penalty of twenty-five crore rupees or three times the amount of profits made out of such practice, whichever is higher.
16. That despite having strict provisions for initiating criminal action for the fraudulent activity or strict penalty of up to 25 Crores or more, nothing much is seen against the Big brokers. Just to show their existance, at times action is taken only against small Brokers and leave the Big Brokers just by putting fine / penalties starting with 500and in contrary to a clause whereby it is required to impose penalty of up to 25 crore or above. Can we understand that till date no Stock broker has violated the term so that clause could be implemented?
17. That Modus operandi of the brokers begins by taking the customer’s blank signature on almost all the pages in Registration booklet containing 60-70 pages without explaining the importance and relevance. Despite SEBI’s instructions, copy of account opening form / authorizations / agreements is not provided to clients so that they do not know what all documents they have got signed.
18. That SEBI has made it mandatory for the brokerage firms to collect income proof documents from all their clients before allowing them to trade in derivatives segment of the market and it the the responsibility of the Broker to “Know Your Client” before registering him . It can be observed that the Income proof are accepted carelessly, even for the person who does not have an income are forced / diverted into the Derivative segment and to justify the same even a Bank statement of Loan against shares account is also shown as a valid income proof, contrary that it is a Loan account and can nowhere be considered as a income statement of client from any perspective. In cases of discrepancies or the income profile not matching with the investment portfolio, the brokers are supposed to immediately inform the regulator but they themselves are trapping the clients into the segment that does not suit them. Eg- Annexure P4 shows that the opening balance in the account is 19 Lacs debit in the Loan Against Shares account that is mischievously being considered as a proof of Income documents by trading member.. Similar Instance happened in Citibank Fraud case that was investigated by SEBI and found that Mr. Puri diverted his clients' money into derivatives market where Religare and Bonanza were also involved. It is important to note that it is the small Investor that remains unheard.
19. That They start by taking signatures on an illegal documents & by inserting certain additional pages in Booklet which is an external document, not even a part of list of Mandatory and Non-mandatory documents in the Account Opening Booklet, as per SEBI circular no dated 3 December 2009, and hence is void. Annexure P
SEBI should declare the illegal document Annexure P as void ‘ab innitio’ and terminate it for all the clients (Old and New) with immediate effect as the same is not only in contradiction to the rules and regulations of SEBI but also ultra vires the provisions of Indian constitution and is unfit for using in the Judicial matters for misleading the Court.
20. That the trading member have also made certain one sided clauses in additional Contracts / agreements for which the complainant requests to quash the same as being wholly arbitrary, illegal against SEBI regulation and ultra vires the provisions of the constitution of India. Eg- Contract between Religare and Client, Memorandum of understanding, Disclosure for Derivative/ Financial, Verbal order acceptance, etc, Annexure P1. These Illegal documents are regularly produced by Brokers before different judicial forums but remain unnoticed by SEBI / NSE to be declared unfit for using in the Judicial / arbitration matters. All this is done with malafied intentions and sole objective to defraud the clients. The agreements which are outside the scope of SEBI / NSE are brought forward to Hon’ Arbitration Tribunal for misleading them. However, the investors being laymen to these regulations does not understand these technicalities and becomes prey to the laid down trap of Brokers.
21. One example of misuse of illegal Clause used by Broker in Judiciary / arbitration in Contract between Broker and Client Annexure P1, clause 7, is –
“It is clearly understood and agreed to by client that no service / facility in the nature of Portfolio Management /advisory Services etc. are contemplated under the agreement(s) and contract between the client and Religare. No person working for or under, Religare whether Dealer, Relationship Manager, Subbroker or authorized person is permitted to provide any services / Facilities except that of order placement in trading system ( subject to Limitations stated above) Upon directions of client. If the client accepts any portfolio Management Services / advises / discretionary trading arrangement / facility from any person including but not limited to dealer, Relationship Manager, Sub-broker or authorized person then in that event Religare shall in no way be responsible for the outcome of such services/ facilities accepted by client, and the relationship of client with any person including with any dealer, relationship manager, subbroker or authorized person shall be personal, mutual and private relationship between the client and such person(s) including dealer, relationship manager, sub-broker or authorized person, sub-broker or authorized person and client shall have no recourse / right against Religare what so ever either in law or equity”.
22. That It is an Unconstitutional clause whereby Company is very cleverly stating that the arrangement between their employee and the investor shall be personal and mutual and the Company can not be liable for this. This confirms the malafied intentions of the company that they themselves are involved behind the curtain and promoting this illegal act of asking their employees to enter into personal agreements with Investor and doing the illegal trading in the name of portfolio Management at the same time showing to be ignorant what their employees are doing. This illegal clause is quoted regularly in the NSE Arbitration to mislead the Tribunal and no action is being taken. It clearly goes against the SEBI regulations that “Relationship managers can not act as portfolio managers by entering into verbal agreement with clients for trading on their behalf”.
It is also against SEBI Act 27. (1) Where an offence under this Act has been committed by a company, every person who at the time the offence was committed was in charge of, and was responsible to, the company for the conduct of the business of the company, as well as the company,
shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly.
(2) - Notwithstanding anything contained in sub-section (1), where an offence under this Act has been committed by a company and it is proved that the offence has been committed with the consent or connivance of, or is attributable to any neglect on the part of, any director, manager, secretary or other officer of the company, such director, manager, secretary or other officer shall also be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly.
23. An organized crime / conspiracy is being played by Brokers in such a beautiful manner that before a Client could understand the broker does the job of generating huge Brokerage without coming in picture and the importance of this clause is so much for the company that, when SEBI stated the agreement against their byelaws, they removed this agreement from Booklet but again entered the same clause in some different language meaning the same in the name of Memorandum of Understanding (in Booklet attached ) to misuse the illegal agreement and mislead / abuse the process of law in the judicial forums & arbitration.
24. That it is important to note that these alleged one sided illegal documents / Agreements / are being used in their own interest by the Stock Brokers in misleading / influencing different levels of judicial processes / Tribunal to get the awards / judgment in their favor. They repeatedly furnish wrong / malicious / willful and false information not only to the investor but also to the various law enforcement agencies like SEBI, NSE,MCX and BSE to keep them in dark. It is clear that allowing the Trading Member to make their own agreements /authorizations allows the broker to create / manipulate the clauses in its own interest, resulting in misuse of system, being a regulator SEBI should ensure that the formats specified and approved by SEBI and in the Booklet should only be used to get it signed by Client and the Trading member should not be allowed to do any alteration / modifications in it.
25. That SEBI should terminate the agreements / Authorizations /that have been done by the Brokers with the objective to defraud the investor and fresh documents should be filled by the customer without violation of SEBI norms. Lacks of innocent investors have signed these documents and are becoming / waiting to become prey to the trap of Brokers any day.
26. That all this have been explained to bring to your notice that illegal activities are being carried out by the Stock brokers under the umbrella / shelter of NSE. The names of SEBI / NSE are used for generating the trust and taking the signatures of client on the illegal documents which violates the guidelines issued by SEBI. It is quite strange to understand that the same remains unnoticed by NSE for years despite all the grievances addressed at NSE and the grievance redressal mechanism at NSE is a Big “LIE”. Investor Services Cell is a totally ineffective department that only adds to the grievances of client by killing the time in arranging the meeting with broker and trying to portray that they are arranging the required documents / Information for investor and in the end guides the way to arbitration after successfully making client wait for months of time and showing inability that rest of documents will be arranged by Arbitrator. Now, the Arbitration Dept. does not provide the documents until the Arbitrator order them. More than a year has been spent in collecting the information / documents and is still in process till date. eg- Annexure P3. The role of NSE is limited to that of Post Office for client and acts as a service provider to Trading member whereby it provides them the information from Client but they dare not to take any action against the Trading member if they do not supply required information and it is on the mercy of the Trading member that what all information it wants to provide or not. Carelessly, It does not investigate/ verify the facts even when the False/ Fabricated / modified Documents are provided by the trading member and brought to notice Annexure P8 (CD). To add further NSE too had failed in its responsibility / discharge of various obligations towards clients, as they themselves do not provide the certain information and gave a deaf ear to repeated requests and keeps it pending for months and never respond or write. It may also be noted that Exchanges are not conducting the inspection of the trading members as per “Master Circular on Oversight of Members” and hence is directly / indirectly responsible for Deficiency in service and the loss occurred to the investor.
27. Due to lack of documents / information clients are not able to understand / know about the client code modification (if any) in their account, Exchange does not help in getting relevant documents and hence files the case in arbitration without complete documents and again asks for the documents to be supplied in arbitration thus wasting everyone’s time in repetition of the process.
28. Efforts made to educate the investor are appreciated but it is equally important to equip the judicial process / Arbitrators to know, understand and appreciate the SEBI Regulations and bye-laws which otherwise in on their discretion, so that the innocent investors may be rescued from the trap of Trading member and justice is done. It is important that some practical knowledge should also be given to the Arbitrators by organizing special workshops for them and helping them to understand the process of Stock Market. It is important to mention that arbitrators fail to understand that a long time Investor cannot start to do heavy F&O trades overnight and these trades can be easily seen by observing the pattern of trading whereby it is done with sole objective to earn more brokerage (churning) which any person with exposure in the market can tell. White collar Organized crime (comprising of highly technical subject of Stock market - Cash, F&O, commodity and SEBI Regulations) is a new subject in India and can not be simply dealt without providing SEBI Training workshops and practical knowledge to the Arbitrators / Judiciary.
29. That the illegal transactions are carried out by the Stock Brokers are in clients account without their instructions involving any / all of the activities of Client code modification, Criminal misappropriation, providing false / fake / forged documents (Contract notes /Order file / Trade file, Margin statement, Statement of holding etc.) to the investors violating SEBI Regulations, and byelaws, guidelines of SEBI (Prohibition of Fraudulent and Unfair trade practice relating to Securities Markets) Regulations. Being a trading member of Exchange and Registered Intermediaries of SEBI he is duty bound to follow Rules, Regulation and Bye Laws, during normal course of his business.
30. That the clients i.e. public at-large are being subject to a organized crime / fraud by the stock broker by taking the signature on all Mandatory and non - mandatory documents and additional documents and not providing copy of the documents despite that SEBI has Instructed Exchanges / Trading members vide SEBI Master circular SEBI/MIRSD/Master Cir-04/201, March 17, 2010. Additional documents are not having the mention of (VOLUNTARY) in Bold mentioned in NSE circular (NSE / INSP/ 2006/52). Once the broker are allowed, they add, delete and create one sided clauses in agreements and compel the client to sign the conditions that are one sided. It defeats the purpose of the Uniformity. Firstly, SEBI allows the additions, and later, on receiving complaints on misuse of the clauses issues circulars for those violations But in this process the investors who signed such illegal documents finds no relief. It is important for SEBI / NSE to answser why they do not make fool proof Systems and leave the ends open for Brokers to encash upon.
31. The existing rules and regulations are sufficient but not effective unless proper guidelines are issued to the arbitrators / judicial Forum to refer / follow as it is observed that Trading Member conducts major violations but simply gets out of any critical situation stating that it was merely an irregularity observed in SEBI rule no matter how important Bye law he has violated and is compensated by the investor to pay the price for the violations carried out by the trading member. It is duty of SEBI To protect the interests of investors in securities and to regulate the securities markets, by adopting the best practices followed worldwide and to take immediate corrective steps against this malpractice before it is too late. Also issue a circular highlighting the irregularities observed in the Stock brokers / trading members in context to Unauthorized Trading, that can serve as a reference Guide / manual for the judicial matters as well ( International Reference Manual Annexure 3 –WHEN AN ORDER IS AN ORDER?)
In SEBI vs AJAY AGGARWAL (Supra) the Supreme Court noted that the SEBI Act “is pre-eminently a social welfare legislation seeking to protect the interests of common men who are small investors”. In light of the above we request SEBI to kindly take Proactive measures rather than Reactive measures (after everything is done) and take immediate steps to check the Illegal activities in the interest of “Protection of Investors” and to take immediate drastic steps in helping the victims and dealing with this kind of organized White Collar crime that still remain unnoticed by all and also to conduct an enquiry for the same and take stringent action (Civil & Criminal) against the defaulters.
Thanking you,
For INVESTOR PROTECTION GROUP
Sachin Bhardwaj
Honorary secretary
A2 / 116, I Floor, Sector- 5, Rohini
Delhi -110085
CC.: 1. The Department Head, Securities and Exchange Board of India, Plot No.C4-A,'G' Block, Bandra Kurla Complex, Bandra(East), Mumbai 400051, sebi@sebi.gov.in
2. Mr. V.S. Sundaresan, General Manager, Mumbai , sebi@sebi.gov.in
3. Deputy General Manager, Market Intermediary Regulation and Supervision Department biranchins@sebi.gov.in
