NSE Orders Upstox To Compensate Trader For Loss Suffered Due To Systems Failure On Budget Day

Discount brokers are raking in tons of money. There is no justification for their shoddy services

Anil Singhvi, the charismatic editor of ZEE Business, had rightly cautioned discount brokers like Zerodha and Upstox that they should pull up their socks and ensure that their systems are ship-shape. Their repeated technical goof-ups are not tolerable any more, he said.

He warned that if they do not reform SEBI will drop the hammer on them and direct them to pay compensation to traders.

"तकनीकी खामी से ट्रेडर्स और निवेशकों को होने वाले नुकसान की भरपाई जरूर होनी चाहिए, डिस्काउंट ब्रोकर्स भी अब सुधर जाएं," he stated.



However, there has not been much improvement at the ground level and the software are still buggy.



It is notable that the discount brokers are not short of funds. In fact, they are raking in money hand over fist.

Zerodha, the leader of the pack, boasts of a net profit of Rs. 442 crore, which is presumably more that what the so-called full-service brokers like Kotak, Motilal Oswal, HDFC Sec etc are raking in.

So, there is no justification whatsoever for the poor maintenance of their systems.



Upstox's systems came to a grinding halt on Budget Day

1st February 2021 was a red letter day from all traders on Dalal Street because Nirmala Sitharaman, the Finance Minister, had promised to unleash path-breaking reforms to the economy through the Budget.

The traders had built massive Bullish and Bearish positions and were waiting with bated breath for the announcements.

Unfortunately, Upstox chose that fateful day to conk off, causing immense frustration to everyone.















Trader files complaint against Upstox in the NSE

While most traders were wallowing in sorrow at the colossal losses they suffered, an intrepid trader named Ranjit Mohanty had the presence of mind to shoot off an email during trading hours to Upstox requesting that his open positions in the Bank Nifty, which were bleeding, be squared off immediately.

However, as expected, Mohanty's plea fell on deaf ears.

Next day, the markets opened even higher and the losses increased. Mohanty, with a heavy heart, squared off his positions.

However, embittered by Upstox's failure to act on his email, Mohanty rushed to the NSE and filed a complaint, claiming that Upstox ought to compensate him for the losses suffered due to their negligence.

The Babus at Upstox, accustomed to dealing with thousands of such complaints, were not fazed.

They dashed off a standard response claiming that Mohanty's grievance is baseless and that they are immune from losses caused to traders due to brokers' systems failure.

The Babus lost sight of one important aspect, namely, that Mohanty had sent an email during market hours requesting that his open positions be squared off, and that they had not acted on this.

There was no justification for the inaction.

The NSE came down heavily on Upstox and slammed it for not appreciating the message contained in the mail of the complainant but instead replying it in a mechanical manner. It also held that Upstox had failed to justify the non-implementation of Mohanty's email.

Ultimately, Upstox was found guilty of service deficiency and ordered to pay compensation of Rs. 42,336 to Mohanty, being the loss suffered by him due to the systems failure.

Moral of the story

The takeaway from the Mohanty vs. Upstox case is that in every case of a systems failure and other problems traders and investors must send an email to the broker requesting that the open positions be squared off. If the broker neglects to act on this request, it can be hauled up for deficiency of service and compensation claimed.