In a far reaching case, a trader wins compensation claim against Zerodha

The GRC rebuffed Zerodha’s submissions and passed an order to admit claims on losses.

In a case that may have far reaching impact, a trader won a compensation claim filed against Zerodha for sustaining losses due to a technical issue. Moneycontrol learnt that Zerodha has already paid Rs 8,225 to the trader as ordered.

The BSE’s Grievance Redressal Committee (GRC) order to compensate the losses sustained due to the issue will set a precedent and open a Pandora's box as more and more such traders may file compensation claims.

Zerodha in a blog post refuted the claim that it was entirely in the wrong, as stated in a BSE order, and said some of the GRC’s observations are “blatant mistake”.

The matter pertains to trading losses sustained by a trader due to technical issue because of the utilisation of bandwidth to its maximum capacity on July 7. The same issue had flared up on June 30 as well, which led to traders being unable to square off their positions on an expiry day.

In the order, the GRC claims that Zerodha was responsible for the losses sustained by the trader (complainant). Hence, her claims are maintainable.

The issue

According to the submission made by the trader, she had sold Sensex puts on July 7. However, when she was trying to square off her positions that were in profit, a technical issue happened and she was unable to execute the order. Even calling Zerodha’s customer care did not help. Therefore, she had to see a larger chunk of her profits vanish by the end of the trade.

Seeing no solution to her problems, the trader filed a complaint against Zerodha.

Zerodha, according to the GRC order, contented that reduction in profit is a notional loss or opportunity loss and they cannot be made liable for the same. Zerodha accepted that there was a disruption in services.

Zerodha, in the order further said that it has taken a leased line of 4 Mbps, that is, the minimum bandwidth supplied by the exchange. After the first issue happened (June 30) it applied for an extension of bandwidth, which did not happen till July 7, when the trader suffered losses.

BSE observations

BSE’s GRC in its order said despite having the bandwidth utilization issue on June 30, Zerodha let their customer execute the order on July 7 without any backup plan. Hence, the respondent's claim that factors are beyond their control is “without merit”, it added. The GRC also said that exchange officials had sent alerts to them on 70 percent utilisation. Still, no corrective actions were taken.

The GRC, thus, rebuffed Zerodha’s submissions and passed an order to admit claims on losses. It further ordered Zerodha to submit an independent auditor report for technical as per the framework. It added that BSE should investigate the matter in detail to the interest of the investors.

Zerodha’s contentions

After the matters being raised on social media, Venu Madhav, Chief Operations Officer at Zerodha, said BSE never sent the alert on a breach of 70 percent of bandwidth utilisation. He termed the GRC’s observation as “blatant mistake”.

“Matter of fact, till date, there isn’t a system for members to proactively track bandwidth utilization during the day. It was only on July 21, 2023, 14 days after the bigger issue of 7th July, that the stock exchange issued a circular 6 that they would be sending reports via email to trading members notifying them of the bandwidth utilization,” he wrote in a blog post.

He claimed that when Zerodha finally received its Bandwidth utilization report for June 30, none of the reports indicated any excess utilisation. Madhav also added that 4 Mbps of leased line that connects Zerodha’s system to exchanges cannot be compared to the broadband line.

“These leased lines are very contextual and only transmit compressed exchange protocol messages, which typically only come up to a couple of hundred BYTES. Typically at any given moment, only a small percentage of such a dedicated leased line is utilized,” he said.