Mumbai, July 1: The National Stock Exchange has decided to restrict the personal indemnity to be furnished by its members only to the extent of bad paper introduced by the member. Members not willing to furnish the bond have been given the option of trading only in demat shares. Those members who fail to choose either of the two options by July 31 will be asked to leave the exchange.

For those wanting to leave the exchange, the NSE has decided to waive the five year lock-in period for refund of deposits with a provision that this deposit will be refunded one year after the date the member stops trading at the bourse.

In a related move, the exchange has declared five of its members defaulters and suspended another six for failing to meet their dues at the exchange.The decision was taken at a board meeting of the exchange on Tuesday. The meeting was convened to take stock of the criticism voiced by member brokers against the NSE's move to ask its members to furnish personal indemnity bonds.

Speaking to reporters, RH Patil, managing director of the exchange, said that the board took into account the various suggestions that had been put forth by members. "We have given three options to the members and now it is for them to choose which one they want to exercise.

One thing is clear, that either a member furnishes a bond or trades only in demat shares, so that the question of him introducing bad paper into the system does not arise", he said.

The decision of the NSE means that the 80-odd common members of the NSE and the BSE will have to trade only in demat shares as the BSE has barred its members from furnishing any personal indemnity bonds.

The NSE move to provide the option of trading only in demat shares is being viewed as a double edged sword to counter the BSE diktat to its members and more importantly to provide a boost to the depository.

The exchange has decided to shortlist some companies where trading will be allowed only in demat shares from the first week of November. The five broking outfits that have been declared defaulters are Maxwell Securities Pvt Ltd, Rahil Investment & Finance Ltd, RC Garg & Sons Capital Services Pvt Ltd, West Fin Securities Ltd and Vipul Securities Ltd.

The six members who have been suspended are Swaraj Finance & Investments, Opart Exports Pvt Ltd, Dalip Khosla, Acquator Trading and Investment, Pravira Financial Services Ltd and Capital Consortium Securities.

Exchange officials did not disclose the extent to which these members had defaulted saying that these figures would be made available at a later date.

The NSE board has also rejected demands from a section of NSE members for appointing member brokers to the board of the exchange. "The executive committee which frames the rules and regulations for the exchange's functioning already has four members as part of it.

We have also decided to expand the Committee on Settlement Issues from its current strenght of 15 to 25. This committee comprises only of member brokers. Members have enough representation, it was felt", said Patil.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.