The Stock Exchange of Mauritius Ltd (SEM) and the Central Depository & Settlement Co. Ltd (CDS) have in place various mechanisms for the protection of investors which include a compensation fund and guarantee fund. The purpose of the Compensation Fund is to compensate investors and other persons who have suffered financial losses as a result of the inability of a stockbroking company to satisfy claims arising from any civil liability incurred by it in connection with services provided, or as a result of fraud or defalcation by the company or any of its employees or officers, or as a result of insolvency.
The CDS Guarantee Fund ensures the financial integrity of market participants in the securities market. CDS guarantees that trades will be settled among participants (i.e. delivery of securities by the selling participant and payment by the buying participant). The Fund operates to satisfy any loss sustained by the CDS caused by a participant's failure to meet its obligations but does not protect clients against losses they may incur as a result of brokers' failure or malpractice. This is covered by the Compensation Fund as described above.
In addition to the mechanisms described above, the law and Exchange regulations also contain safeguards to ensure investor protection. Insider dealing and other forms of unfair market are prohibited by law. Moreover, Exchange regulations impose an obligation on directors, officers and employees of stockbroking companies to disclose their interests in securities to the market regulator. The Exchange has established separate dealing rules for its employees and directors. Stockbroking companies are also not permitted to effect trades for their own accounts in preference to client orders. Brokers cannot enter an in-house order where a client order exists in the order book.
Segregation between clients' money and brokers' accounts is also ensured as the Stock Exchange Act imposes on brokers the duty to open and mainten separate and distinct bank accounts in respect of amounts received for the purchase of securities and from the sale thereof (less any brokerage or other charges).
Regarding complaints, if an investor has a complaint concerning a commercial dispute between the investor and his/her stockbroking company or unsatisfactory service by the stockbroking company, the investor should first lodge the complaint promptly with the stockbroking company. If the investor fails to receive a satisfactory response after follow-ups with the stockbroking company, the investor may consider lodging the complaint with SEM directly. If the matter is purely commercial, there may not be anything the Exchange can do. But if it involves a breach of SEM’s rules, SEM can consider an investigation of that matter.
The focus of SEM’s initial investigation is regulatory in nature. If SEM is of the view that a breach of the Stock Exchange rules has occurred, the Exchange may commence disciplinary proceedings against the stockbroking company or take such action as permitted under SEM’s rules. However, investigations by SEM do not necessarily result in compensation to the investor by the securities broker or the withdrawal of civil proceedings by the stockbroking company to recover amounts owing.
Where a matter concerns possible improper conduct by the stockbroking company, or if the investor has information concerning an instance of market misconduct, including information on insider trading or market manipulation, the investor may consider lodging the complaint with SEM directly.