The Hindu Business Line : SEBI proposals: Brokers air key concerns

Kolkata, April 1 SEBI’s proposed policy for improvement in sales practices by the brokerages has fetched qualified responses in terms of spirit and reservations against certain details.

The broking and analyst community feels that SEBI needs to define some of the concepts and in some places mention specific quantitative numbers or change the emphasis.

According to Mr Vijay Murmuria, President of Association of National Stock Exchanges Members of India (ANMI), the concept such as “excessive trading” and “risk appetite” needs to be defined and marked out clearly in terms of numbers, lest an element of subjectivity creeps in and creates confusion.

Mr Arun Kejriwal, an independent analyst, agreed that conceptually risk profiling or understanding risk appetite or having a benchmark for excessive trading are good, but these required quantification in terms of numbers in relation to an individual and also market time.

The ANMI President felt that the emphasis on “financial standing” for an introducer of a retail investor was misplaced. “When client’s PAN Card, I-T return/proof residence are insisted upon, the financial standing of the introducer is uncalled for, as he is not being asked to stand as a guarantor. Mention of an introducer’s social or professional standing (with some recognisable identification) may be in order,” the ANMI chief felt.

The head of equity division of an large brokerage with national presence and with substantial retail clientele felt that getting an introducer ready to declare his/her financial standing might be very difficult, if not altogether impossible.

Mr Kejriwal was of the opinion that why an individual would like to dilute his/her right to privacy for introducing an investor. “This proposition is not realistic as no introducer is likely to come forward as the cost of this personal declaration. On the contrary, there could emerge a breed of introducers, who would do this job for a payment.”

Regarding retail investor’s networth, the ANMI president felt, the proposed guidelines need to be re-looked. Accepting the SEBI suggestion that clients might be required to have certain minimum amount of networth (e.g Rs 5 lakh) for trading in the derivative segment, ANMI appears to have doubts whether a client’s balance sheet would reveal his or her true networth all the time.

The ANMI President said: “We are studying the SEBI proposal and would soon send in our appropriate response to the regulator.”

Mr Kejriwal felt that for derivatives trading a system of mandatory certification could be introduced to avoid mis-selling such products. He also felt that it was worth revisiting definition of an analyst and a journalist recommending buy and sale.

A few analysts at broking firms felt the SEBI prescribed timeframe for purchase or sale by an analyst should be reviewed in view of fairness. SEBI said no research analyst might buy or sell any security that he or she follows or derivative of such security, for a period beginning 30 calendar days before and five calendar days after the publication of a research report concerning the stock.