Delay in settlement payments from brokers

Wednesday, 27 April 2011 00:00 - - {{hitsCtrl.values.hits}}

I am compelled to write on the following issue, which needs quick solution from the Colombo Stock Exchange (CSE). The CSE is taking great pains to make share market investing popular – but there is one loop hole, a very big hole indeed!

(1) Payments up front to broker:

Brokers ask us to deposit cash and fax the receipt – this is convenient for us as we don’t waste time till the cheques are received and realised. They have money instantly we deposit to their account, then we can start trading. It is a very good system.

(2) Payments to investors on settlement: This good system is not followed by most brokers.

For example, for a trading on 1 March, when they pay after the normal T+3 days, they write the cheque say on 4 March (some print next day) post on 5 March, we receive it on 7 March at almost bank closing time, we deposit on 8 March and the amount is debited to their account on 9 March. They have our money in their account intact for five extra days, in addition to the normal T+3 days, although we have paid-up in advance for trading by depositing cash into their accounts. Some carry out another trick; they do not post the cheque the next day and hold on for another day or two but say it was posted to catch the weekend as well.

(3) They do not use registered post for small amounts and there is a tendency for such cheques to be lost in mail, leaving investors at risk.

(4) Our suggestions to overcome the above problem:

All brokers (H.O.s) are in Colombo City, where all banks are located and all banks are interconnected to islandwide branches through the computer net-system. For example, you can deposit an account payee cheque written to ‘Mr. A.A. Silva’ HNB A/C 000 12345 – HNB Kataragama Br’ to any HNB Colombo bank and Silva gets the money immediately to his account, even if he is over 100 miles away from Colombo. If the cheque posting system was utilised, he will not have the money for the next five days.

Broker firms could also use the ‘SLIPS’ system (our refunds for IPOs are through SLIPS) or transfer to our accounts in the braches on the T+4th day itself – then we could withdraw cash the next day (T+5th day) instead of waiting for T+3 plus five extra days (total eight days) kicking our heels, looking for the postman with uncertainty over whether the cheque will come or not.

Some broker firms do not transfer or deposit cheques into investors’ accounts. By this system, they have their money intact in their accounts for five extra days.

Every investor has a bank account in their home town, so this system would be convenient for both parties – brokers save on the postage and ‘loss of cheques in the post’ cases do not arise. Alternatively investors could be asked to open account in the brokers’ bank branches in their localities, to facilitate easy/quick transfer into individual accounts.

If CSE simply requests broker firms to adopt this system, they will not do this (some are already adhering to this system). Please make it a CSE compulsory regulation that broker firms should deposit the payments/cheques into customers’ account, unless a customer requests in writing that payment cheques should be posted.

Charles de Silva

On behalf of a group of senior citizen investors