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BSE secures insurance cover for trade errors

Sangita Shah

The Bombay Stock Exchange has, for the first time, availed of an insurance cover to protect its members from losses due to errors and omissions in transactions. The exchange has obtained a cover for its derivatives segment under a comprehensive insurance package.

Brokers, such as those who had punched in a deal of over 1 million shares of ACC at Re 1 a share, will now be able to recover their losses under the insurance cover which will be applicable for claims of Rs 90,000 and above.

The BSE has obtained the insurance policy effective July 1, 2001, for a year. This will benefit brokers who have entered into mistaken deals from July 2.

The sum insured under the policy is Rs 1 billion, which insures the exchange, its members, clearing house and members of the derivatives segment.

The risks covered under the policy include losses resulting from dishonest or fraudulent acts of the employee of the insured, loss of cash or securities from the premises of the insured, loss of securities in transit, loss by dealing in forged counterfeits, fraudulently altered, lost or stolen securities, loss arising out of legal liabilities of the insured due to inability to complete transactions, electronics and computer crime, liability arising as final receiving member on account of default of the first introducing member, and, errors and omissions cover.

The BSE members will be able to cover loss above Rs 90,000 in case of claims under errors and omissions and Rs 50,000 for all other claims. Moreover, under the current year's policy, the mandatory cover for members of the cash segment of BSE has been reduced from Rs 10 million to Rs 5 million and lower coverage for Rs 2.5 million is also provided. Mandatory cover for members of the derivatives segment is Rs 10 million and Rs 2.5 million for clearing members and trading members.

Further, as recommended by the risk management committee, the BSE governing board, in its meeting on July 18, has also decided to retain certain amount from the claims settled. The exchange will retain 15 per cent of the settled amount from the claims settled under loss resulting from dishonest or fraudulent acts of the employee of the insured (infidelity cover), loss of cash or securities from the premises of the insured and errors and omissions cover. Of the settled amount, 10 per cent will be retained from claims settled under loss to members on account of fake, forged, stolen shares being introduced by his client and electronics and computer crimes.

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