Arbitration Mechanism in Stock Exchanges
Summary
This circular mandates stock exchanges to establish a streamlined arbitration mechanism for resolving disputes between clients and members. It outlines strict requirements for maintaining an arbitrator panel, including eligibility criteria, code of conduct, and performance appraisal. The document details procedural timelines for arbitration and appeals, fee structures with exemptions for small claims, and enforcement mechanisms for awards favoring clients. The document mandates stock exchanges to preserve arbitration records and disclose disposal details on their websites. It instructs recognized stock exchanges to amend bye-laws, notify members, and report implementation status to SEBI. The circular supersedes previous regulations and establishes inspection powers for SEBI regarding compliance.
Text
In consultation with the stock exchanges, it has been decided to streamline the arbitration mechanism available at stock exchanges for arbitration of disputes (claims, complaints, differences, etc.) arising between a client and a member across various market segments.
A stock exchange shall provide an arbitration mechanism for settlement of disputes between a client and a member through arbitration proceedings in accordance with the provisions of this Circular read with Section 2(4) of the Arbitration and Conciliation, Act, 1996.
A stock exchange shall maintain a panel of arbitrators. The number of arbitrators in the panel shall be commensurate to the number of disputes so that an arbitrator handles a reasonable number of references simultaneously and all arbitration references are disposed of within the prescribed time.
The stock exchange shall have a set of fair and transparent criteria for inclusion of names in the panel of arbitrators.
While deciding to include a particular person in the panel of arbitrators, the stock exchange shall take into account the following factors: i. age, ii. qualification in the area of law, finance, accounts, economics, management, or administration, and iii. experience in financial services, including securities market.
The name of a person shall be included in the panel after obtaining: i. a declaration that he has not been involved in any act of fraud, dishonesty or moral turpitude, or found guilty of any economic offence, ii. disclosure of the nature of his association with securities market, iii. disclosure of the names of his dependents associated with the securities market as member, sub-broker or authorized person, and iv. an undertaking that he shall abide by the code of conduct prescribed in this circular.
The stock exchange shall provide at least seven days of continuing education to every arbitrator each year.
The stock exchange shall have a mechanism to appraise the performance of arbitrators and reconstitute the panel based on such appraisal atleast once a year.
An arbitrator shall – i. act in a fair, unbiased, independent and objective manner; ii. maintain the highest standards of personal integrity, truthfulness, honesty and fortitude in discharge of his duties; iii. disclose his interest or conflict in a particular case... viii. endeavour to pass arbitral award expeditiously and in any case not later than the time prescribed in this circular; and ix. pass reasoned and speaking arbitral awards.
The limitation period for filing an arbitration reference shall be governed by the law of limitation, i.e., The Limitation Act, 1963.
An arbitration reference for a claim / counter claim up to Rs.25 lakh shall be dealt with by a sole arbitrator while that above Rs.25 lakh shall be dealt with by a panel of three arbitrators.
The stock exchange shall ensure that the process of appointment of arbitrator(s) is completed within 30 days from the date of receipt of application from the applicant.
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Source: SecMarx — Arbitration Mechanism in Stock Exchanges. Verbatim text is public record; SecMarx structuring (linkage to applying orders) is cited to us.