NSE declares Amrapali Aadya a defaulter
SEBI should ask bourses, clearing houses to handle client money to check misuse, say experts
While SEBI ponders over the idea of not allowing stock brokers to handle client money, the list of defaulters is piling up. Amrapali Aadya Trading and Investment, yet another Delhi-based broker, was declared a defaulter by the NSE on Wednesday. The broker could be facing default claims of around ₹200 crore, a source said.
Amrapali is the third in the list of Delhi-based stock brokers after Kassa Finvest and Unicon, who have been expelled from the markets in over a year. Others including Vasanti Securities, Royal International and Click2trade are under the scanner, the source said. This apart, a couple of brokers from Mumbai too owe huge amounts of money to stock exchanges.
In most cases, brokers are said to have lured clients by promising them fixed return and then dabbled in the derivative segment and even diverted money for other purposes.
Experts say that stock exchanges have no mechanism to stop brokers from misusing clients’ money and even the process of payment of client money after recovery from brokers is not timebound. Once a broker is declared a defaulter, exchanges have to settle client claims by digging into the investor protection fund. But there is a debate on whether depositories too should be made to bear the cost.
SEBI had received more than 4,000 complaints against Kassa. A probe revealed Kassa used client margin money to fund its associate companies including Sinia Global (registered in Singapore), Mystic Cures (a spa in Mehrauli) and Midas Global Fund (a mutual fund registered in Singapore).
SEBI’s Secondary Market Advisory Committee, which met last month, had discussed ways for direct payout of funds and securities in a client account and limit the role of stockbrokers to trade execution only. Currently, a client issues a cheque in the name of the broker, via whom the former places buy orders for shares. Similarly, it is the broker who makes the payout to the client when shares are sold. Brokers also collect huge amounts in margin money from clients for derivative trading, which is where some of them get an opportunity to siphon off money.
There is a view that either a custodian-like structure should be brought in to handle client money or SEBI should ask stock exchanges and clearing houses to directly handle payout of funds and securities into client accounts.