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Classroom | Dealing with the stock broker (Equity: Part 5)

A guide to buying and selling shares through a stock broker.

September 30, 2019 / 01:31 PM IST

Part 5 of the Classroom series deals with working with a broker to place buy and sell orders.

Q: What is the process for paying for the shares bought and receiving payment for the shares sold?

A: When you buy shares through an offline broker, you have to make the payment to your broker on the following day. The following day after the payment is made, the shares will be credited into your account.

Similarly, when you sell shares, you have to hand over the shares to your broker the following day. You will receive the payment for those shares a day later.

If you are transacting online by yourself, you need to make the payment at the time of placing the order to buy shares.

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Q: Do I need to keep some money as deposit with the broker?

A: It is not mandatory. However, as a precautionary measure, some brokers insist that a client should keep a deposit. That is because once a broker executes a buy order on behalf of his client, the broker has to make the payment to the stock exchange, whether or not the client pays him. Also, in the past, it would take a couple of days for a client’s cheque to be cleared and the money credited in the broker’s account.

Q: My friend who deals in stocks says that his broker charges him margins. What are margins and why do brokers collect them?

A: Your friend must be trading in equity derivatives. In derivatives trading, the exchange has a mathematical way of calculating margins that a broker is supposed to collect from his clients.

There are different type of margins that are sum up to make the final margin.

The two main margins are SPAN margin which stands for Standardized Portfolio Analysis of Risk and Exposure margin. SPAN margin determines the margin requirement using a complex algorithm to determine a one-day risk for a trader’s account. SPAN margin for every stock and index is different and keeps changing even during a single day especially if the volatility is high.

Exposure margin, on the other hand, is constant and is collected to protect the broker from excessive volatility and client defaults.

In addition to this, the exchanges charge ad-hoc margins which are collected ahead of special events like budget or elections in anticipation of high volatility.

Apart from these, there is something called as a mark-to-market margin. When a trader has an outstanding position, there is a notional profit or loss at the end of the day. If the position shows a profit, the client does not have to pay additional margins. But if the position shows a loss, the client has to pay a mark-to-market margin to the extent of the loss.

Q: Are margins refundable?

A: Margins are refundable after all transactions are squared off.

Q: Is it possible for a broker to cheat his clients? If so, how?

A: These days the market regulator has enforced norms which makes it almost impossible for a broker to cheat his clients. All transactions have to be recorded.

As soon as a trade is executed the client should get an SMS message on his mobile. This way he can confirm the rates and quantities that were bought are the same as the ones he had asked the dealer to buy or sell.

However, there are cases where clients complain to the regulator that the broker made the customer buy some shares, which later declined in value. Unless the broker did this with a malafide intent, the regulator can do little about this.

Among the other common complaints is the broker transferring funds, shares out of their accounts without informing them. There are instances when the broker does not credit the funds or shares within the mandatory deadline.

Q: What precautions should I take so that my broker does not cheat me?

A: Keep track of all your transactions. Regularly monitor your demat account for shares as well as dividends that your portfolio companies announce. Check your contract notes for proper signature and seals. Ensure that you regularly get statements of your trade and demat account.

In case of any delay ask for an explanation from the broker. If you are not satisfied with the reply you can take it up with the market regulator Sebi.

Q: If I am still cheated by my broker, who can I complain to?

A: If you have a complaint against a broker visit Sebi’s website Sebi Complaint Redress System (SCORES), https://scores.gov.in/, and file your grievance. You will be asked to upload documentary proofs you have against the broker. Sebi will then seek a response from the broker.

Sebi also has two toll-free helpline numbers – 18002667575 and 1800227575
Shishir Asthana
first published: Sep 30, 2019 01:29 pm

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