Lodge your claims against Unicon or Unickon Securities immediately

Fellow Traders & Investors,

uniconbig

As you all must be aware by now, SEBI  has barred Unicon (Unickon) Securities, and all the AP’s (Authorized Persons) and Sub-Brokers. Click here to see the SEBI order. The National Stock Exchange (NSE), Bombay Stock Exchange (BSE), have also expelled Unicon Securities.

The value of total claims pending as on the date of the SEBI order is Rs 11.81 Crores on NSE and Rs 3.02 Crores on BSE.

NSE has today put out a notice in all the leading newspapers to lodge claims, if any (in the prescribed form) against Unicon securities within the next 3 months. Any claim after these 3 months will not be entertained by the exchange. Also the maximum compensation limit per investor if found due and payable out of the investor protection fund is Rs 15 lakhs. Find below the notice, and you can also read the news article here.

Ensure you spread this message amongst your friends who might have been trading with Unicon Securities to lodge their claims immediately with the exchanges.

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NSE Notice on Economic Times on 10th Sept 2014

 

Empowering Indian retail investors/traders

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Stamp duty demystified

Fellow Traders & Investors,

To be very honest, the question of stamp duty is a mystery within the broking community itself. I had spent quite sometime researching on this for a client (brokerage). Will try to explain this in simple English and not use any jargon that our CAs/Lawyers tend to use to confuse us even more.

What is Stamp Duty? 

When we trade the markets a contract note is generated and sent to you by end of the day by the brokerage which shows all the transactions executed for that day. When the contract note is sent to you via courier it is signed physically, and when sent via email it is digitally signed by one of the bosses at the brokerage firm where you trade. When you receive a physical contract note, you will be signing on the courier POD and when you receive an email the log file is saved, both acting as a proof that you have acknowledged all the trades.

Like how you validate a rental agreement by taking signatures of all the parties involved on a stamp paper issued by the state government, similarly the contract note also has to be stamped. How much amount a particular contract note has to be stamped for is called as the “Stamp Duty”. Note that in this case the contract note is not actually stamped physically, but a fee is collected based on your turnover by the brokerage, which is then declared and paid to the relevant stamping authority (state government).

Million dollar question – Which Stamp Authority/State Government? 

This is where all the confusion exists,

The lawyers say: Stamp duty was originally a part of the Indian Service Tax Act, and as per that act a tax is applicable at the point of service. Today most brokerages are online and send contract notes from their servers located at their headoffice, and hence according to them the stamp duty has to be as per the state where their headoffice is. Some of them also say that the point of service should be where the trades happen (the exchanges themselves), which is in Mumbai and hence stamp duty should be collected and paid as per the Mumbai Stamp Act. But the thing about lawyers is that they have a vested interest in saying this, if tomorrow a state government sends a notice to the same brokerage, that will be new business for them.

The exchanges say: All the exchanges maintain silence on this except NCDEX, which has put up a short note on how to pay Stamp Duty on their website. NCDEX says that stamp duty has to be paid state-wise as per the clients’ correspondence address proof.

The state governments say: A few states don’t even have a clue on this, but most of them say that if the client has a residential address proof in their state, the stamp duty has to be paid to them. Lately, many of them have started sending out notices to brokerages who are not paying stamp duty of the clients’ who belong to their state. They cannot calculate what is the exact stamp duty due from a brokerage because they don’t get the state-wise turnover data of clients from the exchanges and have to go with what the brokerage declare, at least for now. Check this, a Google search result showing the letters sent by various state governments to the exchanges asking them to inform brokerages to pay stamp duty for all clients from their state.

State-wise Stamp Duty rates

I think it is just ridiculous that stamp duty rates for trading online are similar to buying property and goods, renting houses, etc. I hope our government wakes up and does something about it. For example, the Tamil Nadu Government today charges more stamp duty than what many of the discount brokerages charge you as a brokerage for offering their services. Some states have a cap on the maximum amount of stamp duty per contract note, and I think all states should be forced to follow this rule. Anyways, find following the stamp duty rates for various states.

Sl No State Amount Of Stamp Duty % Maximum Limit Remarks
1 ANDHRA PRADESH Fifty Paise (Rs.00.50 for
every Rs.10,000/- or part
thereof of the stock or
securities
0.005 Rs.50.00 Article 38
2 ARUNACHAL PRADESH Delivery .04%
Square Up .04% .
F&O .04%
0.04 Rs. 40.00 Article 43
3 ASSAM Ninety Paise (Rs.00.90) for
every Rs.5,000/- or part
thereof of the stock or
securities
0.018 Rs.49.50
4 BIHAR Fifteen rupees (Rs.15.00) for every Rs.1000/- or part thereof of the stock or securities 1.5 Rs.200.00 Article 43
5 DELHI Delivery .01%
Square Up 0.002%
F&O 0.002%
0.01
0.002  0.002
NO LIMIT Article 54A
6 GOA, DAMAN & DIU One Rupee (Rs.1.00) for every Rs.10,000/- or part thereof of the stock or securities 0.01 Rs.50.00 Article 42 consider Article 5
7 GUJRAT Delivery 0.01%
Non-delivery 0.002%
F&O 0.002%
0.01
0.002  0.002
NO LIMIT Article 48A
8 HARYANA Thirty paise (Rs. 00.30 for
every Rs.10,000/- or
thereof of the stock or
securities
0.003 Rs.30.00 Article 43
9 HIMACHAL PRADESH Thirty paise (Rs. 00.30 for
every Rs.10,000/- or
thereof of the stock or
securities
0.003 Rs.30.00 Article 43
10 JAMMU & KASHMIR Sixty paise (Rs.00.60) for
every Rs.2,500/- or part
thereof
0.024 NO LIMIT
11 JHARKHAND Delivery 1.5%
Square Up 1.5%
F&O 1.5%
1.5
1.5
1.5
Rs.200.00
12 KARNATAKA One Rupee (Rs.1.00) for every Rs.10,000/- or part thereof of the stock or securities 0.01 MAXIMUM 50 Article 37
13 KERALA Delivery .01% IT
Square Up 0.002%
F&O 0.002%
0.01
0.002  0.002
NO LIMIT Article 40
14 MADHYA PRADESH also applicable
in CHATTISGARH
One Rupee (Rs.1.00) for every Rs.10,000/- or part thereof of the stock or securitiesF&) 0.002% 0.010.002 NO LIMIT Article 5(ii) 20 b & 41 and Article 43
15 MAHARASHTRA Delivery .01%
Square Up 0.002%
F&O 0.002%
0.01
0.002  0.002
NO LIMIT Article 51 (A)
16 MEGHALAYA Two Rupee (Rs.2.00) for every Rs.5,000/- or part thereof of the value of the stock or securities 0.04 Rs.40.00
17 NAGALAND Two Rupee (Rs.2.00) for every Rs.5,000/- or part thereof of the value of the stock or securities 0.04 Rs.100.00 Article 43
18 ORISSA Fifty Paise (Rs.00.50 for
every Rs.10,000/- or part
thereof of the stock or
securities
0.005 Rs.50.00 Article 43
19 PUNJAB Five Rupee (Rs.5.00) for every
Rs.10,000/- or part thereof of
the stock or securities
0.05 Article 43
20 RAJASTHAN Delivery .01%
Square Up 0.002%
F&O 0.002%
0.01
0.002  0.002
NO LIMIT Article 5A,Article 40 Page 2097
21 TAMIL NADU Delivery .006%
Square Up 0.006%
F&O 0.006%
0.006 NO LIMIT Article 5 C (i)
22 UTTAR PRADESH Delivery .02%
Square Up 0.02%
F&O 0.02%
0.002
0.002 0.002
Rs.1000.00 Article 43
23 UTTARAKHAND Delivery .002%
Square Up 0.002%
F&O 0.002%
0.02 Rs. 1000.00
24 WEST BENGAL Fifty Paise (Rs.00.50 for
every Rs.5,000/- or part
thereof of the stock or
securities
0.01 NO LIMIT Article 43

Important to know

  • I think the safest bet for a brokerage is to charge and pay stamp duty as per the correspondence address proof of a particular client. What you need to know as a client/trader is that the onus of paying the correct stamp duty is on the brokerage and not you. So if tomorrow, a state government sends a demand notice to a brokerage, they cannot come back to you and ask money retrospectively. If this does happen, you can complain to the exchanges/regulators.
  • There are brokerages today that charge as per the state where their head office is and those who charge as per the state where you reside. If you are trading with full-service brokerages that charge 0.01/0.1% to 0.05/0.5% , or with pedigree brokerages like the ICICIs/HDFCs/Reliances of the world, it doesn’t matter even if they collect stamp duty as per the location of their head office. Why? Let us assume that one of the big brokerages get a demand notice from your state tomorrow, they will definitely be able to make good any differential stamp duty as they would have charged you so much more in terms of brokerage. They will also have the muscle power to fight it out with the state governments if need be. But if you are trading with a discount broker whose margins are very slim, or who doesn’t really have the expertise to handle a litigation, an incident like this can even lead to the brokerage having to shut shop. Why? Because a discount broker won’t be able to make up for the differential stamp duty as the profit margins are very small.
  • I’ve read on a few online forums about how brokerages can charge you stamp duty and pocket it for themselves. To clarify, this cannot happen, and if it does it is a serious offence which can lead to imprisonment of the directors at the brokerage. A few brokerages, when there is no clarity on whom to pay the stamp duty (for a few states), keep this stamp duty in a suspense account. Even the interest accumulated on this amount is added back to the suspense account, so don’t believe in such conspiracy theories.

So my advice is – if you are trading with discount brokerages (whose margins are wafer thin), it is safer to go with those who charge stamp duty as per the state where you reside. And if you are trading with a full-service brokerage (who has super fat margins), it shouldn’t matter if he is charging as per the state you reside or where his headoffice is.

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The mystery behind Transaction/Turnover/Other charges by Indian Brokerages

Fellow Traders & Investors,

If you visit comparebrokerages and check out “Turnover charges” under the heading “Transparency and other costs”, you will realize that these charges vary between brokerages. Have you ever wondered why the difference? Or have you never ever seen this charge on your contract note? Have you looked at your contract note in the first place, most traders don’t, have you?

Are you paying extra as transaction charges that you are not aware of? 

Find below a comparison table, and see how the turnover charges seem to be different. Turnover charge is something a brokerage charges over and above the brokerage charges.

compare2

 

Some things you need to know: To become a brokerage on the exchanges, you have 4 kinds of memberships: Trading membership,Trading cum self-clearing membership, Trading cum clearing membership, and Professional clearing membership.

Trading member: A Trading member is one who can trade on his own account (self) and can have his own clients trading through him on the Exchange.

Professional Clearing member:  This category of membership allows the member to clear and settle trades of such members of the Exchange who have chosen to clear and settle their trades through this member.

Clearing & Settlement is the process of identifying the payable/receivable by each trading member of the Exchange and then making an actual settlement of such payable/receivables.

Clearing fees: The trend over the last few years of obtaining membership at Exchanges has been that of becoming only a Trading member and then utilizing the clearing services of a Professional clearing member. This is quite logical in the sense that it reduces the risk and the operational costs of a trading member along with the necessity to maintain a higher amount of net worth as desired by the Exchanges for a clearing member. The Professional clearing member charges a certain amount of fee for offering this clearing and settlement service and this is labelled “clearing fee”.

Exchange Transaction charges: If you are wondering how the Exchanges (NSE, BSE, etc.) earn revenues, it is by way of levying ‘Transaction Charges’. Transaction charges are collected by the Exchange from the Trading member, who in turn collects it from his clients for the trades executed by such clients. Exchange transaction charges are the same for every brokerage.

Here’s some interesting trivia for you. Did you know that NSE is the most profitable Indian company in terms of number of people employed to profits made? NSE’s profit for the year 2013-14 was a whopping 1000 crores!

Brokerage: This charge is charged by your broker and it is very likely that you would have been informed of such a charge at the time of your account opening.

Most traditional brokerage firms don’t share details of any of the charges on their website, but there is breath of fresh air with the new age ones being completely transparent about their trading costs by displaying them prominently on their website.

To summarize,

Transaction/Turnover/Other Charges = Exchange Transaction Charges + Clearing Fees

Brokerages which clear their own trades (Trading cum self-clearing members) are not allowed to have any clearing fees. For example, most banks who are brokerages clear their own trades, and hence you will find that their transaction charges are basically just what the exchanges charge. Check the image above for HDFC Securities. You will also see that Unicon securities charged quite a bit more, practices like these lead to Unicon having to shut shop.

Brokerages have gotten away by charging you excessively in the name of clearing fee. In reality, the clearing fee that the brokerage firm would be paying to the clearing member would be way lower than what he is collecting from you in the name of clearing fee. You may be under the assumption that you have gotten yourself a very good deal with the broker charging you low brokerage but they might be charging  higher ‘Transaction charges’.

Here is what we think should be the ideal range for charging clearing fee. This range has been arrived at after having worked with a professional clearing member. Ideally, you would want your broker to be in the lower half of this range.

compare3

 

Light at the end of the tunnel? 

SEBI, the regulator for the Indian financial markets identified this practice followed by brokers and has taken corrective measures by way of a regulation which stipulates that all brokerage firms are now required to charge only as much clearing fee that they are paying to the clearing member and not charge any random arbitrary inflated number. This along with the new Common contract note regulation is applicable from August 1, 2014. You can find details of the circular issued by NSE  here.

So, if you now find the total transaction charges you are paying to your broker to be more than the sum of Exchange charges and Clearing charges as mentioned in the table above, you can complain to the Exchanges giving details of the same and you can rest assured that these charges will be reduced. This regulation, thanks to the Exchanges and SEBI gives more power to the retail investor and trader on the Indian capital markets.

Empowering Indian retail investors/traders,
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Hello traders & investors on Indian exchanges

Hello Friends,

I have traded, worked, and consulted for a few of the biggest brokerage firms in India and have also spent some time researching to put up our website Comparebrokerages. I intend to bust many myths that you as a retail trader/investor might have on the entire broking system in India. 

The idea is to also make sure that you are aware at all times on what is happening at your brokerage.

  • Know if there is an option where you can switch for lower costs.
  • Track the financials of your brokerage to ensure that if they are in trouble as a business, you can take necessary action.
  • Know about all the hidden charges.
  • and a lot more…

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