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Investor protection tops Sebi agenda

By Rajesh Bhayani in Mumbai
July 14, 2009 09:24 IST

Apart from setting up an advisory committee and issuing regulations for the Investors' Protection Fund, the Securities and Exchange Board of India is contemplating several other measures for protecting the interests of small investors, including those investing through portfolio management schemes. The regulator is also mulling safeguards relating to the power of attorney that investors sign in favour of brokers.

The market regulator had discussed the issue of investor protection with Finance Minister Pranab Mukherjee last week.

Sebi has already tightened PMS norms by making it mandatory for portfolio managers to keep separate accounts of clients rather than keeping their investments in pool account. Earlier, PMS providers used to open 'pool PMS' as a common account under one head, put money received from a set of clients in it and then invest the same on behalf of the whole group.

However, investors don't find this move to be sufficient. That is why many investor representatives have approached Sebi, saying that only separate accounts won't help and that they should be able to see transactions in their accounts.

Plenty of complaints have also come from NRI investors. In view of these complaints, Sebi is now contemplating linking investor accounts in PMS to depositories, so that PMS investors can see transactions taking place in their accounts run by portfolio managers.

This move is aimed at ensuring that portfolio managers handled clients' money in a transparent manner. Earlier, in the pool account system, clients used to have no clue as to how brokers were using their money.

Another area of concern for Sebi is the practice of clients signing PoAs while opening accounts with brokers. Account opening requires clients to sign several documents, one of which is the PoA. In a hurry to get over the task of signing, they often fail to read each and every line of the huge bunch of papers.

In that case, PoAs are always open to misuse. For instance, a broker may include in the PoA a clause for debit of shares from the client's demat account without delivery instruction slip, and an unsuspecting client may sign it.

In fact, Sebi has received such complaints before.

The secondary market advisory committee had recently recommended to Sebi that PoA should not be clubbed with other account opening documents and that the client should be categorically told about what s/he was signing. Sebi has agreed to work out a practical solution after talking to stock exchanges and brokers.

The committee has also discussed a suggestion that shares of companies which are not traded due to delisting by exchanges, or because of lack of liquidity as they are listed only on regional exchanges, should be purchased by asset reconstruction companies. However, no decision has been taken on the suggestion.

"ARCs can buy such shares that are there on the books of investors but have no value. ARCs have the muscle to recover whatever possible. If not, they can buy shares just for one paisa per share and this will help investors to book losses and close the chapter," said M R Maiyya, veteran stock market expert and former executive director of the Bombay Stock Exchange.

Sebi is also working on his suggestion that "abridged prospectus for an IPO should be in a booklet form and issues of concerns to retail investors like justification for issue pricing should be mentioned as part of the content index of the abridged prospectus."

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Rajesh Bhayani in Mumbai
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