Does Zerodha refute this article?


#1

Came across this
The story may be true but are the facts stated correctly as it happened?

Quoting source:
Prasad GVSV Bhavana, a punter based in Hyderabad, was supremely bullish about the prospects of Tata Motors, the blue-chip automobile behemoth.
Accordingly, he packed his portfolio with a massive consignment of Tata Motors’ futures.
As of 9th August 2017, on the eve of Tata Motors’ quarterly results, he held a treasure trove of 30,000 August 2017 futures, 30,000 September 2017 futures and 30,000 October 2017 futures.


#2

I wonder, why does a respected person like Rakesh Jhunjunwala allow such non-related websites to use his name to publish such defaming article to create systemic risks in the Industry?

I have also noticed tip provider services using his photo on google ad network to scam the public.

This needs to be brought to the attention of the big bull, can someone tag this post to his twitter account or something?


#3

Did you read the last part of the article?
There is a PDF (the orders) from NSE India site at the end.


#4

“The basic and primary responsibility lies with the Respondent (Prasad) to take care of his investments. Being fully aware of the impending volatility of the Tata Motors on the 10th August 2017, he failed to monitor the status of his Futures Contracts of the said stock, in spite of having such high stakes and instead tried to shift his responsibility to the Appellant (Zerodha),” the lady arbitrator held.

When it is loss, everyone wants to blame their broker.

Also at the end of this article, you can find this sentence.

Quoted from the Article:
“Also, allowing a person with an annual income of Rs. 1 to Rs. 5 lakh to rack up exposure of Rs. 4 crore appears to be clear buffoonery on Zerodha’s part.”

By using such derogatory terminology, the Intention of the publisher to defame a reputed organisation like Zerodha is evident.


#5

I was expecting some answer from Broker but you are responding.

I haven’t started this topic about right/wrong, as per page 3 point (K), 1 days time is supposed to be given.

This is not a small case, and now you are trying to say NSE/SEBI also ganged up against Broker ?

I want clarity on the rules, not anyone acting at their own discretion.


#6
  1. At the time of the incident, The broker was not breaking any law, by allowing the client to take the position with sufficient margins as required by the exchange.

  2. Later, the broker identifies a systemic risk in the open position and was required to take necessary action to avoid a systemic risk to the Industry and the Individual from this open position.

Moreover, the client has signed up giving full control to the broker to take necessary actions at the time of such events.

Its a case of “Common sense prevails over common-law”


#7

ok great, you seem to be the interpreter of rules :slight_smile: so i’ll ask you, what about the 1 day then?
There must be such a rule?
He had 10L of Equity etc, already arranged 7L and due to bank limits was stuck arranging is what i’m reading,
so what does one do in these situations ?


#8

Arranging , will arrange, maybe arranging :slight_smile:

It wasn’t there in his account, was it ?

Necessary Action had to be take by the broker at a critical point in time, which they had the full authority to do so. The decision was in the best interest of the industry, the broker and the client at that point of time.

As mentioned earlier, Its a case of “Common sense prevails over common-law”


#9

Since the start, you are purely one sided, 1 month on the forum, and a lot you know,
whereas I’m trying to understand from a neutral point so I guess replying you wont make much sense.
Otherwise we will need
100% margin for Overnight exposure,
banks should be open 24X7,
there should be no Limits on bank transfer,
and we should sign more documents pledging house, ancestral land and everything else that’s possible.

Atleast this guy got an extra 5 Lakhs for mental agony, phew.

On the serious note, my point is to encourage the entire system to evolve.


#10

#11

I’ve seen that link but at that time matter wasn’t very clear.

Today I posted based on the NSE document, but since it appeared on some RJ fan site, quoted the article bcos even I agree the language is not appropriate there.

I’d only stick to the Arbitration documents but what I want more is to see both parties not suffering in the 1st place.
So many cases of ppl getting squared-off, then price recovers and unnecessary blows below the waist.


#12

@Chirag1

Have answered this here

There is no way a broker can offer F&O trading to clients if he can’t square off client positions when he is making losses. Stock very easily could have done a PCJeweller and fallen a lot more and caused losses beyond what client holds as funds. If a broker doesn’t square off, a single/group of clients can cause systemic risk to the broker and the entire system. Anyone who has experience with how F&O works will know that.

NSE IGRP was in our favor. Client went for arbitration and this is headed by judges (1 in our favor and 2 against). If a person hasn’t traded F&O or tracked it closely, very tough to explain/convince how risk management works for F&O. We will appeal this again in court . This is how F&O trading works, not just in India - but across the world. If client doesn’t have sufficient margins to hold the positions, he has to square off positions or else brokers have to for risk management. If brokers can’t square off, a single client can cause risk to other clients as well.

This article talks about us encouraging rampant speculation. Anyone who is our client will know that we don’t. We have not once ever advised/pushed any client to trade derivatives, intraday, or as a matter of fact any kind of trade/investment with us. We are just an execution platform. We have through Varsity, tradingqna and every other initiative always tried to explain the risks involved in derivatives/leverage and how most people don’t win.

If clients should be allowed to trade derivatives based on their income, hmm… this is a debatable topic. There is no law that currently requires us to do that. I believe that we should treat all adults as adults and let them be responsible for their decisions. Such restrictions is not good for the economy in general. Tomorrow there could be restrictions on how much gold, bonds, equity/stocks, real estate, MF, I can buy based on my income, because technically all these asset classes can lose significantly as well. Maybe there could be restriction on the kind of clothes, car, TV etc I buy (all depreciating assets). This will be a wrong precedent.

Hopefully this makes sense.


#13

This post from you I have no issues at all with.
I trade F&O so I know that part too.

Even these days, I get margin statement after 11pm and contract note even after 12pm. I read posts on why we cant speed that up also ok, I am very risk averse so this wouldn’t happen to most as well.

Regarding income, a lot of my known people aren’t happy with it if its implemented :smiley: :smiley:

Since you mention higher appeal, matter is sort sub-judice so hope its resolved.

It hurts when the system causes problems which aren’t in control of both parties.
Had the client said. “I don’t have money, i’m bankrupt, do what you want” in US he gets benefits of filing bankruptcy.

Regarding the article, I already posted even I am not agreeing to the hype created.


What does Zerodha have to say about this arbitration order and article?
#14

also, trying to understand this:
because I cant copy paste text from image,
Page 2:
it says order was executed at 9:25am, that’s 10min after mkt open, so how does this happen ?
Generally, what I read about Algo’s is in milliseconds.
so system knew already in pre-open because we can see gap down opening on charts, even then at mkt open price of trade is availed.


#15

Our risk management rules are set everyday based on our expectation of volatility for that day. It can trigger square off at any point, the idea is to have atleast 70% of F&O margin in the account at all times. Also if you are holding far month contracts where liquidity is very low ( squaring off positions becomes tough), the risk goes up even more.


#16

Somehow here these cases Icicidirect , SBI equities or kotak has more robust response mechanism. They don’t get into these troubles in first place. For Icicidirect they have set up separate helpline desk for futures and options. There is a equity advisor assigned to each account and her mobile number is given . even in intraday equity their robust risk response triggers auto alerts. Secondly i read somewhere there is a clause that Icicidirect can set up high margin requirement than wat is stipulated by exchanges

Last this guy has lacs worth shares and able to arrange 7 L in a day? And salary is 1 to 5 per annum? Something fishy about the client background also


#17

This is common for every broker, there are cases against each one of them. I believe It has nothing to do with broker rather than with individual.

Not necessarily individual’s capacity is based on salary declared, one may be into real estate, agriculture, business or might have inherited wealth where one can still choose not to declare them. This is quite common in India.


#18

Yes sir but this guy is clearly violating …it is disproportionate income …or at least he has to a revised declaration to u…i open a account and declare 20L annual income. In ten years i become crorepathi. Then i need to do revise declaration right? Or if i still claim my income is 20 lac

question will come on how i arrange huge funds right?


#19

There is no rule as such across the industry, no broker can ideally question the client, sebi is considering to cap turnover based on income reported, may be then broker is liable to keep a check on these.


#20

Well said @nithin. People trading in F&O must know the risks involved in that. By looking at the position size it is very clear that he doesn’t know what is future’s trading. Taking that large position with out any hedging shows the immaturity. No matter how much money he has or how much margin he can furnish he is clearly wrong in entering that trade. People who knows full information about the results can only take that much position. With out knowing the risk it is not correct to blame the broker. He is just facilitator for the service. Luckily the stock is a highly liquid stock. What if it happens in some Gitanjali GEMS or PC jewellers kind of stocks? What if hits down circuit breaker continuously for some days? Who will close that position that can potentially cause systematic risk? There are some instances like this earlier in financial markets. Do you guys remember how traders become mad to cover their short positions on May 18 2009 when election results came and markets were locked in upper circuit breaker.

I am trading in financial markets over 10 years. I am trading with Zerodha from last five years and 90% of my trades are in F&O. I never left a single position for the broker to close. Individuals should have control over their positions. If you are putting your hard earned money in market you should be ready for any catastrophic risk always.

Futures trading like entering a crocodile pond. One should enter with full of weapons and defense. If you want to enter that pond with a shaving blade as a weapon, its your wish. No body can stop you. And you should not blame others for your problems.

My suggestion to zerodha is increase the surveillance in RMS and enhance sms reporting so that it can alert before the mishap. It is like if someone has big position before any event if you can alert that client. There are some big election events coming up soon it will help saving some novice traders.

Anu