Wednesday, December 12, 2007

Friendly rip-off

So you’re puzzled why your trades in T segment always face “technical snags” and the shares never get delivered on the 3rd day. Here is why.

Every transaction in the ‘T’ group has to compulsorily result in deliveries; the buyer or seller cannot square off his position intra-day. Often, many sellers are unable to meet their delivery obligations for a variety of reasons. Unlike in other segments, T segment stocks are not auctioned. The seller’s positions are *closed out* by levying a 20% penalty on the seller that gets credited to the buyer, to make up for non-delivery. So if you buy a stock for Rs.100 on Monday and the seller fails to deliver, on Wednesday, you’ll get a credit equaling 20% of its Tuesday’s closing price. If that is Rs.90/-, you'll get a credit of Rs.108/- (120% of Rs.90)

Here is where the *friendly* broker rips you off. On the settlement day, the broker gets the details of his pay-in and pay-out obligations on his work station from the exchange at 1:30-2:00 pm. Occasionally he will find that some of the purchase positions of his clients in ‘T’ group shares have been closed out, and the prices of those shares are now trading at a price lower than what his client had bought them for. He then buys those shares at low prices and credits them to your account. In the process, he gets to pocket the Rs.18/- differential credit from closed out positions that originally belongs to you.
Now you know how brokerages quickly get into billion $$ leagues....

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