Indian brokerages dealing with US clients are looking at ‘chaperoning’ arrangements with registered counterparts in that country
Indian brokerages dealing with US clients are looking at ‘chaperoning’ arrangements with registered counterparts in that country after getting a knuckle-rap from the Securities and Exchange Commission (SEC).
“We will initially do a ‘chaperoning’ deal which is a formal arrangement where you tie up with a local guy. Later we may have to look at getting a permanent registration in America as well,” said one person directly involved with such a matter.
The local partner would represent the Indian broker for any business that he does with an American client. The arrangement would have to be a formal one with its own terms and conditions including the payment of a fee and cannot be an informal association.
While the so-called chaperone would help meet the immediate need for continuing to do business in America, the arrangement may not be sustainable on an indefinite basis.
Brokerages may have to establish their independent presence in the United States through a permanent registration with the authorities.
“The registration would have a certain cost associated with it, but the chaperoning agreement itself won’t be cheap. Besides, we feel that the regulator will be more comfortable with a permanent registration,” said the person quoted earlier.
The SEC has initiated action against Indian brokerages for dealing with American clients without registration. Even foreign brokerages dealing from outside America but selling to American clients must register themselves in the US, according to the SEC.
“Foreign broker-dealers that, from outside of the United States, induce or attempt to induce securities transactions by any person in the United States, or that use the means or instrumentalities of interstate commerce of the United States for this purpose, also must register,” said the SEC website.
The SEC’s action caught many Indian brokers unawares since many of them have been dealing directly with the clients.
The US regulator may now impose a monetary penalty to settle charges against the broker, similar to the ‘consent’ arrangement followed by India’s stock market regulator the Securities and Exchange Board of India (Sebi).The extent of liabilities that could be imposed remains unclear.
The SEC did not immediately respond to a DNA Money mail on Saturday.
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