Avoid keeping large amounts with brokers

Team Stocko

Img August 9, 2021
Avoid keeping large amounts with brokers

Keep your mobile number and e-mail updated.
When you receive the weekly report on cash holdings, check to ensure there is no discrepancy between the amount you have kept with the broker and what the latter has reported, advises Sanjay Kumar Singh.

Around 28 brokers affiliated to the NSE have defaulted since November 2019.

Eight have defaulted in the current year. The regularity with which brokers default makes it imperative that retail investors entering the capital markets choose this intermediary with utmost care.

Why are brokers defaulting?

The most common reason is that in the past they may have used clients’ securities and cash for proprietary trading, and suffered losses.

Or they have used one client’s cash or securities to offer enhanced margin to another client, who may have suffered losses.

Over the past year and a half, the Securities and Exchange Board of India (Sebi) has tightened regulations, making it harder for brokers to continue with such practices.

Reporting norms have also become tougher.

“There have been many cases of the broker not being able to produce the funds and securities belonging to the client which he was supposed to have. Many such cases have come to light in this tighter regime, leading to a string of defaults,” says Shrey Jain, founder, SAS Online, a Delhi-based discount broking firm.

According to industry insiders, the rapid pace at which these new norms were implemented meant that many brokers were unable to manage the transition to the new, cleaner way of functioning.

Essentially, what we are witnessing now is a cleansing up of the system, which may continue for some time.

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