Can investors seek compensation if brokers or exchanges face outage?

Stock broker or exchanges don’t guarantee that the services will be available all the time.. Photo: iStock

If an investor builds stock positions based on a particular event, such as elections, and suppose his/her call didn’t work, the person may want to sell the stock to avoid a huge loss. What happens if the order is not executed due to a technical glitch at the broker’s end? The investor’s losses may multiply by the time the broker fixes the outage. Can the investor seek compensation from the broker?

To ensure that investors don’t claim compensation for outages, brokers put a clause in the agreement when an individual signs up with them. The condition states that the stock broker or exchanges don’t guarantee that the services will be available all the time.

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The terms and conditions also state that the client shall not have any claim against exchange or the broker on account of “suspension”, or “interruption”, or non-availability or malfunctioning” of systems for reasons beyond the control of the broker or exchange.

If investors seek compensation, they will need to prove that the technical glitch was beyond the control of the broker or exchanges. But establishing it is an uphill task.

The outages at brokers are not uncommon. That’s why probably there’s a Securities and Exchange Board of India circular on rights and obligations of stockbrokers, sub-brokers and clients.

It states: “The client is aware that trading over the internet involves many uncertain factors and complex hardware, software, systems, communication lines, peripherals, etc. are susceptible to interruptions and dislocations. The stockbroker and the exchange do not make any representation or warranty that the Stock broker’s IBT (internet-based trading) service will be available to the client at all times without any interruption”.

In most cases, therefore, it’s challenging to get compensation for outages and technical glitches from brokers or exchanges.

(Do you have personal finance queries? Send them to [email protected] and get them answered by industry experts)

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