Sebi asked to extend mediation, arbitration to companies too

MUMBAI: Sebi's online complaint filing system SCORES has achieved a redressal rate of 96 per cent -- one of the highest among regulators worldwide, a study said today, while suggesting to extend mediation and arbitration model beyond brokers to investors at the company level too.

The study, conducted by Sebi's Development Research Group (DRG), said a much larger number of investors will benefit in primary and secondary markets if the arbitration and mediation model is extended to company-level grievances. Currently, these facilities are available for grievances at broker level.

The study on 'Effectiveness of Sebi's Complaints Redress System (SCORES) in India' said that a dynamic and efficient capital market is a vital and indispensable part of a nation's financial infrastructure.

"Indian stock market is the fourth best-performing market in the world. Retail investors account for nearly 97 per cent of total investors in Indian mutual funds accounting for nearly 47 million investor accounts.

"Resolution of securities market dispute could result in lowering the cost of equity/capital in the country. Secondly, dispute resolution platform provides a feedback mechanism of the regulation in the securities industry - which regulation is working, not working but needs fine-tuning," it said.

The study examined the role and efficacy of Sebi's SCORES securities dispute resolution system using three attributes of a good dispute resolution system -- accessibility, efficiency and fairness.

On accessibility to investors, the study found SCORES fares very well and "it is overzealous in accepting customer complaints".

"On the flip side, given the overtly inclusiveness of the SCORES system, it has the potential to create a number of 'hard-to-solve' cases with weak information set which can impact adversely the reputation of the regulator," it said.

The survey further said that SCORES is a unique model and could be characterised as 'advocacy model' with investors interest in the forefront.

On efficiency also, SCORES system fares favourably and the "redressal rate at 96 per cent in recent years is one of the highest among regulators worldwide.

"Similarly, the time taken also scores positively (less than a year). Most of the cases get resolved in the initial stages itself.

"To improve the redressal rate further, it is recommended that an active mediation role as opposed to conciliation rule may be played by the regulator. This could further improve the redressal rate and satisfaction rate of investors."

In terms of the fairness issue, the study discussed the proposition that it is the 'haves' with enhanced access to resources and their repeat plays that make them more successful in the court systems.

Using the complainants' success rate as a metric, it found arbitration system success rate to be around 46 per cent and the customer satisfaction at around 54 per cent.

In this regard, it recommended that the SCORES system should monitor repeat players who tend to 'play for rules' to the disadvantage of individuals as 'one shooters'.

"Sebi should consider extending the mediation and arbitration model prevalent among broking community to the company level (primary and secondary market) so similar benefits could accrue to the investor community," it said.

The study also said that social media could be used extensively in investor education.