A common question which arises in our mind in what would happen if our stock broker were to abscond? Your stock broker might be cheating you in a number of ways. Will it mean that all our investments are lost and doomed? Or is there any way to recover from this setback? This article answers such questions regarding stock broker cheating cases and is important for people who are into stock trading.

How to identify stock broker is cheating you?

• As per SEBI’s rules, it is illegal for a stock broker to use your account balance for stock trading without your knowledge. This can be avoided by keeping an eye on your statement and viewing your stock trading.
• Online stock brokerage apps ask customers to sign and mail their Power of Attorney to them. But this is not mandatory. Hence, some smaller stock brokers might misuse your power of attorney to trade stocks in your demat account for their own profit. To avoid this, CDSL now sends TPIN to demat account holders. This should be kept private and has to be used each time to authorize your trading.
• Some brokers might even give you poor trading advice, which might actually not be profitable for you, just to generate their own brokerage fee. If you feel your stock broker is cheating you in such manner, you can complaint against him on SEBI and they will take an action.

What is the role of SEBI?

SEBI stands for the Securities and Exchange Board of India. It is the regulator of the securities and commodity market in India owned by the Government of India. SEBI was established on 12 April 1988 and given Statutory Powers on 30 January 1992 through the SEBI Act, 1992. All stock brokers get regulated by SEBI. Hence, from time to time SEBI audits their book of audits. Additionally, it is mandatory for stock brokers to disclose their full finances to SEBI. Moreover, it is not easy to establish a brokerage. One has to make a huge entry deposit to SEBI to start a brokerage, which makes the process difficult for everyone to get into. If SEBI discover some malpractices in a brokerage then it has the right to suspend it or even expel it for lifetime. A list of investors who have been barred by SEBI.

How to choose the right stock broker?

• Always note the stock broker’s SEBI registration number and check it on the SEBI website. But it is also possible for brokerage firms to provide a fake registration number. Thus, it is a must to check and verify it against the actual SEBI website to avoid any cheating.
• Stock brokers can charge you mainly for three things – account opening, AMC/MMC and brokerage. Account opening charges can only be taken once. AMC or MMC is the account maintenance charges which stock broker takes for handling your demat account. This can be charged either monthly or annually. Lastly, equity trading attracts a brokerage fee. You can view a comparative analysis of Zerodha vs Upstox charges in Upstox Vs Zerodha | Hidden Charges & Brokerage.
• It is also advisable to view the previous user ratings of stock broker apps before using them. This gives a more unbiased opinion of the masses.
• It is also important to note the transparency of the stock broker. In case of some apps such as Zerodha and Upstox, you can view your trade listings, account statements and other finances anytime you desire. This gives the user transparency across his account.

What to do if your stock broker runs away or is bankrupt?

Trading balance

In the first case, you may add some funds to your trading account which is left unused. If the brokers goes bankrupt in such a case and you lose the funds in your trading account then you can opt for the Investor Protection Fund (IPF). This is under SEBI’s regulation as well. So, if you make a complaint immediately you can get a claim for upto Rs 15 lakh. Else if you make a complaint later but before 3 years, then under the discretion of the IPF you may get some claim. But over 3 years you will not get any claim amount. Therefore, if your stock broker goes bust then the best solution it to raise a claim to Investor Protection Fund immediately.

Holdings in demat account

In the second case, you may be holding shares in your demat account for a longer duration and your stock broker runs away. It is important to note here that stock brokers are just an intermediary to buy your shares. They don’t actually hold your shares. Your shares are held at either CDSL or NSDL. So, if your stock broker runs away or goes bankrupt then you can apply to the CDSL/NSDL to transfer to stocks to another broker. This process can also be done when you are unhappy with your current broker.

Watch the video on stock broker cheating below.

Join the LLA telegram group for frequent updates and documents. Download the telegram group and search ‘Labour Law Advisor’ or follow the link – t.me/JoinLLA
It’s FREE!