Despite Sebi clampdown,unauthorised trading by brokers rampant

According to persons familiar with the matter,exchanges have been putting in place better mechanisms to keep a check on such malpractices,but it is difficult to make the system foolproof. “SMSes and e-mail alerts are sent to the investor after the broker carries out a transaction. They can also opt for arbitration to recover their dues,” said a senior BSE official.

Brokers also acknowledge the fact that there have been instances wherein dealers trade on behalf of their clients without proper approvals. They,however,add that investors should also be alert and be specific while placing orders with their dealers.

“There was a case where a dealer kept buying huge volumes in his client’s account. While he was making losses from the trades,the dealer told the client that he was making profits. Only after five months the investor realised that he had made losses of R60 lakh,” says Bhavesh Shah,sub-broker,Emkay Global.

Interestingly,many believe that the stiff targets given out by brokerages to their ‘relationship managers’ also act as a catalyst in increasing instances of unauthorised trading. To meet their targets,managers try to convince gullible investors to allow them to trade on their behalf while promising handsome returns. “The higher the turnover the bigger is the brokerage. While the industry is well-regulated,a section of brokerage houses misguides the investors,” says Sonam Udasi,senior vice-president & head (research),IDBI Capital.

It is widely believed that the derivatives segment is misused by brokers to build huge positions on behalf of their clients. A large number of small investors don’t understand the technicalities of the F&O segment and believe their dealers without bothering to check the contract notes.

The NSE,on an average,has received 2,372 complaints for ‘unauthorised trades and misappropriation of funds’ in the last three years. The BSE has received nearly 1,000 such complaints during this period.