What happens if your stockbroker goes out of business or bankrupt?

What happens when your Stockbroker goes out of business?

What if the Stockbroker is broke or bankrupt?

What if it shut down the firm?

Is your stomach aching? Brain busting?

Don’t worry, a normal man always has these frightening doubts and that’s why I too started this way. As you always see, we start with fear and end relaxingly, clearing your doubts.

Have you read my previous blog, Is my money & shares safe with the Stockbroker? If not please read it here, as these two blogs combinedly may make you feel safe and secure in the market.

What should I do when my stockbroker goes bankrupt? Do I lose my money and securities?

A very interesting question, right? Actually, in my opinion, every person before entering the market should ask this question. One should search this question or ask an expert and find the answers.

If you get convinced by the answer only start an account and participate in the Stock Market. I am pretty sure you will be convinced because it is safe.

Read the blog completely without skipping to find the answers.

Stockbrokers going bankrupt or out of business

Hearing this may give a chill to your spine. But you don’t really need to worry about this too much. Especially in the case of your shares. It's your trading account you need to be worrying about.

Is such a scenario common? The answer is no, but it had happened and chances are there. Some brokers emerging as a big strong force can make other brokers vulnerable. Active clients are the backbone of brokerage firms. As this number is affected a brokerage firm may collapse.

But even if one firm is on the verge of closing, what the firm does is usually selling it or some other firm may come up to take over. Sometimes 2 brokerages merge to form a single one thus ensuring smooth working with increased active users.

As the SEBI and the exchanges are vigilant and in constant inspections, frauds and forgeries are seldom events as discussed in my previous article. If a broker does that then it will be heavily penalized and will be banned or defaulted.

Things you should take care of about a Stockbroker

Check about your broker thoroughly before opening an account. Its number of clients, complaints, support, and service.

Check the membership license number of your broker with different exchanges and make sure it is valid.

Go through the documentation well and untick the power of attorney (POA), if you don’t want your broker to trade for you.

Do not take all the calls your broker gave you. Have a look for yourself and do it wisely.

If you cannot analyze on your own go for a good mutual fund but always keep an eye on the records.

What happens to the Shares?

Have you read my previous article about NSDL & CDSL? If not read it here.

If you have already read the article then you may be knowing that your shares are always free from the Stockbrokers and are kept with the depository associated with your broker.

The depositories hold our shares and therefore even if a stockbroker is broke or shut down our shares remain safe with the depositories. So it can be transferred to another broker as your wish.

What happens to your trading account?

It's your trading account and the money in it that you should be worrying about. Especially this is more trouble for a trader than an investor as a trader will always be keeping a lot of money in the trading account.

Cool guys. No need to worry here. Your money is safe, it won't be disappearing with the broker. But a claim should be raised in time. Now you may understand that why it is advised to keep track of your account and reports.

There is a fund called Investor Protection Fund (IPF) set up by SEBI specifically to handle these kinds of scenarios if occur. To get a claim from this fund the traders need to file for the claim within a specific period.

• If the claim is filed immediately, then the trader can be compensated up to 15 lakhs by the IPF.
• If the claim is filed within 3 years after the bankruptcy and not immediately, then the compensation amount is determined by the IPF.
• If the claim is filed after 3 years, then the trader won't be compensated by the IPF.

So the stock market is for vigilant people. There is no point in complaining about there is no time to check as you are putting your hard-earned money into it. In this highly technical and developed world, it is unrealistic to say that you didn’t know a stockbroker going bankrupt and busting.

It will be huge news and every social media platform will be lit with such an act. In every aspect, the 3 year period for a claim is really huge and should not be missed. Strictly speaking, it is very easy to file a claim immediately to the IPF in the present world.