Many stock brokers have raised their insurance coverage to up to . 10 crore and extended their mandatory broker indemnity policy to cover fat finger errors similar to the one that caused Mumbai-based brokerage Emkay to take a . 51-crore hit on its books. Emkay Global received only . 95 lakh as insurance against the loss of . 51 crore suffered because one of its dealers punched in an erroneous trade last year. The brokerage had an insurance cover of only . 1 crore to cover trading errors.
According to industry experts, brokerages such as Edelweiss, India Infoline, Motilal Oswal, Angel Broking and Geojit BNP have increased theirinsurance coverage to between . 7 crore and . 10 crore. “We have seen some broking houses upgrading their limits in response to the recent (Emkay) event,” said Sanjay Kedia, country head and CEO of Marsh India Insurance Brokers. Marsh is one of the world’s largest providers of cover for security market brokers. Brokers says prior to the Emkay incident, trading members bought only traditional indemnity policies that did not provide cover for punching errors.
“Until the Emkay incident, only a few brokerages had a cover protecting them against losses from punching errors. However, since then, many brokers, including a few smaller ones, have extended the coverage to E&O and a few have also extended to non-material business interruption and cyber crime,” said Siddharth Shah, chairman of BSE Brokers Forum. The E&O clause insures brokers against losses arising out of errors in execution of clients’ orders.
Public sector insurance companies like New India and Oriental provide stock broker indemnity policies. A more sophisticated E&O policy is also available with some PSU insurers. Also, other covers exist like those for non-material business interruption — which covers risk of losing connectivity due to power outage, network failure and hardware failure — and new cyber crime and liabilityinsurance solution — which covers internal and external fraud, data privacy and data breaches.
According to Sebi’s exchange regulations, it is mandatory for every stock broker to have a minimum professional indemnity insurance of . 5 lakh.
“Trading members have extended the coverage as their vulnerability to fat finger errors has been exposed,” said Nimesh Shah, managing director of Fortune Financial Services. “Nowadays, even mid-level brokerages buy insurance ranging from . 2 crore to . 5 crore.”
Source :The Economic Times.
Date : 20/06/2013
Writer: RAJESH MASCARENHAS MUMBAI