A reputed stock broker Karvy is facing a small crisis. The commodity trading clients have defaulted on payments after suffering major losses on trades in castor seed contracts. Investors have taken to social media site Twitter and are complaining to the PMO, SEBI and even the Finance Ministry against the Hyderabad based-financial services group Karvy.
An investor has asked, Despite requesting transfer of my existing funds from the trading account, why is it not done? In all this ICRA has downgraded Karvy Broking to non-cooperating category. The rating for Karvy Stock Broking’s long term loans has been cut from “A” to “BBB”.
Karvy Financial Services has said that its troubles are limited to just the commodities broking business. It also states that the payout issues have long been addressed. The total amount collectable is just Rs 5 Crores. It’s small given the size of Karvy. In all this comes the question, are your shares safe if a broker goes through a liquidity crunch?
See Also: How your stock broker may cheat you?
The shares bought by you are electronically stored in depositories like CDSL and NSDL. The stock brokers are mere intermediaries between you and the depository. So, even if the brokers abscond or default, your shares are safe. You are the owner of the shares and can get them back by contacting the depository.
Remember: When you transact through a stock exchange platform, you get email or SMS alerts from these exchanges within 24 hours. NSDL and CDSL which hold your shares in electronic form send emails and SMS alerts on your transactions. You get to know the number of shares sold, the price at which they were sold, and the cumulative holdings after the transaction as well as the total transaction value.
The stock broker has access to any money lying in the trading account. If you do a lot of trades, you would be forced to leave money in the trading account. Keep a close eye on these amounts. Transfer any excess amounts to your savings bank account at the earliest.
When you sell shares, they are moved out of your demat account and handed over to the stock exchange. You may prefer giving the stock broker the power of attorney or PoA to sell shares on your behalf if you are a frequent trader. This is done by filling a physical slip.
Give your broker a limited purpose PoA where he can only transfer shares from the demat account to the exchange. You get an SMS when you buy/sell shares from both the depository and the stock exchange. The stock broker also sends a contract note at the end of the day. Study these documents closely and if you find transactions are made without your permission, contact the stock broker immediately.
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