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C.R. Sukumar

HYDERABAD, June 4

FOLLOWING the recent findings and recommendations of the Joint Parliamentary Committee (JPC) on the securities market scam, the Securities and Exchange Board of India (SEBI) has directed all the stock exchanges to immediately amend the rules or articles of association pertaining to the Arbitration Committees to see that there were no stockbrokers on these committees.

The move, primarily aimed at ensuring no preferential treatment to the stockbrokers and also to provide impartiality to the common investors in the disputes resolving mechanism, assumes significance since there would be no stockbrokers now on the arbitration councils of stock exchanges, which were essentially meant for resolution of disputes between the investing public and various stock market intermediaries.

Apart from directing the stock exchanges to amend their articles of association within two months, the regulator has also advised the exchanges to reconstitute their arbitration councils within three months.

Currently, the articles of association of stock exchanges permit appointing not more than 40 per cent members of the Arbitration Committees with stockbrokers in terms of SEBI orders dated April 20, 1993 passed under Section 8 of the Securities Contract (Regulation) Act, 1956.

The balance 60 per cent of the members on these arbitration panels were required to be nominated from the persons other than members of the stock exchanges, however, with the prior approval of the market regulator.

In a recent communiqué to the Managing Directors and Executives Directors of stock exchanges, the SEBI General Manager, Mr P.K. Bindlish, said, "The Joint Parliamentary Committee (JPC) in relation to securities market scam has recommended in its report, vide recommendation no.14.60, that arbitration councils for resolution of disputes between the investors and the market intermediaries should be independent of market intermediaries, particularly the brokers."

Following this JPC recommendation, the market regulator has advised the stock exchanges to amend the provisions of the Rules or Articles of Association and bylaws of the stock exchanges so as to ensure that these arbitration panels consisted of only those persons other than stockbrokers. However, the stock exchanges would have to appoint these members on the arbitration councils only with the prior approval of the regulator.

"Accordingly, the exchanges are directed to make necessary amendments to the rules or Articles of Association/ bylaws for the implementation of the above decision within two months from the date of this circular. The exchanges are directed to reconstitute the arbitration committees/arbitration councils/arbitration panels for resolution of disputes between members and non-members, in the manner specified above, within a period of three months from the date of this circular with the approval of SEBI," the market regulator advised the exchanges.

However, aimed at ensuring that there was no delay in the disposal of arbitration proceedings that have already commenced, SEBI has advised the exchanges to continue the member arbitrators till the disposal of such proceedings.

The regulator has asked the exchange to ensure that the award in such cases was given within a period of three months from the date of SEBI circular.

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