Investors are one of the pillars of the Financial and Securities market and protection of these investors is one of the essential elements of progressing securities market or any other financial investment institution. They invest their money in the stock market to help market growth and thus the economy, which will provide better returns. Investor protection mainly focuses that the Investors are fully informed about their purchases, transactions, affairs of the company that they have invested in. To protect the interest of these investors, Government of India formed the body called SEBI (Securities and Exchange Board of India). Here, in this blog, we will see the investor’s protection measures by SEBI in detail.
What are the mandatory points that an investor must know before investing?
Investing your hard-earned money in the security market is quite risky if you are not aware of the company in which you are investing.
The investor must be aware of the following points before investing in any company’s share market.
- He/she must have in-depth knowledge of the market.
- The market is safe, and there are no miscreants at the time of investment.
What are the Objectives of SEBI in regards to investor protection?
SEBI has four elements in its investor protection strategy which are listed below:
- SEBI ensures that investors learn how to invest in a share market and obtain useful information required for investing. The investor, before investing, must evaluate various investment options that suit his/her specific goal in the long term.
- With a perspective to help these investors, SEBI has organised investor education and awareness workshops. In addition to this, SEBI has encouraged market participants to organise similar programmes. SEBI also maintains an updated website to provide training to these investors and uses the digital platform to publish various kinds of cautions
- SEBI has made relevant details available for investment in a public domain so that the investor can make informed investment decisions based on the initial and continuous disclosures. Under this framework, both the issuers and intermediaries disclose relevant details about themselves, products, markets and regulations.
- It ensures that the market has systems and practices, which in turn will make the transactions safe and more accessible for the investors. Various measures such as screen-based trading system, dematerialization of securities, T+2 rolling settlement has been introduced by SEBI to regulate the intermediaries, and for issuance and trading of securities. Every investor must comply with the prescribed standard, and any miscreants are welcomed with strict punishment.
- To facilitate the redressal of investor’s grievances, SEBI came up with a comprehensive mechanism to address the grievances of the investors against the listed companies and intermediaries. SEBI follows up with the companies and intermediaries who do not redress the investor’s grievances by sending reminder emails and conducting meetings with them.
Also, the stock exchanges have investor protection funds to compensate investors when the broker is declared as default.
General things to consider for the Investors
- The investors should always deal with the intermediaries that are registered with the SEBI or stock exchanges.
- Always keep copies of all investment documentation like the application forms, the contract notes and acknowledgement slips.
- The investors should always keep with themselves the copies of documents that they are sending to companies.
- They must send the important documents by registered post or any reliable mode so as to ensure deliver.
- They must make sure that they are holding securities before they sell.
- They must ensure to give comprehensible and unambiguous instruction to Trading Member or agent
- They should adopt trading or investment strategies without risk-bearing capacity.
What are the Investor Protection Measures by SEBI?
The initiatives taken by SEBI to protect the rights of investors are listed below:
Simplification of Share transfer and its Allotment Procedure
Under the chairmanship of Shri R. Chandrasekaran, SEBI has suggested a procedure to simplify the transfer of shares and its allotment procedures. The report made by the committee has been circulated to various market intermediaries. After receiving the feedback from these market intermediaries, the report will be finalised, and the necessary steps will be taken to implement the recommendations. This, in turn, would considerably ease the difficulties faced by the investors on account of excessive delays in share transfers and wrong deliveries.
Unique Order Code Number
To protect the investor’s rights, all stock exchanges are required to intimate a unique order code number to their client. After the execution of this order, a number is printed on the contract note.
Time-Stamping of Contracts
When a client places an order, Stock Exchange of the particular company assigns a Unique Order Code Number for each transaction held, which is conveyed by the broker to his/her client. After the execution of the order, order code number is printed on the contract note. The time stamping of contracts ensures that the broker gives preference according to the execution of the client’s order and charges the correct price to his/her client.
Role of Sub-Brokers
To ease the process, brokers operate through a network of sub-brokers who act as an essential link between the brokers and the investors. As per the SEBI Regulations, 1992 it is mandatory for the sub-brokers to get themselves registered, but only 1798 sub-brokers are registered with SEBI. To safeguard or protect the interest of these investors and bring the sub-brokers under the regulatory framework of SEBI, the following measures have been taken:
- Remisier is the agent of brokers registered with the stock exchange. They are not authorized to issue a contract note to the investor as brokers are responsible for the issuance of the contract. Hence, these efforts by brokers and the remisier help in protecting the interest of the investors.
- Transfer deeds having rubber stamps on its reverse side other than those of clearing members of the stock exchanges, clearing houses, clearing corporations, the registered sub-brokers and remisiers with the SEBI become bad delivery in the stock exchanges for all the transfer deeds.
- A registered broker cannot deal with a sub-broker who is not registered with SEBI. It becomes the responsibility of the broker to ensure that his/her client is not working as a sub-broker till the time that the broker is registered with SEBI.
Investor Protection Fund
SEBI has provided relief to its investors by providing a claim against the single claim of an investor which is listed below:
- The amount of compensation available against an individual claim of an investor coming out of default has been increased to INR 1 Lakh in case of major stock exchanges.
- In case of smaller stock exchanges, the amount of compensation provided is INR 25000 viz. Gauhati, Bhubaneshwar, Magadh and Madhya Pradesh.
- In case of other stock, the amount of compensation provided is INR 50,000.
Process of solving Investors’ grievances
BSE has recognized an authority Investors’ Services Cell (ISC) to redress Investor’s grievances. The ISC has played a fundamental role in enhancing and maintaining Investors’ confidence and trust by resolving their grievances against the listed companies or against Members of the BSE.
Investors can submit their complaints to the concerned Regional Arbitration Centre of BSE in the Complaint prescribed format. The proper complaint Filing at the respective Regional Arbitration Centre will complete the complaint process expeditiously.
Investor protection is among the most rationalized topics in the Financial and Securities market. It becomes the responsibility of SEBI to provide proper assistance to the investors investing in the share market so that their hard-earned money does not go in waste. To protect the investors right, SEBI has launched a slogan “An informed investor is a safe investor” thus emphasizing on every aspect of the investor interest. This initiative by SEBI and various other investor awareness programme conducted by SEBI has undoubtedly helped the investors to make a transparent transaction.