With great power comes great responsibility. When you have significant power, a considerable responsibility is bestowed upon you. If you work without responsibility despite having great power, it not only affects you but also causes Wound to many others. In the stock market, this power lies with stock brokers and exchange regulators.
stock broker is to ensure that their active clients can execute their trades correctly, square off positions, and monitor their positions. However, in many cases, due to glitches, brokers face continuous closures every month, resulting client suffers a loss.
Technical Glitch In Market Apps
For example, in January 2024, glitches were observed twice, and the same occurred in December 2023. A glitch was also noticed in November, preceded by one in October. In July, April, and May, glitches were witnessed as well. Stocks have closed twice in the past year, and even Angel Broking faced such closures. In 2024, Guro also experienced its first significant technical glitch. All these brokers have closed for various reasons, and the name of Finway also came up. However, Finway was a sole broker, and its founders stated that they are ready to refund traders.
A trader’s primary concern is, ‘If there is a glitch in the Market app, who will compensate for my losses? Will the broker compensate?’ To understand the answer to this question and how brokers always escape, let’s explore it in this article. Let’s get started.
Problem During Market Apps Glitch
Whenever there is a glitch in a Market platform, most traders express concern about being unable to execute orders, pending stages, being unable to square off positions, unable to exit, unable to check positions, and unable to log in. These concerns arise in almost every technical glitch. According to the Market Pulse Report of NSE, approximately 4 million people actively engage in option Market in India every month. As of now, there are 36,163,393 total demat accounts actively in India, and out of these, 28,369,022 active demat accounts belong to the top 10 stock brokers in India. This means that the top 10 brokers hold About 80% of the market share. Hence, if there is a glitch in any of these broker’s apps, And that’s why the point ‘With great power comes great responsibility’ becomes relevant here.
Conditions To Become Broker
Now, it needs to be understood here that whenever SEBI grants permission to someone to become a broker, there are specific sets of conditions that the broker must adhere to, both at the beginning and continuously. Firstly, if you want to facilitate internet-based Market as a broker, you need to have a minimum deposit of at least ₹1 lakh. This amount is not significantly large, considering that SEBI allows anyone and everybody to allow internet-based Market. However, the expenses for developing and leasing Market platforms in the future are much higher.
Master Client Agreement
Besides the capital, certain significant details are mentioned in the Master Client Agreement, a part of the demat account, which is often not thoroughly read. It essentially safeguards the broker in many situations. In such cases, the client is aware that the Market being conducted is via the internet, which involves many factors such as application systems and communication lines where disruptions can occur. Stock brokers or exchanges do not provide any guarantee or warranty that the stock broker’s internet-based Market system will always be available. Without any such assurance, no client can claim anything Opposite the exchange or broker in case their account is closed due to the broker’s internet-based Market system being interrupted, unavailable, or facing a malfunction.
These factors are explained in detail in a six-page document, specifically points number nine and ten on the last page. You can read them for yourself. So, does this mean that a normal retail investor can never claim any money from their broker when the fault is not theirs? If a broker’s app is not working and causes a loss, can the client claim nothing? Instances exist where a responsible and aware trader, who knew that if a mistake occurred or a technical glitch happened, kept records such as screenshots. They then used these records during arbitration or the SCORES portal when filing a complaint. The trader could then make use of these documents during the actual arbitration process. However, it is not explicitly mentioned anywhere that if there is an issue in this SOA, what action the broker will take Oppose us.
Up Stocks App Glitch Case
There were traders in Mumbai who filed a complaint Opposite a broker named M Stock. According to them, there was a glitch in the M Stock Market app from About noon to 1:9 in November 2022, which prevented them from logging in. As a result, they incurred a loss of approximately ₹38,500 because they couldn’t exit their positions. They submitted all the evidence in their complaint to SEBI (Securities and Exchange Board of India). SEBI spoke to M Stock, but the trader was not satisfied with the solution provided. The case reached the Grievance Redressal Committee of the Exchange, but no solution emerged there either. Finally, the case went to spot arbitration. However, before reaching that stage, M Stocks voluntarily said they were ready to settle, and they settled out of court, paying ₹18,500 to the trader. But the question arises, why did this happen? Because the trader had all the proof that could be shown to any third party at a neutral level, making it clear whose mistake it was and who should receive compensation.
Similarly, another case occurred in August 2023 when a trader from Meerut, using the Up Stocks app, faced login issues and incurred a loss of nearly ₹1 lakh due to being unable to square off his positions. The case went into arbitration, and a settlement of About ₹54 lakh was reached between both parties. It’s important to note that in such cases, the broker often applies the IBT (Internet Based Technology) rule, stating that glitches can occur here due to internet-based technology. Brokers claim that they cannot be held responsible for glitches, but a responsible trader, a responsible broker, and a strong arbitration are needed to solve such cases, which has been seen historically in some cases.
A case was also filed Opposite a broker named Dhann, where a trader demanded approximately ₹2,32,000 due to glitches in the Market app. However, the trader did not have enough proof to substantiate his claim, and in such cases, arguments often come to an end. No settlement is reached, and the broker escapes. It is crucial to understand that not all responsibility can be placed on a broker every time due to technical glitches. However, if a broker consistently fails to learn from their mistakes and regulatory bodies are consistently finding issues in their Market app, despite regular basis checks, then it’s time to categorize Market app glitches as a separate category for the exchange and the regulator. Now, the time has come when most complaints, as I will show and demonstrate with data, are related to Market app glitches. Now, this data is from the financial year 2021-22 to 2023-24, and it includes complaints Opposite various brokers in India like Upstox, Stocks, Zerodha, Angel One, M Stocks, Dhann, Kotak Five, Jio.
Out of all the total complaints, how many are of Type 5 (related to broker services causing financial loss), and what percentage of the total complaints do they constitute?
And, is this percentage consistently decreasing or increasing over the last 3 years? For example, in the case of Gro, out of a total of 144 complaints in 2021-22, approximately 59 were Type Five complaints, meaning About 41%. In 2022, this number was 48, and as of the current date in 2023-24, it is at 67. Similarly, calculating the percentage of Type Five complaints Opposite the total complaints for each broker, Angel has the lowest at just under 60%, Zerodha at 63%, Upstox, Gro, and Fai Pesa at 66%, and the highest percentage of such complaints is Opposite M Stocks, About 73%, and Dhann at About 78%. It is essential to understand that while Zerodha, currently at 63%, had About 44% last year and only 33% before that regarding such complaints, the cases Opposite Zerodha have increased significantly. Similarly, in the case of Fai Pesa, which had About 53% last year and only 44% before that, it has seen an increase. In general, the percentage of such complaints is increasing year by year in most broker cases. All these numbers are publicly available, and the exchange releases these numbers; brokers themselves share this information. It means the exchange knows, SEBI knows which broker is doing what kind of work, how well they are doing it.
Responsibility Of Trader
What is the ideal solution? Well, understanding another’s Ache becomes most evident when you experience something similar. So, if you ever face a similar situation, first, as a retail trader, you should go to the score’s portal Opposite that broker, irrespective of whether you get a solution or not, whether you get money or not, you must file a Type Five complaint Opposite that broker. The number should ideally match the number of complaints that broker has. Second, regulators should take basic steps. SEBI should only scrutinize brokers who consistently make such mistakes, and if they don’t make a significant improvement, penalties should be imposed on them. The penalty should not be one-sided because for them, it’s an easy way out, as seen when Upstox paid 3 crores when its own Market applications and servers were hacked in 2022.
A ‘I’m sorry, we suspend demat account opening for new clients on board’ is not enough. In such cases, SEBI should suspend their Market app operation for a few days or weeks, just like in the case of IFL last year. An ideal retail trader should always have a Plan B, another demat account. If one app is causing trouble and its technical platform is suspended by SEBI, you should be able to continue Market when something like this happens. There might be some monetary loss, and there might be some pain, but when there is pain, you will take precautions to ensure such things don’t happen again. Look for some solution and what can be done with great power comes great responsibility. If you want to keep this significant power with you, you also need to handle the responsibility well. Please let me know in the comment section, and hopefully, this information will make a Big impact. Thank you so much, bye!