When the investor chooses to deal with another individual directly, he is exposed to what is known as ‘counter party risk’ which means, the risk of non-performance by that individual. Therefore the investor should ideally deal through a stock exchange so that this counter party risk is reduced substantially by the trade / settlement guarantee offered by the stock exchange system.
Moreover if the investor deals through a broker he is sufficiently covered against defaults by the broker.
Therefore irrespective of whether it is a sale or purchase of securities directly by the investor or through a stock exchange, all transaction should be executed by a valid, duly completed and stamped transfer deed. In any transaction through the stock exchange the broker has to provide the investor with a contract note to confirm the trade and indicate the time of execution of the order and other necessary details of the trade.
The broker must also provide the best prevailing price and pay the settlement money or the shares on time. An investor operating through a stock exchange has to avail the services of a broker or sub-broker registered by the stock market regulator wherein the investor would have to enter into a broker-client agreement and file a client registration form. The investor should also insist on receiving the contract note since it is a legally enforceable document.
In the event of a dispute with his broker, the investor can resolve it through arbitration under the aegis of the stock exchange or the stock market regulator. He also has the right to receive good delivery of his stock or its value along with the right to be firm on correction of bad delivery.
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Last Updated on : 26th June 2013