The reasons
Brokers often have reservations about allowing investors to link their trading accounts with demat accounts held by clients at other brokerages. For one, they face challenges in analysing an investor’s demat accounts held with other depository participants (DPs) or brokers. This lack of transparency can complicate the management and verification of an investor’s portfolio.
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Two, brokers are reluctant to link another broker’s demat account to their trading account because it can cause problems with default delivery, settlement risk, and inter-DP charges. The friction in the demat account migration process is caused by the lack of interoperability and standardization among different brokers and DPs. This can lead to problems such as having to deal with multiple systems and processes, managing the risk of default or dispute, and complying with regulatory requirements, said Tejas Khoday , co-founder and CEO, FYERS.
The absence of standardized Application Programming Interfaces (APIs) for interoperability between different brokerage systems creates hurdles in facilitating seamless transfers of securities and information between accounts.
With the evolution of regulations, shorter settlement time for trades and requirement of upfront margin, no broker would provide their clients the option of linking their trading account with a separate demat account opened elsewhere. Operationally, this will turn out to be a nightmare for brokers if clients began to demand this, said Trivesh D, COO at TradeJini.
The lack of standardized trading procedures and functions across various brokers and depositories adds complexity to the execution of transactions and tracking of assets. This can lead to inefficiencies and potential errors in the trading process.
Moreover, there are inherent risks associated with non-delivery of shares during the early pay-in period, which could result in an auction. For example, if a seller fails to deliver stock worth ₹100 during settlement, it is considered a short delivery, prompting an auction at the exchange. In such cases, the seller is obligated to pay an amount equal to the highest bid or a maximum of ₹120, in addition to a 0.5% auction penalty.
When it comes to linking a different demat account to their trading account, some brokers adopt a specific approach. Herein, the linked demat accounts are considered secondary and cannot be used for buying and selling securities directly. Instead, if a client wishes to engage in trading activities, they must transfer the shares from these secondary demat accounts to the broker’s designated pool account. This transfer process typically involves the client providing a delivery instruction slip (DIS) to the DP managing the secondary demat account. By doing so, clients consolidate their securities into the broker’s pool account, which is then used for trading activities through the broker’s platform.
The problem primarily occurs at new age brokers since banks and full-service brokers do provide this service to their high net worth investors as well as older clients who wish to consolidate their holdings in a safe and trusted demat account. But some stockbrokers are only willing to give customized services at a cost.
Simplifying the process
Investors have two options for managing their demat accounts and transferring shares. The first option, ‘closure-cum-transfer’, allows investors to close one demat account and transfer all shares to another. This can be done either offline or online. In terms of costs, offline transfers typically do not incur charges, whereas online transfers may involve fees, often calculated as a small percentage (around 0.03%) of the transfer value or a flat charge, which may vary (usually ₹15-25 per share).
The second, off-market transfer, enables the transfer of shares between different demat accounts. This option too offers both offline and online channels for executing transfers. Charges are applicable for both offline and online off-market transfers, generally calculated as a small percentage (around 0.03%) of the transfer value or a flat fee per share/ISIN, which can vary based on the brokerage or financial institution.
These options provide investors with flexibility to choose the most suitable approach for managing their demat accounts and conducting share transfers according to their specific preferences and requirements.
Offline transfer
Transferring shares through the offline or physical method, often involving a DIS, offers several advantages. It is offered by all brokers and banks but may require investors to make physical visits to broker offices or select bank branches.
Online via brokers
Online transfers through a broker’s demat account provide simplicity and speed. This method is especially appealing for those seeking a quick transfer process. However, it’s important to note that this option is only available through select brokers, such as Zerodha and Angel One. Additionally, transfers may be restricted to accounts within the same broker or the same depository, limiting its scope.
Online via CDSL/NSDL
Transferring shares online via CDSL Easiest or NSDL SPEED-e offers a convenient and swift transfer process. However, there are certain prerequisites. Initial registration for this service can be a bit complex and involves multiple steps.
Ashish Nanda, president and digital business head at Kotak Securities, emphasized the challenges of inter-depository transfers, highlighting the absence of online options from most brokers and the existing portals, “Speed-e” and “Easi/Easiest,” lacking a smooth process. He noted that clients are left with requesting offline transfers through DPI slips. Nanda also raised concerns about the high cost of the available token system at ₹2,500, which is prohibitively expensive for individual clients. He called for making online inter-depository transfers between CDSL and NSDL mandatory at a reasonable cost to enhance customer convenience.
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