MUMBAI, July 1: In a major crackdown on erring brokers, the National Stock Exchange (NSE) today declared five broking firms as defaulters as they failed to meet their liabilities and suspended six other firms for violation of various trading norms.

The NSE also revised the personal indemnity bond proposal, creating an exit route for members who don't want to sign the bond.

The exchange had already removed the trading rights of these 11 brokers. The five broking firms who were 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 suspended brokers are Swaraj Finance & Investments, Opart Exports Pvt Ltd, Dalip Khosla, Acquator Trading and Investment, Pravira Financial Services Ltd and Capital Consortium Securities. ``These brokers were involved in introducing bad deliveries and they failed to rectify the problems despite several reminders,'' NSE managing director R H Patil said.

The decision was taken at a board meeting of the exchange convened to take stock of the situation arising out of voices of dissent by member brokers against the proposed move to seek indemnity bond. The NSE 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 the demands from a section of NSE members of 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,'' Patil said.

In the meantime, the 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 dematerialised shares through the depository.

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, NSE has decided to waive off the five year lock-in period for refund of their deposits with a proviso that this deposit will be refunded one year from the date the member stops trading at the bourse.

Patil said that the board took into account the various suggestions that had been put forth by members. ``We have given the 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 NSE means that the 80-odd common members of NSE and Bombay Stock Exchange would have to trade only in demat shares as BSE has barred its members from furnishing any personal indemnity bonds.

The NSE move to provide the option of trading only in dematerialised shares to avoid furnish a personal indemnity bond 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 and will make trading only in dematerialised shares of these companies mandatory from the first week of Nov.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.