What happens if your broker goes burst? How to be Alert?


Imagine a scenario in which your broker suddenly become unreachable, all the mails you have sent to their email account bounce back and no one picks up your phone. To your nightmare, your fund withdrawal requests are not honored.  Recently many traders found themselves trapped in this situation and subsequently NSE expelled the broker Unicon Securities. See the circular issued by NSE on 10th September 2014 in all the leading financial newspapers.

unicon securities expelled

Being a Trader/Investors, we normally spends tons of hours analyzing different indicators, Chart patterns, balance sheets and what not.  We never bother to check the financial health of our brokers until it is too late. But it is always better to be safe than sorry.

In this post, we will explain how you can be alert and what action you can take if you find yourself in this situation (if god forbids).

It pays to understand and be alert about your Broker

First thing you should be doing is periodically visit NSE website and find out complaints registered against your broker. You can check the latest status of the complaints from here at Arbitration Status page

There are various categories of complaints classified by NSE and we captured broad categories in below table

Sl no Type of Complaint Description
1 I Non receipt/delay in payment
2 II Non-receipt / delay in securities
3 III Non-receipt of documents
4 IV Unauthorized trades / misappropriation
5 V Service related
6 VI Closing out / squaring up
7 VII Non implementation of arbitration award
8 VIII IPO related
9 IX Others

Though you should be worried about all the categories, in our opinion first four are the ones which we would never expect to see from my broker. More the number of Type I and II complaints, more alert you should be.

Unicon complaints screenshot

See the number of Type I and II complaints that were lodged against Unicon Securities, this would have been enough for an alert customer to sense that all is not well with them..

How can you claim your balance stuck with your broker?

You got busy with the trading, lazy enough to do above steps which we explained and one fine day you came to know that your broker has gone bust. What can be done now?

NSE protects investors interest through the Investor protection fund (IPF). But the maximum which you can claim is limited to Rs15Lakhs.

Lodge a formal claim at NSE using the claim form which can be downloaded from NSE website. we have attached the format for your quick reference here at NSE Claim Form.

Lessons to be learnt from Unicon Securities episode

  • Exercise due diligence while selecting your broker
  • Download and keep backup of all your contract notes, margin statements, ledger statements (You don’t know when your broker stops access to their website)
  • Get alert if you don’t receive contract notes within one working day from the execution of trade through email
  • You should always maintain the document in their original, we mean, screenshot does not qualify as proof
  • Don’t place all your eggs in a single basket, consider using different brokers and don’t keep more than 15lakhs if you can not afford to loose.

If you carefully read the notice from the NSE, you are expected to claim your balance within the three months from the date of notification. Beyond it, no one can help you out. So it is entirely your responsibility to keep a tab on news related to your broker. Your relationship with the broker should not end when you sign on the dotted lines, it should begin from there

Also Read :  Ten Best Online Share Trading Broking firms of India

If you have any suggestions on how we can protect ourselves as investors, please share them with the rest of the readers through comments.


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  • Keertikumar Patel

    Nice article….
    We can keep an eye on our own broker’s health

  

  
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