MUMBAI, MAY 23: The Securities and Exchange Board of India (SEBI) has repeated its warning to the large number of unregistered sub-brokers in the securities market about the consequences arising from not following the statutory requirement of obtaining registration certificate from Sebi.

In a communication sent to the chiefs of all leading stock exchanges in the country, M D Patel, executive director, secondary market department, Sebi, said that sub-brokers who are required to obtain certificate of registration from Sebi in accordance with Sebi rules have been violating this norm for long.

Despite the statutory requirement, large number of sub-brokers are unregistered. It was decided in the annual stock exchange meeting on March 19, 1997, that transfer deed bearing rubber stamps on the reverse thereof other than those of clearing members of the stock exchange/clearing house/ clearing corporation, Sebi registered sub-brokers and remisiers registered with the stock exchange shall be treated as bad delivery. This shall apply to all transfer deeds from June 1,1997 and thereafter.

However, sub-brokers in Mumbai, where the large number of them operate blame the main brokers for the problem. ``The main broker is not willing to take on liabilities, if any, of sub-brokers. Therefore, they are reluctant to recommend sub-brokers in the registration form sent to SEBI. This is the main reason for the delay in registration of sub-brokers for the last few years,'' said a sub-brokers.

It is roughly estimated that BSE alone has around 4,000 sub-brokers with an equal number in the NSE and another 5,000 independent sub-brokers operating in the city. Out of the total 13,000 sub-brokers in Mumbai, less than 5 % is registered with the market regulator. The total number of sub-brokers in all the stock exchanges will be manifold.

On the contrary, main brokers are worried about recommending sub-brokers because the market is flooded with duplicate and fake shares leading to large number of bad deliveries. The sharp fall in business volume in recent times coupled with drastic drop in brokerage income are other reasons for not recommending the sub-brokers. `` We are already in deep trouble due to bad delivery, fake shares and dropping business. Why should we take one more risk for the sake of sub-brokers. Now, we all are doing hand-to-mouth business and do not know when the time will come to down our shutters,'' said a leading broker.

The Sebi has further said that sub-brokers wanting to do business with more than one broker will have to be registered with them.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.