By BS Reporter
In order to stop mis-selling, particularly of leveraged products, the Securities and Exchange Board of India (SEBI) Chairman CB Bhave today asked the broker community to come out with a code of ethics within a year.
"It will be a very good exercise to come out with a code of ethics in the next one year on selling practices and on what constitutes mis-selling," Bhave said while addressing a convention organised by the Association of National Exchanges Members of India (Anmi) today.
The highest number of investors’ complains pertained to power of attorney, apart from leveraged products such as margin trading and derivatives, he said.
"We receive complaints from investors about them getting highly leveraged and, we believe, many of them don’t fully understand what leveraging means. Leverage is an issue on which we need to learn from the past financial crisis," Bhave said.
"Margin trading is a very popular product, but how many of you explain that margin trading is a leverage product. Given the age and the financial condition of a person, the brokers should see if it is right to encourage or dissuade the person from it," he added.
Bhave’s statement comes a day after the SEBI banned 14 major insurance companies from raising money from the public for any unit-linked insurance products (Ulips), mainly on grounds of mis-selling.
On the issue of the ambiguity in stamp duty levied by different state governments, Bhave said, "Stamp duty is not within SEBI’s preview. It is a state subject and we have made sufficient representation to the finance ministry on this." SEBI had earlier formed a committee to study the issue. "These new products in the stock market bring not only the ability to hedge risk, but also the ability to take risk. These products can be a source of risk, if not understood properly," said Bhave.