Busy times demand better service
We are living in busy times, our minds clogged with work and home pressures. What we want - and need - is a complete service. A service that can take care of our every conceivable need. On investments, we are already thinking about what to buy and when. There is much, and consistent, research to be done, price movements to be tracked and predicted, market news to gather.
We need a client-friendly broker whose service is consistent. Of course, thankfully, some brokers realise this and are busy developing individual service standards that will give them a competitive edge. But you need to remember that every bit of service has a cost attached to it - there are no free lunches.
What can you expect from your broker
It is hard to arrive at the various unique services that a broker could possibly offer, and therefore we shall talk about the basic service you could expect when you walk into a broker's office. These basic service standards have been reinforced by the relevant authorities, such as SEBI and the stock exchanges, thereby really making it a right of the investor. A broker must thus deliver the following to the client:
Contract Note is the document that makes the transaction legally binding. A contract note format is predefined and must cover the following:
- Name and SEBI registration number of the broker
- Order number
- Trade number
- Time of trade
- Scrip name
- Quantity bought or sold
- Market rate of the transaction
- Brokerage charged
- Net rate
The reverse of the contract contains the highlights of the rules and regulations that govern the transaction. The contract note, besides making the transaction legal, makes the deal much more transparent. An investor can go to the exchange concerned and, based on the order and trade numbers, verify if the transaction was placed as directed by the broker.
What the broker must do
A broker on the other hand must deliver the contract note to the client within 48 hours of the transaction. Also on the Contract Note are listed 'Payments' and 'Shares', discussed below.
10. Payments: Based on whether it is a purchase or sale transaction, the client will be required to pay the broker or receive money from the broker. The time of funds payable and receivable are defined in the settlement schedules of the exchange concerned.
A broker must ensure that he receives the funds on or before the date on which he has to pay the same to the exchange. Thus, he should inform the client of the receivables and payables. Of course, the contract note is the legal document that governs the deal and one can say the issuance of the same is sufficient intimation and it is a practice to send a bill, which is a summary of all contracts issued for the particular settlement.
Based on the bill, a client will have a net receivable or payable position for a settlement. This netting of amounts is done across all purchases and sales that are made by the client.
The client should ensure that he pays on or before the pay-in to the broker if the amount is net payable. On the other hand, the client should also get the monies receivable by him within 48 hours of the pay-out.
The three bank accounts of a broker
To give you an insight into how this works, the broker maintains three kinds of bank accounts:
- Own Funds account: In this account, a broker has money that belongs to him, say brokerage or capital invested by the broker. The money belongs to the broker.
- Clients Funds account: This is where the broker has to keep all money that belongs to the clients, say money kept as deposit or paid for transacting. A broker cannot use this money for the purpose of earning out of it. The broker is holding this on behalf of the client.
- Exchange Settlement Funds account: This is an account from which the broker receives or pays money to the exchange, depending upon the obligation. The broker can take his client's funds received against purchases directly into this account but he cannot utilise this account to transfer funds to a third party other than the exchange. He can, however, transfer funds from this account to another account of his own like the Client's Funds account for payment to the client.
The existence of these specific and separate accounts makes funds movement with the broker quite transparent, which in turn helps safeguard your - the investor's - investment. Which brings us to the last item on the Contract Note.
11. Shares: Based on the purchase or sale position, the client has to either receive or give shares. Just like in funds, the purchase and sale positions are also netted off for the settlement. However, the difference in the netting off here is that it is only netted across a particular scrip only.
Thus, a broker's bill also incorporates the share position of the client; it shows what is to be given or received. The client must ensure that he delivers the shares sold on or before the pay-in date. On the other hand, a broker must deliver the shares to the client within 48 hours of the pay-out from the exchange.
A client should receive the shares from the broker in saleable and transferable form. If for any reason the shares are not in saleable and transferable form, it is the client's right to demand the broker rectify the same within the guidelines laid by the exchange. Of course, when the reason for non-saleability and transferability is due to a lapse of the investor himself then he foregoes the right of claim over the broker.
Is that all?
If you are disheartened by the sound of requisite basic service brokers are supposed to offer, take heart for there are brokers out there who cater to your appetite. In other words, listed above is the basic menu and the chef can carry out exclusive orders!
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