 "Street Food: Ending the signature spree")
Trading in shares is often seen as a game of wits. Some prefer to call it a test of guts. While, opening a demat account and beginning a relationship with a stock broker is a test of the strength of one’s wrists.
A broker would want the client’s signatures on several forms, running across numerous pages. Some have counted as many as 49 signatures on some forms. Depending on the non-mandatory terms added by brokers, there would be a few less or more. Often, clients have signed these pages in a hurry, without going through what is written in these forms, which then go to the broker.
The Securities and Exchange Board of India (Sebi) has simplified and fine-tuned the Know Your Customer process considerably over recent years. Last week, continuing these efforts, it said a set of standard documents could be made available in electronic form to a customer.
These include: “a) Rights & Obligations of stock broker, sub-broker and client for trading on exchanges; b) Rights and Obligations of beneficial owner and depository participant as prescribed by Sebi and depositories; c) Uniform Risk Disclosure Documents (for all segments/ exchanges); and, d) Guidance Note detailing Do’s and Don’ts for trading on stock exchanges.”
While the move helps reduce the size of the account opening kit and will control paper wastage, brokers say the number of signatures required will continue to remain high. For, they need these for smooth operation of day-to-day transactions.
It, then, seems the time is ripe for the regulator to move on to the next level of reforms, in the account opening kit. The different arms within a brokerage still continue to function in silos. This leads to trouble later, if things go wrong. Several disputes between broker and client that land in arbitration proceedings of the exchanges have their origin in the terms on the agreement. Investors often claim what the marketing department said differed considerably from what was written in the agreement. Signatures come to the brokers’ rescue in such situations. Therefore, they feel, the more the merrier.
One way to address the issue could be to further standardise the non-mandatory clauses a brokerage requires for its smooth functioning. Sebi could undertake a consultative process with brokers and other intermediaries such as depository participants. Together, they could build standard terms and conditions that need to be agreed upon between broker and client.
These could be then put up in the public domain for clients, frontline staff and others, to read and understand. The understanding of the rules should not remain the preserve of the compliance department of the brokerage. In case, the broker still needs any variations from the standard terms and conditions, these could be separately agreed upon between him and the client.
Such a move would help the investor better understand the nature of the relationship he is entering into. It would also make the work of the sales staff in brokerage a bit more meaningful. At present, most calls and clarifications get referred to the compliance desk, which often throws legalese.
Brokers should also be prodded to make efforts to educate their workforce, especially frontline staff. They need enough training and tools to answer investor questions about the technicalities in the account opening form. Some processes followed in other sectors, such as asking the customer to write in his own words about the process as explained to him, could also be tried.
In sum, let investing be more about guts and wits, and less about wrists.
