Arbitration Mechanism in Stock Exchanges

PR No.202/2010

Arbitration Mechanism in Stock Exchanges 

SEBI, vide circular dated August 11, 2010, has streamlined the arbitration mechanism available at stock exchanges for arbitration of disputes (claims, complaints, differences, etc.) arising between a client and a member (Stock Broker, Trading Member and Clearing Member) across various market segments. Based on feedback, the said circular has been modified today. The arbitration framework now prescribed has the following new features:-

1. In order to improve the quality of arbitration, there is a requirement on stock exchanges to provide continuing education every year to every arbitrator. The arbitrators are required to adhere to a code of conduct and their performance shall be appraised on a yearly basis.
   
    
2. Arbitration claims beyond six months can also be filed under the new framework since the limitation period for arbitration has now been modified to three years as prescribed under the Limitation Act, 1963.
   
    
3. In order to ensure that the arbitration proceedings are completed in a time bound manner, timelines have been prescribed at each stage of activity.
   
    
4. The numbers of arbitrators has been made uniform across exchanges such that claims less than Rs. 25 lakh are dealt with by a sole arbitrator and claims more than Rs. 25 lakh are dealt with by a panel of three arbitrators.
   
    
5. The circular has put a maximum limit on arbitration fees and removed the uncertainty about such fees prevailing earlier where exchanges could collect additional charges beyond initial deposit. A client filing an arbitration reference for claim/counter claim upto Rs. 10 lakh within six months does not have to pay any fees. For such clients, the costs are to be borne by the stock exchange. 
   
    
6. Stock exchanges have been mandated to provide an appellate mechanism within the exchanges to avoid the need for resorting to lengthy court process.
   
    
7. The stock exchanges with nationwide terminals have been mandated to provide arbitration facility (arbitration as well as appellate arbitration) at all four regional centres (Delhi, Mumbai, Kolkata and Chennai). The arbitration and appellate arbitration are required to be conducted at the regional centre nearest to the client.
   
    
8. Transparency in arbitration proceedings has been brought in by mandating the stock exchanges to disclose the details of disposal of arbitration proceedings on their websites. The stock exchanges have also been mandated to post the arbitration awards on their websites.

Mumbai

August 31, 2010