After the recent Finvasia technical glitch/ghost trading debacle on April 13th, many traders panicked, but a few questions came to mind.Finvasia did not handle the downtime properly, but they were kind enough to refund the loss caused by the technical glitch
My general question about all TMs. If tomorrow’s broker defaults or files for bankruptcy for ‘n’ reason they have the power to liquidate our stock and get their money out because the securities are pledged mosquito?
- I read that nse covers up to 25 lak cash balances if the broker defaults. Is there anything wrong with this? Only 25% cover 25 racks? Also, what is the timeline for getting reimbursed for these compensations from the Investor Protection Fund (IPF)? Is it easy to get reimbursed or will it take years?
Your valuable comments are highly appreciated by the trading community.
@nithin @t7support @VijayNair
@VenuMadhav wrote this post when the new pledge/re-pledge system was launched.
With the new pledge system, the shares do not leave the investor’s demat account, instead the pledge is marked in favor of the broker. Brokers should open a separate demat account labeled “TMCM – Client Securities Margin Pledge Account” (TMCM stands for Trading Member Clearing Member) for this purpose. The broker then repledges these securities in favor of the clearing corporation and obtains margin.
Some of the benefits of the new pledge system are:
- Anti-Misuse of Securities: Since the stock never leaves the investor’s account, the potential for misuse of the security is reduced. Also, you may not pledge shares of one client to provide margin for another client.
This is not possible if the securities remain in the demat account. That is, unauthorized movement of shares when pledged to CC. However, brokers may sell securities marked as collateral and find fraudulent ways to withdraw it. As a customer, you must be aware. Depositories and exchanges send notifications when any action is taken on a demat or trading account.
check this out
Refunds may take a while as it takes a long time to determine who gets what. This is especially the case when the legitimacy of the records kept by the fraudulent broker is questionable.
Is it possible with investment trusts? Like selling mutual fund credit to a bank account instead of a broker? Are there loopholes that brokers can exploit?
What about traders with uncollateralized pure cash margin that we upload to their trading accounts? Are they safe or does the broker have the authority to use that margin in bankruptcy?
In other words, if you go bankrupt, forget liquid cash margin even if it’s pledged scrip.
Only 10% of traders are profitable in the market, tax slabs, revised STTs, brokerage firms, brokerage technical glitches/downtime, and this kind of unsecured pledge stocks It’s too risky to think about becoming a full-time trader in the first place.place
We do not know which brokers will go bankrupt in the event of a certain black swan day.