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| DEMAT-ACCOUNT-FRAUD-PROTECTION |
What can you do to protect your DEMAT account from fraud?
Introduction: Investments
in equities are predominantly done through brokers. While there are options to
invest in equity mutual funds (MFs) either in physical or in DEMAT mode through
distributors and direct channels also, investments in direct equities may only
be made in DEMAT mode through stockbrokers, who get themselves registered as
depository partners (DP) with stock exchanges.
While opening a DEMAT
account to invest in equities/MFs, investors get an option to give Power of
Attorney (PoA) to the broker/provider of the DEMAT services, which authorizes
them to pay and receive investors’ money and securities to make the investment
process seamless.
Otherwise, without
providing PoA, whenever an investor places a transaction request through DEMAT,
he/she needs to sign and give a delivery instruction slip, authorizing the DP
to handle money and security on his/her behalf for the particular transaction,
which is a difficult and time-consuming task that may lead to loss of quick
investment opportunities.
Account Activity Awareness: Register your mobile
number and email ID, to get the mails/messages on time, and in case of any
change, update your contact details with the stockbroker. Check every SMS or
email notification you receive from your broker as well as the depository (CDSL
or NSDL). Make sure that the broker provides you Contract Notes within 24 hours
of your trades. Also, ensure that you receive Statement of Accounts at least
once in a quarter. In case you are not getting emails and/or messages regularly,
take up the matter with the stockbroker and exchange.
Register on the
portals of either NSDL (Speed-e) or CDSL (Easi /Easiest) and get all details
related to your holdings from these depositories online or using their mobile
applications. For example, CDSL offers an ' Easi /Easiest ' facility to view
the DEMAT holdings and transactions and an 'Easiest' option to view and
transact in your DEMAT account. Then reconcile your holdings regularly with
depository statements-specifically number of shares and not value of shares-
sent every month (if the transaction happened in that month). If no transaction
happened during the month, the statements will be sent every quarter.
Verification of Account Balance: Log-in into your
account regularly to verify balances and also check the DEMAT statements
provided by the depositories and messages sent by exchanges to ensure that all
the securities you hold are correctly listed. If you notice fraudulent
activity on your account, file a complaint with the depository as soon as
possible. If you delay taking action, the shares could be sold by the broker
or third party and it will be difficult to recall them or the money.
Excess Fund: Stockbroker can’t use pledge the securities
provided by you towards margin for raising funds. So, it is advisable not to
keep funds and securities idle with the broker (broking/trading account) and
only transfer money from your savings account to it when you decide to make a
purchase.
Delivery Instruction Slip: The Delivery Instruction
Slip (DIS) booklet for the DEMAT account is just equivalent to your bank checkbook. While transferring your shares from one DEMAT account to another, you
must sign the DIS. Hence you must ensure that you don’t leave your DIS booklet
around or leave your signed DIS booklet with your broker, to avoid any chances
of fraud. Avoid keeping signed delivery instruction slip with broker for
offline trades.
Pay-Outs: At
the time of transactions, ensure that you get the pay-outs of funds and
securities in your account within one day from such pay-outs.
Settlement: In case you are using a running account,
make sure that your account is settled regularly and in any case not later than
90 days (or 30 days if you have opted for 30 days settlement).
Power of Attorney: At the time of executing a Power of
Attorney, specify the duration for which the PoA is valid and all the rights
that the stockbroker can exercise. PoA is not a mandatory requirement as per
SEBI and stock exchanges, and you may register yourself for online application
services viz Speed-e by NSDL and Easiest by CDSL to overcome the disadvantages
of giving physical delivery instruction slips.
Foreign Trip: Very often, people fly abroad and leave
their DEMAT account neglected. Under these situations, you can give a signed
application to the DP to freeze the DEMAT account until you access or back.
When the DEMAT account is frozen, it continues to receive corporate actions
like dividends, bonuses and splits and only debits to the DEMAT account that is
barred. The freeze facility is something you must use when your DEMAT account
is likely to be idle for long.
Proprietary Trading: While opening a DEMAT
account with your broker, you must ensure that the broker is not directly or
indirectly involved in proprietary trading. Involving in these trading
activities; eventually, the broker has vested interest with your holding and
points to conflicts of interest. To avoid this, make sure the broker is not
involved with proprietary trading activity. This is very important and retail
investors must be aware of such activities. Proprietary trading (also "prop
trading") occurs when a trader trades stocks, bonds, currencies,
commodities, their derivatives, or other financial instruments with the firm's
own money, aka the Nostro account, contrary to depositors' money, in order to
make a profit for itself.
Service Issue: Study the financial
health of the broker or wherever you
are experiencing continuous service issue you can transfer securities from one
stockbroker to another. This will be an off-market transfer and investors do
not have to pay any capital gains tax. Transferring select securities attracts charges,
transferring all securities does not.
Infamous Frauds
There have been
several instances where brokers have transferred ETF units to use them as
collateral for margin funds on trade without the consent of investors.
1.
Allied Financial Services that pledged Dalmia
Bharat’s MF units. Albeit, the matter is being heard in the Supreme Court on
charges of fraud and collusion.
2.
Karvy Stock Broking created a DEMAT account
(as a client account) in its own name. Kept this under wraps and failed to
report it to any other entity such as the NSE. Using the Power of Attorney of
the various individuals, stocks/securities were transferred from client
accounts to their own accounts. To put it more simply, when clients bought
shares, rather than being credited to the respective DEMAT accounts, they were
directed into their own account.
It
is estimated that around Rs 2,300 crores worth of shares were pledged and loans
taken by Karvy Stock Broking on shares that never belonged to them.
SCORES the single window complaint redress system from SEBI:
https://scores.gov.in/scores/Welcome.html
Toll-Free Investor
Helpline: 1800 22 7575
