Broker Out of Business? Here’s What to Do

By | April 14, 2023 7:49 pm

Stockbrokers play a crucial role in the Indian stock market as intermediaries between investors and exchanges. They facilitate buying and selling of securities and provide various services to investors. However, there may be instances where a stockbroker shuts down, leaving investors in a state of uncertainty.

Stockbrokers claim to offer seamless services, but in the growing world of businesses, the idea of a scam is not new either. What if the stockbroker helping you buy and sell stocks goes bust or goes out of business? Will that affect your shares and stock balance in your demat account?

What can you do about it as an investor and trader?

As an investor, it is crucial to understand the implications of a stockbroker shutting down. Stockbrokers play a vital role in facilitating securities transactions and managing investments on behalf of their clients. However, unforeseen circumstances or regulatory actions can sometimes lead to the closure of a stockbroker’s operations. In this article, we will explore the consequences of a stockbroker shutting down and discuss steps that investors can take to protect their investments.

Traders using Shoonya broker accounts are complaining of a glitch in the system since April 13 morning, leading to ghost orders in large quantities and accounts showing huge losses.

Leaving traders venting their frustration on Twitter, Shoonya systems encountered a technical error when the markets opened on Thursday, leading to huge losses as traders were not able to square off their positions on expiry day. The app also started displaying incorrect positions.

For Stocks And Shares

Your funds are held in a Demat (short for ‘dematerialized’) account, which allows you to hold stocks and other securities in digital form. These demat accounts are actually maintained at depositories, specifically the SEBI-approved Central Depository Services (India) Limited (CDSL) and the National Securities Depository Limited (NSDL), which was created by the Indian Government’s Ministry of Finance (MoF). At no point are your stocks and shares with the brokerage or the individual broker. They function just as a platform, acting as an intermediary as mentioned above. All they can do is trade as per your instructions using the funds in your trading account.

For Mutual Funds

Your mutual fund investments reside at asset management companies (AMCs). Therefore, if theoretically, Groww shuts down, your mutual funds are safe at the AMC.

For Trading Account

You must focus on your trading account, i.e., the account that contains the money your broker uses to buy and sell on your behalf. If any such unfortunate event were to occur, you need to apply to the Investor Protection Fund (IPF), set up by SEBI, to provide compensation. You need to file a claim for compensation within three years per SEBI rules to become eligible for such payment. 


Choose a stockbroker wisely, for one outage could cost you everything

Key Takeaways

  1. Contact regulatory authorities: The Securities and Exchange Board of India (SEBI) is the regulatory body overseeing the securities market in India. If your stockbroker has shut down, contact SEBI and follow their guidelines on the next steps to take. They may provide guidance on how to transfer your holdings and funds to another reputable stockbroker.
  2. Transfer holdings and funds to another reputable stockbroker: It is essential to transfer your investments to another reliable stockbroker as soon as possible to minimize potential losses. Conduct thorough research and choose a stockbroker that is financially stable, compliant with regulatory requirements, and has a good reputation. Be mindful of any charges or fees that may apply during the transfer process.
  3. Keep track of updates and developments: Stay informed about the status of your investments and any developments related to the shutdown of your stockbroker. Keep a close eye on notifications or updates from SEBI or other regulatory authorities. Be proactive in managing your portfolio and take necessary actions to protect your investments.
Category: Daily

About Bramesh

Bramesh Bhandari has been actively trading the Indian Stock Markets since over 15+ Years. His primary strategies are his interpretations and applications of Gann And Astro Methodologies developed over the past decade.

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