An analysis of stockbroking frauds and regulatory action in India

Purpose - Stockbrokers’ frauds in India frequently occur, causing investors significant financial loss. This study aims to unfold the various dubious practices adopted by stock brokers in the recent past to defraud investors and the necessary corrective regulations passed by the market regulator to prevent and detect fraud. Design/methodology/approach - The authors conduct exploratory research using a collective model of literature review, case studies and regulatory changes. Findings - The authors find tightening the system’s loopholes and strengthening the regulatory system using technology helps in the early detection and prevention of fraud. Media activism and investors’ awareness play a role in reducing incidences of fraud. Research limitations/implications - This study unfolds the practices followed by stock brokers to defraud investors, indicative of regulatory gaps and enforcement lapses. Regulators are evolving a robust system to curb these practices and make them on par with international standards. But, it has a long way to go. Practical implications - Robust fraud detection and prevention mechanism is desirable to restore investors’ confidence in the stock market. Regulators should focus on investors’ protection and education and whistleblowers’ protection. Compared to the market regulators worldwide, the Securities and Exchange Board of India has less power to identify, detect and punish fraudulent brokers and needs to be empowered. Social implications - Besides the regulatory changes, strict enforcement and investor campaigns are required to increase public awareness and restore trust in the stock market to combat the recurrence of fraud. Originality/value - This paper can be helpful to regulators, investors and financial intermediaries like stock brokers and aid in strengthening the reliability of capital markets and restoring investors’ confidence.