Bourse to pay if broker defaults

The next time a stock broker defaults, you can make the stock exchange he operates in, pay. That is the summary of a landmark ruling of the National Consumer Disputes Redressal Commission. Investors can get up to a lakh of rupees from the stock exchange to which the defaulting broker is attached.The ruling will provide additional security to investors over and above what is already offered by the stock exchanges. It will also make the stock exchanges more vigilant in examining the records of brokers. Since stock brokers charge a brokerage for services rendered by them, they are immediately liable to their customers (investors). However, it was not clear whether the stock exchange was also liable for the conduct of brokers. The judgment delivered by Justice M B Shah on behalf of a bench comprising himself, Rajyalakshmi Rao and Anupam Dasgupta conclusively settled the issue last December. Several consumers had filed complaints before the Delhi consumer forum against a broker as well as the Delhi Stock Exchange, for default with respect to the sale and purchase of shares. In all these matters, DSE tried to defend itself by claiming that it was merely a non-profit making organisation which regulated the business of sale and purchase of shares and debentures and that it was governed by the guidelines issued by Sebi. It also claimed that none of the complainants had hired the services of the stock exchange, as the investor merely pays a consideration in the form of brokerage to the broker and not to DSE. So, it was not rendering any service to investors and a claim against DSE would not be maintainable. But could the stock exchange be held jointly responsible along with the broker? The district forum held that, indeed, DSE was jointly liable, and so did the state commission in appeal.

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