CHAPTER 4 RECENT SCENARIOS OF STOCK BROKING FIRMS

CHAPTER 4 RECENT SCENARIOS OF STOCK BROKING FIRMS

RECENT SCENARIOS OF STOCK BROKING FIRMS In this chapter recent scenario of stock broking firm is discussed with various aspects like total branch offices of selected firms in the area of study, Redressal of Investors Grievances, Share of Brokers, Securities and Participants in Cash Market Turnover, number of Register Stock Brokers, Number of Members Registered in Currency Derivatives Segment and in Equity Derivatives Segment, Registration of Sub-brokers and Investigation Initiated against Stock Brokers. Branch Offices of Companies under area study for the collection of primary data Table no. 4. Serial no. Indiabulls securities India Infoline Reliance Money. Amritsar Abohar Amritsar 2. Ludhiana Amritsar Jalandhar. Pathankot Bhatinda Ludhiana 4. Patiala Ferozpur Patiala 5. Jalandhar 6. Khanna 7. Ludhiana 8. Mansa 9. Mohali Muktsar

. Nabha 2. Nawasahahr. Pathankot 4 Patiala 5. Phagwara 6. Sangrur These three companies Indiabulls securities ltd, India Infoline Ltd. and Reliance money have branches in different cities of Punjab. Indiabulls securities ltd has branches in 4 cities of Punjab like Amritsar, Ludhiana, Pathankot and Patiala. India Infoline ltd has branches in 6 cities of Punjab like Abohar, Amritsar, Bhatinda, Ferozpur, Jalandhar, Khanna, Ludhiana, Mansa, Mohali, Muktsar, Nabha, Nawasahahr, Pathankot, Patiala, Phagwara, and Sangrur. Reliance Money has branches in 4 cities of Punjab like Amritsar, Jalandhar, Ludhiana, and Patiala. This data indicates that India Infoline ltd had maximum branches in Punjab. Other two companies Indiabulls securities ltd and Reliance money have less office branches in Punjab but these companies used more franchise system rather than company branch offices. 4.2 Redressal of Investors Grievances: SEBI has in place a comprehensive mechanism to facilitate redressal of grievances against intermediaries registered by it and against companies whose securities are listed or proposed to be listed on stock companies and are continuously monitored. The company is required to respond in prescribed standard format in the form of Action Taken Report (ATR). Upon the receipt of ATR the status of grievances is updated. Where the response of the company is insufficient/inadequate, follow up action is initiated. Grievances pertaining to brokers and depository participants are taken up with concerned stock exchange and depository for redressal and monitored

through periodic report obtained from the stock exchanges and depositories. Grievances pertaining to other intermediaries are taken up with them directly for redressal. During 29-, SEBI received 2,5 grievances from investors and resolved 42,742 grievances as compared to 57,58 grievances received and 75,989 grievances resolved in 28-9. As on March, 2 there were, 6,59 grievances pending resolution as compared to, 7, unresolved grievances as on March, 29. These include, 22,7 complaints where appropriate regulatory actions have been initiated. Status of Investor Grievances Received and Redressed Table-4.2 Grievances Received Grievances Redressed Pending Grievances Cumulative Year Year-wise Cumulative Year-wise Cumulative Action Initiated* Pending 27-8 54,9 26,6,98,676 24,27,57,,54 56,55 28-9 57,58 26,74,56 75,989 25,,56,2,887 49, 29-2,5 27,6,895 42,742 25,46,2,22,7 7,88 Types of investors grievances received and redressed, as on March, 2, are given in the Table 4.2 and type-wise status of grievances awaiting Redressal is provided in Table 4.22 Type-wise Status Grievances Awaiting Redressal Table 4.22

Type Particulars Pending as on March, 28 Pending as on March, 29 Pending as on March, 2 I to V Complaint against listed companies 6,648 8,498 7,755 VI VII VIII Non Receipt of Investment & Returns thereon (CIS) Mutual Funds, Venture Capital Funds, Foreign Venture Capital Funds, Portfolio Managers, FIIs, Custodians etc. Brokers, Sub-brokers, Merchant Bankers, Debenture Trustees, Registrar and Transfer Agents, Bankers to Issue, Underwriters, Credit Rating Agencies, Depository Participants, etc.,9,76,9,2,9.7,766, 669, 974 5,9 8,62 9,879 IX X XI Stock Exchanges, Clearing and Settlement Organisations, Depositories etc. Derivative Exchanges and related organisations etc. Corporate Governance, Restructuring, Substantial Acquisition and Takeovers, Buyback, Delisting, Compliance with Listing Conditions etc. 264 258 29 24 24 2,52 2,828,7 Total no. of Grievances Awaiting Redressal,89,49,7,,6,59* 4. Share of Brokers, Securities and Participants in Cash Market Turnover: Share of top brokers in annual cash market turnover in 29- at NSE and BSE was 2.5 and 22.5 percent respectively. Share of top securities in annual cash market turnover in 29- at NSE and BSE was 26.2 and 22.9 percent respectively.

At NSE, contribution in annual cash market turnover in 29- reveals that proprietary trades, domestic institutions (excluding mutual funds), FIIs, and Mutual Funds contributed 26.4 percent, 2.9 percent,.2 percent and.9 percent respectively whereas others (including individuals, partnership firms, HUFs, Trusts, NRIs, etc) contributed 5.5 percent. Similar at BSE annual cash market turnover data for 29- shows that proprietary trades, domestic institutions (excluding mutual funds), FIIs, and Mutual Funds contributed 22.9 percent,.5 percent, 6. percent and 2.4 percent respectively whereas others (including individuals, partnership firms, HUFs, Trusts, NRIs, etc) contributed 67. percent (Table 4.). Share of Brokers, Securities and Participants in Cash Market Turnover S. No. Table 4. Particulars NSE Percentage Share BSE. Share of Top Brokers in annual cash market 2.48 22.52 turnover in 29-2. Share of Top Scrips/securities in annual cash market 26.5 22.87 turnover in 29-. Share of participants in annual cash market turnover in 29- (i) Proprietary trades 26.9 22.89 (ii) Domestic Institutions (excluding MFs) 2.92.48 (iii) FIIs.2 6.2 (iv) MFs.99 2.9 (v) Others* 5.48 67. Total of (i) to (v)..

4.4 Registration of Stock Brokers: During 29-, 2 new stock brokers were registered with SEBI in cash segment (Table 4.4). There were 6 cases of cancellation/surrender of broker ship as compared to 4 in 28-9. Applications in the process of registration are given in Table 4.42. The total number of registered stock brokers as on March, 2, increased to 8,84 from 8,652 in 28-9 (Table 4.4). The number of registered brokers was highest in National Stock Exchange Ltd. (NSE) (,) followed by Bombay Stock Exchange Ltd. (BSE) (,), Inter-Connected Stock Exchange Ltd. (ISE) (94) and Calcutta Stock Exchange Ltd. (98). The number of corporate brokers were also highest in NSE (,75) followed by BSE (826) and Over The Counter Exchange of India (OTCEI) (58). Corporate brokers constitute 89.7 percent of the total stock brokers at NSE whereas at BSE and OTCEI the corporate brokers constituted 82.4 percent and 76.4 percent, respectively. Number of corporate brokers as a percentage of total brokers was more than 5 percent in five out of 9 recognised exchanges. Highest number of stock brokers in proprietorship category was in Calcutta Stock Exchange Ltd. (667), followed by ISE (569). NSE had the lowest number of brokers in proprietorship category (68) which was 4.9 percent of the total stock brokers registered with NSE. Stock brokers in partnership category were highest in NSE (67), followed by Calcutta Stock Exchange Ltd. (44). Bhubaneswar Stock Exchange Ltd. did not have any brokers in the partnership category. Details regarding classification of brokers in cash segment as proprietary, partnership, corporate, institution, composite corporate on the basis of ownership are provided in Table 4.4 Registered Stock Brokers Table no. 4.4 Details 28-9 29- Registered Stock Brokers as on March of the previous year 8,57 8,652 Addition during the Year 275 2

Reconciliation/Cancellation/Surrender of Memberships 4 6 Registered Stock Brokers as on March 8,652 8,84 Stock Broker and Sub-Broker Applications in the Process of Registration as on March, 2 Table no. 4.42 Category of Application Number of Applications under Process 2 Registration Brokers Cash Segment 58 Registration Brokers Derivatives Segment 28 Registration Brokers Currency Derivatives Segment Sub-broker,58 Classification of Stock Brokers in Cash Segment on the Basis of Ownership Table no. 4.4 Proprietorship Partnership Corporate ** Total 29 2 29 2 29 2 29 2 Sl. Stoc No. Nos. Percent Nos. Percent Nos. Percent Nos. Percent Nos. Percent Nos. Percent Nos. Nos. k 2 4 5 6 7 8 9 2 4 5 6

. Ahmadabad 4 44 9 42.25 2 6.46 9 5.78 6 49.54 7 5.98 25 29 2. Bangalore 28 49.8 29 49.4.7.5 26 49. 29 49.4 257 26. BSE 48 5.4 47 4.66.5 2.99 85 8.8 826 82.5 984, 4. Bhubaneswar 94 9.8 95 9.2.. 9 8.92 9 8.88 2 24 5. Calcutta 682 7.65 667 7.46 44 4.75 44 4.85 2 2.6 97 2.7 926 98 6. Cochin 46 79.54 5 79.9 2. 9 2.5 79 8.6 79 8.4 45 48 7. Coimbatore 87 64.44 87 64.44.. 48 5.56 48 5.56 5 5 8. Delhi 4.67 69 7.4 2 8.5 2 7. 2 56.8 254 55.82 75 455 9. Gauhati 99 96.2 94 95.92.97.2 2.9.6 98. ISE 57 6.25 569 6.4 29.7 29.8 47 6.68 45 6.59 946 94. Jaipur 464 95.8 46 95.4 6.2 6.24 8.69 8.72 488 484 2. Ludhiana 22 7.4 29 69.67 2.66 2.67 87 28.9 89 29.67. MPSE 9 79.89 5 79.69.57.52 4 9.54 8 9.79 74 92 4. Madras 96 52.46 4 5.89 4 7.65 4 7.25 7 9.89 75 8.86 8 9 5. NSE 6 4.9 68 5.9 57 4.59 67 5.,25 9.5,75 89.69,24, 6. OTCEI 49 2.9 48 2.2 9 2.66 8 2.56 545 76.44 58 76.42 7 74 7. Pune 26 67.2 25 67.2 7.72 7.76 55 29.26 54 29. 88 86 8. UPSE 269 76.64 259 76.4 5.42 5.47 77 2.94 75 22.2 5 9 9. Vadodara 245 78.5 245 78.5.96.96 64 2.5 64 2.5 2 2 Total 4,288 49.56 4,7 49. 285.29 29.29 4,79 47.5 4,97 47.67 8,652 8,84 4.5 Number of Members Registered in Currency Derivatives Segment and in Equity Derivatives Segment during 29-: In equity derivative segment, 5 trading members (TM), clearing members (CM) and 46 self clearing members (SCM) were given registration at NSE during 29-. In case of BSE, the corresponding figures were 6, eight and two respectively. Recently, an arrangement between Madras Stock Exchange (MSE) and NSE to share trading platform of NSE has been approved in-principle by SEBI and there were four

trading members registered at MSE at the end of March 2. The details regarding the same are provided in Table 4.5 Number of Registered Members in Equity Derivatives Segment during 29- Table 4.5 Type of Member Trading Member Registration during29 NSE BSE MSE Registration at the end of March 2 Registration during29 Registration at the end of March 2 Registration during29 Registration at the end of March 2 2 4 5 6 7 5,29 6 46 4 4 Clearing Member 249 8 2 Total 62,828 26 6 4 4 In the currency derivatives segment, total number of registered members with NSE, BSE and MCX-SX were 776, 9 and 749 respectively at the end of 29-. Details of members in the currency derivative segment are provided in Table 4.2 Number of Members Registered in Currency Derivatives Segment during 29- Table 4.52 Type of Member NSE BSE MCX SX 2 4 Trading Member 628 6 658 Clearing Member 48 9 Total 776 9 749

4.6 Registration of Sub-brokers: There was an increase in the number of sub-brokers registered with a net addition of 2,97 sub-brokers in 29-, an increase of 2.7 percent. The total number of registered sub-brokers at the recognised stock exchanges at the end of 29-, increased to 75,78 against 62,47 in the previous year (Table 4.6). During 29-, 6,425 new sub-brokers got registered with SEBI and,58 sub-brokers surrendered their certificates. BSE and NSE accounted for 98.6 percent of the total sub- brokers in 29- as compared to 98. percent a year ago. Registered Sub-brokers Table no. 4.6 Sub brokers as on March 29 2 Sl. Stock Exchange No. Number Percentage of Total* Number Percentage of Total* 2 4 5 6

. Ahmedabad 96.5 95. 2. Bangalore 58.25 58.2. BSE,59 48.2,7 44.72 4. Bhubaneswar 7. 7.2 5. Calcutta 84. 8. 6. Cochin 4.7 4.5 7. Coimbatore 9. 2. 8. Delhi 26.42 255.4 9. Gauhati 4. 4.. ISE. 2.. Jaipur.5 2.4 2. Ludhiana 6.6 6.5. MPSE 5. 5. 4. Madras.8 9.4 5. NSE,28 5.5 4,6 5.86 6. OTCEI 9. 7.2 7. Pune 56.25 56.2 8. UPSE.. 9. Vadodara 7.6 7.5 Total 62,47. 75,78. 4.7 Investigation: Timely completion of Investigation cases and effective, proportionate and dissuasive action in case of violations of established securities laws is important for protection of investors interest, ensuring fair, transparent and orderly functioning of the market. It is also vital for improving the confidence in the integrity of the securities market. Importance of effective and credible use of investigation has also been underscored by IOSCO in its Principles for the Enforcement of Securities Regulation.

Regulatory Action: After completion of investigation, further penal action is initiated as per the recommendations made in the investigation reports and as approved by the competent authority. Action is decided based on the principles of objectivity, consistency, materiality and quality of evidence available, after thorough analysis and appreciation of facts. The action included issuing warning letters, initiating enquiry proceedings for registered intermediaries (Stock Broker and Sub Broker), initiating adjudication proceedings for levy of monetary penalties, passing directions under Section of SEBI Act and initiating prosecution and referring matter to other regulatory agencies. As a matter of policy, SEBI has continued to lay greater emphasis on issuance of prohibitive directions under Section of the SEBI Act, 992. These directions have the strong and salutary effect of deterrence as well as an effective tool to deal with emergent situations requiring a timely and faster response. Thus as against 2 such directions during 28-9, SEBI issued 69 such directions during 29-. A detail break up of all regulatory actions is given in Table 4.7 Type of Regulatory Actions Taken Table no. 4.7 Number of Entities Particulars 28 9** 29 # 2

Suspension 46 48 Warning issued 79 7 Prohibitive directions issued under Section of SEBI Act * 2 69 Deficiency Observations issued/administrative warning 6 56 Total 46 *** 92 *** Enforcement of Regulations: Effective enforcement in the form of effective follow ups and disciplinary actions makes a regulatory system effective. Enquiry and Adjudication: During 29-, 98 orders were passed/ reports submitted; of which, 9 pertained to enquiries and 799 pertained to adjudications. Hearings were conducted for 955 cases, and,7 show-cause notices were issued to different entities Enquiry and Adjudication during 29- Table no. 4.72 Particulars Orders Passed/ Report Submitted Enquiry Adjudication Total 2 4 9 799 98 Hearing Conducted 955 Show Cause Notices,7 4.8 Market Intermediaries (Stock Broker and Sub Broker:

Enforcement Actions which are taken by SEBI from 995 to till now is explained in the table no 4.8 which explains the No. of Actions Initiated by the SEBI and also explain that how many cases are pending till now and aggregate Disposal cases. Enquiry proceedings were initiated against 8 stock brokers in 29- as against 7 stock brokers in the previous year (Table 4.82). Adjudication proceedings were initiated against stock brokers in 29- as against 6 stock brokers in 28-9. 9 warnings were issued to stock brokers and 98 consent orders were passed. As regards registrars to an issue and share transfer agents, enquiry proceedings were initiated against one entity and adjudication proceedings were initiated against another. Further, warning/deficiency/ advisory letters were issued to three other entities. In respect of depository participants, adjudication proceedings were initiated against four entities and warning/deficiency/ advisory letters were issued to entities. Warning/deficiency/advisory letter was issued to one credit rating agency and three merchant bankers and adjudication proceedings were initiated against one debenture trustee and one merchant banker each (Table 4.8). Age-wise Analysis of Enforcement Actions Summary Proceedings under SEBI Act (As on March, 2) Table no. 4.8 No. of Number of Actions Disposed

Year Action s Initiated 995 96 996 97 98 99 2 4 5 25 6 26 7 27 8 9 997 998 999 2 2 22 2 24 28 29 Aggregate Disposal Pending Case s 995 96 8 8 8 996 97 997 98 998 99 999 2 2 2 22 2 4 24 5 25 6 26 7 27 8 28 9 29 2 66 5 69 267 24 7 476 9 8 22 89 2 2 2 7 48 48 7 6 27 5 2 6 8 5 2 54 9 24 8 4 2 6 49 56 2 9 6 27 7 2 27 5 7 4 6 82 9 4 5 6 2 8 57 8 6 28 7 9 28 4 48 8 22 8 2 66 5 67 266 24 5 448 8 67 62 22 4 2 2 28 6 67 6 22 Total 2,4 9 5 5 24 87 6 4 27 72 64 26 72 25 2, 29 Enquiry and Adjudication Proceedings Initiated against Stock B rokers/sub-brokers during 29- Table no. 4.82 Particulars 28 9 29 2

Enquiry Proceedings initiated Stock Brokers Summary Proceedings Initiated Stock Brokers/Sub brokers Enquiry Proceedings initiated Subbrokers Adjudication Proceedings initiated Warning Pursuant to Chairman/ Members Orders Suspensions Cancellation of Registration Censure Consent Orders Deficiency Letter 7 6 28 5 7 28 8 9 9 46 2 5 98 Enquiry and Adjudication Proceedings Initiated against other Intermediaries during 29- Table no. 4.8 Intermediaries Adjudi cation En quiry Warning/ deficiency/ advice 2 4 Registrar and Share Transfer

Agent Depository Participant 4 Credit Rating Agencies Merchant Banker Debenture Trustee