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. Last Updated: 07/27/2016

Bombay Punters Prefer Private Club to Frenetic Exchange

BOMBAY -- Every Sunday, a club of middle-class investors gathers at a hotel in India's commercial capital to provide an alternative to punters who complain that they don't get a fair deal from stockbrokers.


"Most of the time we are cheated by the brokers because they buy and sell our stocks at prices convenient to them," said Fayaz Ismail, a businessman voicing the anguish of small investors.


Investors say brokers often give them an unfair deal because the absence of transparency -- a clear picture of trading -- on the Bombay stock market works to the brokers' advantage.


Housewives and doctors are among the members of the club, reflecting a cross-section of Bombay's middle-class residents who gather to buy and sell stocks.


Huddled in groups, the investors scribble transactions on notepads between discussions on sport, films and politics -- a far cry from the frenetic activity on the trading floor of the Bombay Stock Exchange, India's premier market.


The Stockers Club, launched two years ago by a few investors when a $1.28 billion securities scandal broke, also offers an informal meeting place which markets, with their high costs, cannot duplicate.


It costs 20 million rupees ($600,000) to buy a card to become a trader on the BSE.


Share analysts say the informality and trust in share deals that club members hold dear is what is missing in India's 22 stock exchanges and what attracts people to the group.


For three hours on a Sunday, around 100 members of the club buy and sell shares, cementing their deals immediately with payment in cash or by check.


Foreign brokers say the lengthy process of settlement on Indian stock markets has kept funds from abroad from flowing into the country even after India opened up its economy under a radical reform program launched three years ago.


"After the scandal erupted, we as investors were in need to know what was happening. Small investors were the ones who suffered the most," said Vijay Punwani, a hotelier and one of the club's directors.


Scores of small investors lost their life savings as shares crashed following the scandal, in which stockbrokers and bankers colluded in diverting funds from the inter-bank securities market to the then booming stock markets.


The club has no brokers and there is no speculation. At first it failed to attract much interest because of the cautious approach of middle-class investors to new ideas.


"Nobody wanted to take any risk as the memories of the scandal were still fresh in their minds," Punwani said.


From seven at first, the club's membership has now grown to about 450, close to 50 percent of its target of 1,000.


"Investors know who have bought their shares and can get back to them if there are any payment problems," says Ajay Karwar, a chartered accountant and a club founder.


Asha Shroff, a housewife, said she faced no problems in her transactions. "I know to whom I am selling my shares. And there are no problems of payment or bouncing of checks."


The Securities and Exchange Board of India, the market regulator, says it is not worried about the club's activities.


SEBI Executive Director C.B. Bhave said direct spot transactions among investors were common the world over.


"There's nothing illegal about them. The approval of the market regulator is not required for a club which is only carrying out spot transactions," Bhave said.


But he warned: "If in the garb of spot transactions they carry out speculative trading then it will be illegal."


He does not think the club can survive for long. But it is entering its third year, while the government struggles to put the scandal behind it.


A report on action taken on the recommendations of a parliamentary probe into the scandal has locked the government in a bitter row with the opposition.


The opposition calls it a cover-up and has boycotted the current parliamentary session.


One of the issues highlighted by the parliamentary probe committee was the absence of transparency in share deals.