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What Happens When Brokers Go Bankrupt Or Are Busted

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By Author: finology ventures
Total Articles: 13
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Having an account with any brokerage firm can sometimes be unsafe, as you do not know if your money is actually safe. Moreover, like any other business even a brokerage firm can go bankrupt which might come as a surprise to you. In such a case you might think what will happen to your bonds, stocks, mutual funds, or any other securities? To avoid such circumstances some protections will help you.
Stockbrokers play an important role in any investor’s journey as they provide many facilities. Failure of a broker can harm its clients trading then how can one avoid such a detrimental situation that you will know further in this article.

Failures in Difficult Economic Times

During Economic difficulties, even long-standing financial institutions fall apart. Brokerage Firms are financial institutions that have trouble during difficult economic times. Moreover, many times when this happens, firms carry out financial clout where they partner with any other firm just to remain viable or competitive. On the contrary, there are many firms that even self-liquidate and simply close down.

When does a stockbroker ...
... go out of business?
If your stockbroker goes bust especially in India, nothing will happen to your shares or stocks. There are many regulations laid by SEBI that will protect you in such situations. There will be no harm to your shares or stock but the harm will be to your trading account.
Your money and stocks are going to stay yours at the end of the day. The regulation of SEBI in the Indian Stock Broking Industry is strict and they keep eye on suspicious movements of any stockbrokers.

Moreover, SEBI has placed strict regulations through exchanges like NSE, BSE. On the other hand, SEBI has provided the freedom to the investors or clients to directly drop a complaint against the broker to the exchanges.

The more important issue is your trading account balance that is kept with your stockbroker. You need to file a complaint with proper details of your trading and Demat account whose action will be taken by Depositories like NSDL or CDSL. So what protects you in such cases? is mentioned in the next heading.

How are you protected?

In order to protect yourself if your broker goes in the bust, these are some things that can help you:
Investor protection Fund is something that is established by SEBI to provide compensation to the investors of the firm in cases like such. When your stockbroker goes in bust you just have to claim for compensation in time. The period valid for the claim is three years, before three years you need to claim the compensation.
If the claim is raised before the expiry or within the stipulated time then the retail investor is eligible for compensation of a maximum of INR 15 Lakhs against the losses.
If the claim is raised within three years of the period, the decision of whether or not compensation will be provided lies with the IPF trust.
If the claim is raised after the 3 years of time, the investor is NOT eligible anymore for the compensation.
SEBI has strict rules for anyone who wants to become a stockbroker in India. If the stockbroker wants to remain a stockbroker, they have to pay a huge entrance cost, regular audits, inspections, and strict disclosures need to be practiced. Additionally, if any stockbroker’s money is not used for three months, they won't be able to use it further.
Without your prior confirmation, the stockbroker can never complete the transaction from your Demat account. Additionally, if you have any doubts about the same keep a close eye on the matter of transaction to clear your doubts.
If you ask for your stock reports, your stockbroker is obliged to show them to you at any time of the year. If you have any doubts you can always ask for stock reports to clear your mind and have a clear idea about what is going on.

You can trust the discount broker name Angel Broking Demat account

How to write/send a complaint against Stockbroker to SEBI?

If you are suspicious of any unusual activities that might be going on in your account or you don’t get a solution to your problem in time you can send a written complaint directly to the SEBI:
Non-receipt of securities/ funds/ margins
Non-receipt of corporate bond
Non-issuance of several documents by the stockbroker
Auction value received or paid
Many others can help you write a complaint about any issue particularly.
Take care of these things
You should always check the membership license number of your stockbroker with various exchanges (like NSE or BSE).
You should always go through the documents thoroughly and do not give any consent to your stockbroker by unticking power of attorney.
Think twice before you say yes to trading calls, do not say yes, every time to all trading calls.
Many times a stockbroker might place trades that are not beneficial for you but generates a good amount of brokerage for them.
Stockbrokers might be misleading you by telling you to concentrate on one particular rather than telling you to diversify.
Sometimes stockbrokers might be executing trades without your consent.
Get you confused with many exposures provided that can make you lose larger monetary value.
Always check the percentage of complaints that are raised against your stockbroker. Keep a regular check on those that can hint you if anything is going wrong or not. If severe issues are being raised it is a red flag hinting you to pull out your funds and look for other stockbrokers.

In the end, be informed about what is going on in your account. If you see anything suspicious going on in your account you should feel free to write a complaint against your stockbroker. You should not worry about your Broker getting busted as your shares will be alright just for the account balance you need to file a claim. If the claim is raised in the given time you will receive the compensation and no loss will be incurred.

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