Brokers ask Sebi to defer compulsory voice recording

Rahul Nangalia, chief executive officer of Nangalia Stock Broking, does not record the telephone conversations his clients have with his dealers. “They have a long-term relationship with us; they trust us,” he says.

The Securities and Exchange Board of India (Sebi), however, believes this might not be enough. It has been considering making voice records mandatory for all broking firms. It is felt Sebi’s plan is aimed at settling cases involving accusations that brokers placed trades in client accounts without their consent.

R M C V Prasada Rao, president, Association of National Exchanges Members of India (ANMI), said the move would place a significant burden on smaller players. “Ninety per cent of the industry is made up of small and medium brokers. It will be expensive for those with small offices in remote places,” he said.

Siddharth Shah, chairman of the BSE Brokers’ Forum, said, “Once the recording is done, there will be a need to maintain records of this for a certain period of time. Brokers will also have to maintain a back-up of these records…our main concern is the cost.”

Smaller players may find it difficult to bear the costs associated with such a requirement, according to an ANMI letter to Sebi. The smallest level implementation of the system was said to cost at least Rs 50,000,

a major ask in a bad market, the letter said. “It may please be appreciated that the stock broking business currently is passing through one of its most challenging phases and the imposition of such stipulation will result in additional costs that may be difficult to bear for most of the brokers,”

The letter said many orders were placed through mobile phones, rather than a phone connected to a recording system, adding voice recording would not be effective in such cases. It said in case this was made mandatory, brokers would need to seek the consent of their clients, further increasing the burden on brokers.

“We suggest implementation of the voice-record mechanism be deferred till the pros and cons of the mechanism are fully considered and debated with all the agencies involved,” the letter said.

An email sent to Sebi on the status of the plan did not receive a reply.

Both sides of the story

• The regulator plans to make voice recording compulsory for all broking companies
• It is felt that Sebi’s plan is aimed at settling cases involving accusations that brokers placed trades in client accounts without their consent
• Brokerage associations oppose the move
• Brokerages say it will add to the costs of running the business
• Smaller brokers would be hit harder by the move