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India’s stock markets are experiencing an increase in broker defaults. There have been numerous instances where distressed stock brokers who have lost heavily, usually in the derivative segment, have even sold client collateral to satisfy their obligations to the clearing corporation. Upon sale of client shares, the proceeds are not returned to the ultimate beneficiary. 

The Allied Financial and IL&FS cases are the most recent examples of such practice. As of now, there is no segregation of client and broker collateral placed with the clearing corporation. 

Even though regulatory action has been slow and ineffective in deterring brokers, there are ways by which retail and high-net-worth individuals can recover their dues from the Investor Protection Fund (IPF) maintained by the stock exchanges. However, it is important that exchanges speed up the procedure to declare brokers as defaulters, which would only benefit clients. But that is a slow process. 

By putting pressure on the exchanges through legal means and by writing to them, the market regulator SEBI and even the Finance and the Corporate Affairs Ministries continuously, and by bringing the issue and the treatment of their complaints into the public domain can speed up the matter, as it builds a history of complaints and forces an inactive, bureaucratic work-force to move, experts say. 

Lawyers also suggest that clients can form a group and move the Securities and Appellate Tribunal if the exchanges take unusually long to declare a broker a defaulter. So far, around 12 brokers, who could have lakhs of clients, have been declared defaulters by exchanges since 2017. 

For defaulting brokers,  

The following criteria must be followed in order to claim money from the IEPF. 

You can file a claim with the exchange where you made the trades. Any of the following methods can be used by clients to file a claim: 

  • Use the complaints registration facility of the BSE and the NSE. 
  • The claims are scrutinized by the exchanges and placed before the Member and Core Settlement Guarantee Fund Committee (MCSGFC) for recommendation to the IPF. It may be noted that only eligible claims are recommended for compensation from IPF, up to a maximum of Rs 15 lakh per defaulter member. 
  • The eligibility of the claim is determined based on the policies laid down by the respective exchanges, the BSE and NSE. 
  • Complaints can be made via e-mail, by the submission of physical documents at any of the Investor Service Centres of BSE and NSE, and through SCORES. 
  • The recommendation of the MCSGFC is communicated to the BSE IPF for approval or rejection of the claim.

How much time does it take to claim shares from IEPF? 

Claims processing and crystallization are dependent on the submission of complete information/ documents by the client. Following the crystallization of the eligible claim, the same is placed at the quarterly MCSGFC meeting. Post approval, the recommendation is sent to BSE IPF Trustees for their consideration. Disbursement is done post acceptance of the recommendation by the NSE, BSE IPF Trustees. The list of trustees is given on NSE and BSE websites. 

What is meant by defaulter in stock exchange? 

Whenever a stock broker fails to honor a financial obligation with respect to transactions undertaken on the exchange on behalf of their clients and the claims of such clients are crystallized through IGRC decision/ arbitration award/ appellate arbitration award, the exchange declares such stock brokers as defaulters, after following due process of law. 

Further, if a stockbroker is declared as a defaulter on another stock exchange, the stockbroker is immediately declared as a defaulter in line with SEBI norms. 

With Rurash Financials Demat services, you can easily convert your unproductive assets into profit-yielding money instruments. Rurash Financials is one of India’s investment management firms, providing financial solutions to augment the client’s wealth and build a legacy. 

For any assistance and guidance regarding physical share certificates, Reach out to our relationship manager now on Call at +91 22 4157 1111 or write to: demat@rurashfin.com, 

Also Read: Transfer of Unpaid Dividends, Reasons of Unclaimed Investments where Rurash Financials can help