What Happens if Stock Broker Goes Bust or Runs Away

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What To Do When Your Stock Broker Runs Away? How Much Will You Lose?

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3 Min Read    |    April 24, 2021

There’s no shortage of stockbrokers in India and each of them claims to offer the best and most seamless services. However, the concept of cheating and fraud isn’t new too. 

Have you ever thought about what happens if your broker runs aways? 

What if the stockbroker goes bankrupt or bust? 

What if it shuts down its firms? 

Will that affect your stock balance or shares in your Demat account?

Could you do anything about it or not?

Doesn’t the thought of it send chills down your spine? 

Well, I surely feel that way. But for many, especially those who have put in a big amount of money, their world may seem to crash down. 

Don’t worry, we aren’t here to scare you with these questions but to make you aware of the things you can do in such a situation. Therefore, I recommend you to read this blog until the end so that you don’t miss any crucial detail. 

Let’s get started-

What to Do If Brokers Go Bankrupt or Bust?

Practically speaking, nothing will happen to your stocks or shares if your stockbroker goes bust in India. It is because SEBI (Securities and Exchange Board of India) has laid down certain regulations and compliances for the stockbroking industry that every broker, investor, and trader needs to follow. 

Unfortunately, the concern is all about your trading account and not your shares and stocks.

If you are a trader/investor and your broker has gone bankrupt, then you must take the following actions to protect yourself against loss:

  1.  About the Trading Account

To protect traders/investors from such situations, SEBI has already created a fund know as Investor Protection Fund (IPF). You must file for the request to get a claim from this fund as soon as your broker goes bust or bankrupt. 

If you file the application immediately, you will get compensation of up to 15 lakhs by the Investor Protection Fund. If you file the claim within 3 years of the bankruptcy, then the compensation amount will be decided by the IPF. 

On the other hand, if you file the claim after 3 years, then you won’t get compensation from the IPF. Hence, we advise you, if any such thing happens, to file the claim as soon as possible to gain maximum compensation. 

  1. Regarding the Shares

You might know that we have two depositories in India: CDSL and NSDL. The shares of traders or investors are anyways with these depositories. Therefore, whenever a brokerage firm undergoes bankruptcy, the shares are transferred to some other brokerage firm based on the suggestions of the said traders/investors. 

How to Write a Complaint Against Stockbroker to SEBI? 

In case your broker isn’t getting you a relevant solution in time for any form of unusual activities on your account, then you must write a complaint to SEBI:

  • Non-receipt of corporate bond

  • Non-receipt of securities/funds/margins

  • Non-issuance of documents by the stockbroker

  • Closeout value/Auction value received or paid

Likewise, there are various others too that can help you send a written complaint about your specific problem. 

Things That You Must Take Care Of While Selecting Your Stockbroker

There are a few things that every trader and investors need to take care of while picking up his/her broker. Those are the following:

  • Do check the membership license numbers of your stockbroker with distinct stock exchanges.

  • Cross-check the documentation well

  • Uncheck the POA (Power of Attorney) so you don’t provide them with any kind of consent. 

  • Also, do not say yes to every trading call, first check, then think twice before saying say. 

Conclusion

It’s true that brokers make the task of trading and investing easy, but one must not completely leave them unattended even if they are a trusted firm like Upstox, Zerodha, Groww, etc. 

You must keep a close eye on the working and reputation of the brokerage firm. If at any point you feel like your broker is cheating on you, you can file a complaint with the SEBI unhesitatingly or the corresponding stock exchange. They will take strict action and investigate the firm. 

In case you want to open a Demat account, read our recent blog on how to open a Demat account with Groww


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