Unauthorised Trades by Stock Brokers

I believe the topic may be of an interest to all the investors who have entrusted the brokers with there hard earned money. The paramount issue is of ethics and integrity. 

I have been reading and researching lately on an issue of Unauthorised Trades by Brokers. The geographical location is not an imperative element on this serious issue however my research relates to matter currently being pursued in India (NSE)

The whole discussion can be wrapped up by just posing one question.

Was an approval obtained before or after the trade was executed? 

From the latest article cited in Indian Express the stats suggest that Brokers neither have fear of the regulatory authorities nor do they fear the rules, regulations and bye-laws laid down by these regulators. 

Please visit the below link to obtain the latest stats as to the number of complaints lodged on the issue under consideration in the present blog: 

http://www.indianexpress.com/news/despite-sebi-clampdown-unauthorised-trading-by-brokers-rampant/1126368/

The utmost important factor in such disputes which have resulted in decisions being given in favour of the broker houses is the non-alertness of the investors. 

And to add to the woes of the investors get entangled in the procedural hurdles and the subject matter eventually dies down. 

Nevertheless the laws are always designed in the best interest of the honest litigant but the procedural lapses in the complaint due to lack of legal knowledge are being used by their mischievous opponents. 

Coming back to the ISSUE: 

The Rules, Regulations and Bye-Laws state that for every trade an approval/confirmation needs to obtained before the placement of an order and details of such approval be maintained and also details of such transaction which has been placed subsequent to such approval. (read clause 3.2.1 and 3.4.1 on NSE trade operations)

The above information can be located under the topic of trade operations designed for every relevant exchange. 

The above rule if understood in it's spirit will suggest that the duty on the brokers has to be assessed on following grounds; 

1. The approval/confirmation is obtained prior to the transaction/s; 

2. Details of such approval is retained; and 

3. Details of such transaction executed after obtaining such confirmation is also be retained. 

Results for 99% of matters which I have read and researched on .....unfortunately have focused on historical data which relates to post transaction and the time frame within which disputes/concerns are raised by investor/s upon obtaining such information. 

For e.g. Broker/s or there legal representatives always stress on the fact that the E-mail/s, SMS Alerts, P&L Statements etc. were sent and thus the investor was aware of the transaction. In turn during the proceeding/s they produce EMAIL LOGS, SMS LOGS, P & L STATEMENTS and LEDGER ACCOUNT/S which is nothing but a historical information or after effects of a transaction which lacks approval. 

They also emphasize on the fact that since the investor has not disputed the transaction within a stipulated time the investor has given an implied consent or the investor/s were educated enough about the transaction or they were aware of such risks and never raised concerns when profits occurred but only disputed when losses occurred. 

I believe disputes will only arise when an investor loses his savings and not when his portfolio is in green...

The broker/s and there sales rep are smart and diligent enough that they ensure that they obtain numerous signature from the investor at the time of opening account under the pretext of routine formalities and not educating the investor enough on the repercussions. 

The issue lies in the process, the investor gives almost a blanket authority via his numerous signature/s and which are used against the investor when disputes arise. 

The question however remains is whether the rules, regulations and bye-laws are above such blank authority obtained mischievously by the broker/s or is the agreement between the broker-client which grants blanket authority is paramount? 

I believe any rational person would agree and which also a settled position of law that the clauses in standard agreements which try to negate the spirit of a legislation should not be allowed to stand in accordance to principles of law and equity. The standard agreement/s always should be designed in such a manner that the spirit of legislation is held in highest regards and any deliberate attempts to tweak the law by indulging in such mischievous agreement/s should be set aside.  

Thus the question/s that should be posed and decided on in unauthorised trades is; whether there was enough approval/confirmation to enter into the transaction or whether the transaction was executed and standard information delivered after entering in to the transaction to the investor? 

The important aspect that needs attention is whether such transaction/contract is valid, void or voidable? Knowledge of transaction and dispute would be an after effect which would also raise serious questions about the credibility of the investor/s but does that set right the wrong committed by the broker/s. 

Raising concern upon knowledge is imperative but does not that mean if concern is not voiced in right time frame the broker would have done a right thing even though the NSE, BSE rule states that confirmation should be obtained is being violated. 

I believe that the judiciary and regulators should seriously question the processes adopted by the broker/s and lay strict precedents against even a smaller violation by these strong opponents. 

Another important aspect which I respect and which every individual should respect is that the law needs to adhered to but the law should not act as an obstacle/s where justice is delayed.  I believe the government/s or law makers have done enough to come out with better or best laws but the flaw remains in the implementation mechanism. 

I believe if advocacy is a noble profession and judiciary is an independent review system then justice should and will always prevail. 

What is seen that the procedural hurdles and numerous legalities try to take the steam away from the subject matter of the dispute? 

I do believe that the procedures should be paramount and I do respect them but when it is used to delay the verdict or mischievously postpone the matter to the misery of the honest litigant then I seriously start doubting the spirit of the system and benefits that should flow from it. 

I have complete faith that the results would be positive for a honest litigant but I am not sure whether the  verdict would come at a right time....timing is the issue. 

There is a possibility that the number of pending cases are on rise and the infrastructure in place may not possibly up to the mark but still we could implement strategies that would eliminate the burden on judiciary and still have effective outcome/s by focusing on subject matter of the dispute and not get held up in procedural flaws in the complaint. 

In the present scenario, I do agree that the investor/s should be more aware, alert and understand the risk that are associated with the stock markets. However most of the investor/s get trapped in the heat of the moment and look for short term gains through speculative trading.  

For speculative investor/s I believe they learn the lesson by suffering losses for their actions in a hard way but where the investor/s are driven or influenced by the broker/s the outcome/s should not be affected by procedural lapses. 

I also strongly believe if the duty of investor/s is to be aware and alert then it also the duty of broker/s to ensure that their client/s are equally educated with the risks associated and should understand the financial objective of the client/s. 

As soon as the money is entrusted with the Broker/s they are placed in the fiduciary capacity of a trustee as they are dealing with someone else's money. 

Justice is not only about a favorable outcome for a honest litigant but also to have it within a right time frame. 

To repose the faith that may have possibly being lost in the judiciary; is to deliver result/s based on the subject matter and not create hindrances via legal procedural lapses which can  possibly be corrected even during the pendency of a trial. 

Please post your valuable comments.....