BSE's Use Of Investor Funds For Sending Bulk SMS Under Sebi Scanner

Inspection report of market regulator Sebi has found that BSE was using funds from Investor Services Fund (ISF) for sending bulk SMS messages to the clients of the exchange, documents related to Sebi's inspection report show. The amount of funds used by the BSE from ISF could be around Rs 50 crores. Sebi has found BSE's act of charging ISF for sending bulk SMSes for trade confirmation and F&B (Funds and Balances) could be against its guidelines issued in May 2023. Although BSE told SEBI that it had discontinued the practice, it will have to reverse the charges to ISF, the sources said.

Stock exchanges have to send SMSs and emails to clients including for the purpose of trade confirmation as per the Sebi guidelines. But using ISF funds for the same for certain expenses could be against Sebi guidelines, sources close to the regulator's office said. BSE has more than 12 crore registered investors and it sends crores of messages daily for trade confirmation among other alerts.

Sebi circular dated May 30, 2023, has prohibited the exchanges from using ISF funds for sending trade confirmation messages to clients and asked the exchanges to bear the expenses. The circular came into effect from July 2023. After the Sebi inspection report found that BSE was using funds from ISF, the exchange told the regulator that it immediately stopped the practice. It is learned that Sebi has asked BSE to reverse the charges to ISF and account the same in the books of BSE Ltd.

As per sources, trade confirmation SMS and F&B SMS (Funds and Balances) constitute major expenses pertaining to the SMS being sent to the clients by the exchanges. The sources say the exchange's submissions show that it decided only to rollback the trade confirmation SMS cost, which is only 3 percent of the overall SMS cost. But the exchange continued to charge ISF for F&B SMSes, which constituted 95 percent of the overall SMS cost of BSE.

BSE did not respond to email queries. But an official said the story was baseless.

Recently, Sebi had asked BSE pay a regulatory fee on annual turnover fee considering 'notional value' in the case of option contracts since BSE was paying on annual turnover, considering only the premium value for option contracts. This had reduced BSE payment to Sebi fees drastically. After SEBI's dictat the BSE has to pay the regulator little less than Rs 100 crores in pending dues since the regulator has asked it to pay the differential regulatory fee for past periods along with 15 per cent interest per annum. Analysts had estimated that BSE's Profit After Tax for FY25/26E would decline by 20 per cent based on the cost rise but could be managed by hiking other charges.

Palak Shah

BW Reporters The writer is author of the book: The Market Mafia - Chronicle of India’s High-Tech Stock Market Scandal & The Cabal That Went Scot-Free. Palak has been a journalist in Mumbai for nearly two decades now. He has worked for most premier pink papers including The Economic Times, Business Standard and The Financial Express and The Hindu Business Line. He was drawn to crime reporting at the age of 19 but a few years in the field told him that the fabric of crime had changed and the organised gangs, as Mumbai had witnessed during the eighties, no longer existed. It was business and markets that dominated the scenario. His passion to unravel the intricacies of the ‘white money’ economy led Palak to the world of finance and regulations.