The long road of dispute resolution for failed market transactions

You can approach the brokerage, exchange, regulator and even a consumer forum. But the process can be tedious

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Imagine you are about to place a buy order through your online brokerage account, when the server goes down and the order fails to go through. When the connection is restored, you find the stock price has risen from the sought level. Can you complain against the brokerage about an "opportunity loss"? Even if you do, chances are the issue wouldn't be resolved.

However, if you place an order through a broker and he/she fails to execute the order at the price you sought, you could file a complaint; your brokerage might have to compensate you in this case. This is because there is proof you had placed the order - your recorded telephone calls.

Common complaints
According to the National Stock Exchange (NSE), about 40 per cent of the complaints it receives pertain to service-related issues, non-issuance of documents, etc. These are easily resolved within a short period. The rest of the complaints are related to issues such as execution of trades without consent, non-receipt of funds/securities, etc. "Typically, most of these complaints are resolved within 60 days, with the intervention of the stock exchange. A few complaints that aren't resolved easily are referred to an independent expert panel - the Investor Grievance Resolution Panel," says an NSE official.

According to Raghavendra Nath, managing director, Ladderup Wealth Management, typically, errors such as punching wrong orders or the wrong number of shares are easy to prove and such issues are resolved easily. Also, brokers provide compensation in such cases, as most are insured against such errors. But if the trade doesn't happen for reasons such as a technical glitch, resolution could take time, as the opportunity loss is difficult to prove.

Other common issues over which client and brokers might differ are trading limits and stock rates, says Yogesh Nagaonkar, head (institutional broking), Bonanza Portfolio. Usually, clients want to over-leverage their positions and, therefore, expect brokers to give a higher trading limit. Delays by brokers in issuing trading limits might lead to a significant loss for clients.

Also, clients and brokers do not see the same rates, as on a client's terminal the rates are bit delayed, while brokers use terminals showing real-time rates. Therefore, disputes could arise over this, too.

Proof in case of a dispute
For online transactions, at the end of every trading day, the client gets an email and an SMS from the exchange on the value of transactions carried out on that day. So, if you notice any discrepancy, you could lodge a complaint with the exchange, based on the email.

In the case of offline transactions, brokers usually record all phone calls, according to rules laid down by stock exchanges. If the trade order isn't taken on a recorded line, the broker confirms the order with the client on a recorded line, by the end of the day. These calls could be used as proof in a dispute.

In addition, NSE sends letters to 250 random investors on a daily basis, providing their trade details; this helps them compare the information they received directly from the broker. The exchange also provides a trade verification facility to investors on the website to ensure they can directly check details of trades executed in their accounts.

How to lodge a complaint
A complaint is first lodged with the brokerage or broker. In case the broker isn't able to resolve the issue, the client could write to the exchange.

Investors may file such complaints through the exchange's website. It is also possible to track the complaints online, the NSE official says.

The exchange asks the broker to provide documents regarding the disputed order and tries to resolve the complaint within 60 days. If this isn't the case, the client could opt for an arbitrator, who would look at various issues regarding the complaint and give a decision. Less than five per cent of client investors opt for arbitration, the official adds.

If the client isn't satisfied with the arbitration, he/she could approach the regulator - the Securities and Exchange Board of India (Sebi), which asks the broker and the exchange to provide details of the disputed trade. If the client is proved right, Sebi may penalise the broker and the exchange, says Nagaonkar. Most complaints are, however, are resolved at the exchange level.

Rakesh Nangia of Nangia and Company, Chartered Accountants suggests all complaints be lodged either online or by post. He also recommends lodging a complaint with Sebi, even as one lodges a complaint with the brokerage. Using Sebi's centralised complaint and redress system called SCORES, one could lodge a complaint and track it online. Once a complaint is lodged with Sebi, it could take up to 30 days to be resolved. In case the client isn't satisfied with Sebi's decision, the next option is to approach a consumer court, though in such cases, one isn't sure how long it would take for the dispute to be resolved.

Penalty and compensation
If the broker is found guilty, the exchange could levy a penalty on the broker. The penalty would be mentioned in the broker's status report and could damage his/her reputation, says Nagaonkar.

If the disputed transaction pertains to a small amount, chances are the broker would settle it quickly and repay the customer. However, if the amount concerned is large (a few lakh), settlement might take time, as small brokers might find it difficult to settle such big amounts, says Nath.