Investor Protection Measures of Sebi

Compiled by Dr.
Lovely Srivastava
INVESTOR PROTECTION MEASURES OF SEBI
 Simplification of share transfer and allotment procedure
SEBI appointed a committee under the chairmanship of Shri R Chandrasekaran, Managing

Director of the Stock Holding Corporation of India Limited, to suggest a procedure for
expediting and simplifying share transfer and allotment. The committee has submitted its
draft report which has been circulated to various market intermediaries for their comments.
Based on the feedback received, the report will be finalised and necessary action will be
taken to implement the recommendations. It is expected that implementation of the
recommendations of this committee would considerably ease the difficulties faced by
investors on account of inordinate delays in share transfers and bad deliveries.
 Unique order code number
All stock exchanges have been required to ensure that a system is put in place
whereby each transaction is assigned a unique order code number which is intimated by
the broker to his client. Once the order is executed, this number is to be printed on the
contract note.
 Time stamping of contracts
Stock brokers have been required to maintain a record of time when the client has
placed the order and reflect the same in the contract note along with the time of the
execution of the order. This will ensure that the broker gives due preference in
execution of client's order and charges the correct price to his client without taking
advantage of any intra-day price fluctuation for himself.
 Role of sub-brokers
Historically, the brokers have been operating through a network of sub-brokers who
form an important link between the brokers and the investors. While the SEBI (Stock
Brokers and Sub-Brokers) Regulations, 1992 provide for compulsory registration of
sub-brokers, only 1,798 sub-brokers have registered with SEBI. In an attempt to
Compiled by Dr. Lovely Srivastava
safeguard the interest of investors and bring sub-brokers under the regulatory
framework of SEBI and the stock exchanges, the following measures have been
initiated:
1. Efforts have been made to revive the institution of remisier under the rules and
bye-laws of the stock exchanges. A remisier is an agent of a broker and is registered
with the stock exchange. However he is not authorised to issue a
contract/confirmation note to his investor; instead the contract is issued by the broker
and as such the broker takes full responsibility in respect of that deal. This way the
interest of the investor vis-…-vis the remisier or broker is protected.
2. Transfer deeds bearing rubber stamps on the reverse other than those of
clearing members of the stock exchanges/clearing house/clearing corporations, SEBI
registered sub-brokers and remisiers registered with the stock exchanges would
become bad delivery in the stock exchanges for all transfer deeds dated June 1, 1997
and thereafter.
3. A stock broker may not deal with a person who is acting as a sub-broker
unless he is registered with SEBI. It shall be the responsibility of the broker to ensure
that his client are not acting in the capacity of a sub-broker unless he is registered with
SEBI as sub-broker or is recognised by the stock exchange as a remisier.
 Investor protection fund
The amount of compensation available against a single claim of an investor arising

out of default by a member broker of a stock exchange has already been increased to
Rs.1 lakh in case of major stock exchanges, to Rs.25,000 in case of smaller stock
exchanges viz. Gauhati, Bhubaneshwar, Magadh and Madhya Pradesh and to Rs.
50,000 in case of the other stock exchanges.
Investor Assistance and Education
Securities and Exchange Board of India (SEBI) has been established with the prime mandate
to protect the interest of investors in securities. It is also mandated to promote the
development of, and to regulate the securities market. An investor enjoys investing, if
 he knows how to invest;
 he has full knowledge of the market;
 the market is safe and there are no miscreants; and
 There are arrangements for redressal in case of grievances. Accordingly, SEBI's

investor protection strategy has four elements.
First, build the capacity of investors through education and awareness to enable an investor
to take informed investment decisions. SEBI endeavours to ensure that the investor learns
investing, that is, he obtains and uses information required for investing, evaluates various
investment options to suit his specific goals, ascertains his rights and obligations in a
particular investment, deals through registered intermediaries, takes necessary precautions,
seeks help in case of any grievance, etc. SEBI has been organizing investor education and
awareness workshops directly, and through investor associations and market participants, and
been encouraging market participants to organize similar programmes. It maintains an
updated, comprehensive web site for education of investors. It publishes various kinds of
cautions through media. It responds to the queries of investors through telephone, e-mails,
letters, and in person for those who visit SEBI office.
Second, make available every detail relevant for investment in public domain. SEBI has
adopted disclosure based regulatory regime. Under this framework, issuers and intermediaries
disclose relevant details about themselves, the products, the market and the regulations so
that the investor can take informed investment decisions based on such disclosures. SEBI has
prescribed and monitors various initial and continuous disclosures.
Third, ensure that the market has systems and practices which make transactions safe. SEBI
has taken various measures such as screen based trading system, dematerialization of
securities, T+2 rolling settlement, and framed various regulations to regulate intermediaries,
issue and trading of securities, corporate restructuring, etc. to protect the interests of investors
in securities. It also ensures that only the fit and proper persons are allowed to operate in the
market, every participant has incentive to comply with the prescribed standards, and the
miscreant are awarded exemplary punishment.
Fourth, facilitate redressal of investor grievances. SEBI has a comprehensive mechanism to
facilitate redressal of investor grievances against intermediaries and listed companies. It
follows up with the companies and intermediaries who do not redress investors' grievances,
by sending reminders to them and having meetings with them. It takes appropriate
enforcement actions as provided under the law (including launch of adjudication, prosecution
proceedings, and directions) where progress in redressal of investor grievances is not

satisfactory. It has set up a comprehensive arbitration mechanism in stock exchanges and
depositories for resolution disputes of the investors. The stock exchanges have investor
protection funds to compensate investors when a broker is declared a defaulter. Depository
indemnifies investors for loss due to negligence of depository or depository participant.

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Compiled by Dr.

INVESTOR PROTECTION MEASURES OF SEBI

 Simplification of share transfer and allotment procedure

SEBI appointed a committee under the chairmanship of Shri R Chandrasekaran, Managing

 Unique order code number

 Time stamping of contracts

 Investor protection fund

The amount of compensation available against a single claim of an investor arising

Investor Assistance and Education

 he knows how to invest;

 he has full knowledge of the market;

 the market is safe and there are no miscreants; and

 There are arrangements for redressal in case of grievances. Accordingly, SEBI's

proceedings, and directions) where progress in redressal of investor grievances is not

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