I read that some brokers are opening accounts without a POA, how is this possible?

Is is possible to open a trading and demat account without submitting a POA? If yes, then how does the selling work since the broker won’t have the POA?

Hi @Abhishek87,

Most of these cases, the broker is a conventional broker with a lot of branches, you can walk into their branch, give them a DIS-Delivery instruction slip, they will debit your shares and send them to the exchange. This will not be feasible for a discount broker like Zerodha. Anyways the POA that the brokers collect is only a specific POA. so why worry.

Cheers,
Lindo

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VERY MUCH POSSIBLE and many individual nse/bse members and few corporate broker houses have this system whereby ON SALE you give delivery of shares through NSDL speed e or CDSL easiest ( both are cost effective ,instant and 24 hours ) and payment through neft/rtgs and ON PURCHASE broker will deposit the shares to your demat.

YES delivery can be given through DIS too but this is expensive , time taking and tedious process .

Today there is a route called e-DIS through which it can be. But there are way too many restrictions on this.

How this works is that the broker has to collect an OTP from the client everytime the client places a selling order on the trading platform. Using this OTP as an authorization and without a POA the stock can be moved from client demat to the exchange. But there are a bunch of issues

  1. In markets which move fast, taking an OTP before every sell transaction is a horrible user experience.
  2. If the markets are falling and OTP delivery takes time on SMS/email, the client will not be able to sell. Which might be a big issue if the stock prices are dropping fast.
  3. There is a restriction of Rs 20lks per day worth of sales. Which means that all biggish size clients will not be able to use this route. The broker will have to run both POA and non-POA processes same time, which can be a process nightmare for online brokerages.

As Zerodha we have decided not to take this route because of the above points. We are pushing hard with regulators to find another online way without these restrictions.

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I was thinking that some brokers actually dont deliver to client demat but keep the securities in the pooled account and only provide shadow value in some portal. Dont know if thats allowed. If the security dosent reside in the client demat - would a POA be necessary then ?

Do you know if this is correct @lindo, @nithin ?

how the client will get corporate action like dividend ,bonus ,split and more so Rights . a whole lot of tax issues will develop if the same are received by broker and broker credits the same in ledger sheet . moreover in RIGHTS issue the renouncee ( when the client get the form renounced by broker ) is not allowed to apply for additional shares! not at all an advisable or even morally correct to hold shares when payment is made.

There are brokers who have habit of keeping the stock in their pool account as they allow the clients to buy for more than the money in the trading account. Yes, when the stock is lying in the pool account, to sell it there is no POA required. But keeping in pool account indefinitely is not compliant to exchange regulation.

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@nithin
The process is already there. Just that zerodha refused to implement. My process.

  • I have linked my primary demat with a bank to my discount broker. I buy thro the broker and stocks r credited to my primary account.
  • I have speede for my demat. I transfer stocks to my secondary demat with discount broker thro speede and then sell it.

I chkd with zerodha customer support. U r neither willing to link external demat with the trading ac as primary demat nor ready to give “easiest” facilty for demat with zerodha The reason given was ridiculous. If “easiest” is given to traders zerodha will lose POA.

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What if you transfer the shares to broker and dont’ sell it? The broker keeps it or sends it back? Broker can’t keep it in his pool. If he is letting you sell without the shares already in the pool, he is taking a big risk of client not transferring the stock after selling. Even if a broker is doing this, it is not possible to do this at scale.

All of this is a huge operational nightmare, not something an online broker like us can go through. POA just makes it convenient. If our support team gave another reason, they were wrong.

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Dear @nithin

I dont transfer it to brokers pool account. I transfer it to my demat ac(which i consider as secondary) with discount broker then sell it. My discount broker holds POA on my demat with him but I dont hold stocks there unless i wish to sell it in a day or two

Ah k. We haven’t done this because all the reporting on our platform will go bad as soon as you move the stock out to another demat. Holding price, P&L calculations etc. But yeah, maybe we can do this in the future.

What if broker takes out / sell shares from DMAT account without client’s sell order? In POA contract there is no where mention that order to sell will be recorded on recorded lines if broker sells the share.

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one can Google famous cases of a very leading perhaps one of the biggest brokerage house in India where such malpractices was a norm.

Time is of essence in the markets, with this sort of an arrangement you will not be able to transfer stocks from your primary demat and expect them to sell it through your broker immediately. This is because holding files are generated on an eod basis and hence transfers made during the day will not be available for you to sell.

Additionally, as Nithin’s said it messes up the reporting platform including details of average prices etc.

Most big brokers today don’t allow to map a third party demat account for various operational risks that it poses.

I dont think. Availability of so many discount brokers offer the luxury of organising short term trades / mid term trades /investments. It all boils down to how many services a broker can offer to traders.

  1. One for F&O and short term cash trades where trades are to be squared off immediately. Trading platform is critical here. (where stocks are held with brokers Demat. However I dont trade in cash segment. Only investment)

  2. Another one for investment and medium term trading where waiting couple of days does not matter. Trading platform does not matter but accessibility of brokers. Value is high for mid term and investments

  3. One for currency and commodity and so on if trader wishes.

Its easy.