Brokers liable for loss from tech glitches in online trading: HC

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Stock brokers will be held accountable for glitches that clients face while trading through their online platforms. A recent Delhi High Court order has put the onus on brokers to ensure smooth connectivity for investors opting to trade online, providing legal recourse to several clients who have lost an opportunity to log profitable trades due to technical failure at the brokers’ end.
The Delhi High Court ruling pertains to a legal suit filed by Vivek Sharma, a retail investor against Reliance Securities — first with NSE’s arbitration panel and then with the Tees Hazari Sessions Court, New Delhi and subsequently with the Delhi High Court.
The NSE arbitrator and the lower court ruled in favour of Vivek Sharma; the High Court upheld the lower court’s ruling that brokers are liable for any opportunity loss (in making a profitable trade) incurred by the client as a result of technical glitches in the online platform. “The ultimate onus of having adequate system capacity installed primarily lies with stock brokers and their companies,” the lower court ruling said. The lower court went on to say that financial losses suffered by Sharma, which are attributable to the system failure , can’t be regarded as notional losses.
“If a member of internet trading facility places a sale order of a particular number of shares at a certain price in a highly volatile market and his order is not executed then and there for reasons beyond his control and is kept pending for hours together and then he looses valuable hard-earned money. In such a scenario, if delayed execution of an order results in ascertainable financial loss on this score owing to deficiency in service by stock broker, it is only the stock broker who has to account for such losses,” the lower court verdict, which was upheld by High Court, said.
Brokers will also be held responsible for not executing trades if it is not able to electronically receive funds from an investor’s bank account (that’s, delay in electronic fund transfer from banks), the lower court ruling, which was upheld by the High Court, said. Reliance Securities declined comment for the story. The Delhi High Court’s ruling is significant as stock exchanges are flooded with complaints with regards to trading services offered by broking firms.
The past 10 months have seen the National Stock Ex-change logging around 1,169 complaints relating to unsatisfactory service by brokers. A good number of them deal with connectivity and system-related issues and non-execution of client order, the CEO of a broking outfit said.
“There is nothing much we can do about it... technology is just coming off age in the country. There are gaps which brokers will never be able to fill,” the CEO said. “This order upholds the public policy of India and safeguards the interests of consumers who suffer financial losses on account of deficiency in service by large broking houses,” said Shreyas Vyas, a securities lawyer at Khare Legal Chambers.

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