Trader Wins Compensation Claim Against Zerodha in Landmark Case

In a significant development, a trader has successfully won a compensation claim against Zerodha, a well-known brokerage firm, for losses incurred due to a technical glitch. According to reports, Zerodha has already disbursed Rs 8,225 to the trader as directed by the BSE’s Grievance Redressal Committee (GRC).

This decision by the GRC to compensate the trader for losses resulting from the glitch could have far-reaching implications and could potentially open the door for more traders to file compensation claims against brokerage firms.

However, Zerodha has refuted the claim that they were entirely at fault, as stated in the BSE order. The company has stated that some of the GRC’s observations are “blatant mistakes.”

The issue at hand revolves around trading losses suffered by a trader due to a technical glitch caused by the maximum utilization of bandwidth on July 7. A similar issue had occurred on June 30, preventing traders from squaring off their positions on an expiry day.

The GRC’s order asserts that Zerodha was responsible for the trader’s losses, making the compensation claims valid.

The incident in question involved the trader selling Sensex puts on July 7. However, when attempting to square off her profitable positions, a technical glitch occurred, rendering her unable to execute the order. Even contacting Zerodha’s customer support did not resolve the issue, resulting in a significant portion of her profits being lost.

With no resolution in sight, the trader lodged a complaint against Zerodha.

Zerodha’s stance, according to the GRC order, is that the reduction in profit represents a notional or opportunity loss, and they cannot be held liable for it. Zerodha did acknowledge a disruption in its services.

Furthermore, Zerodha stated that it had initially obtained a leased line with a bandwidth of 4 Mbps, which is the minimum required by the exchange. Following the initial glitch on June 30, Zerodha applied for a bandwidth extension, but it was not implemented until July 7, when the trader experienced losses.

The GRC’s observations

The BSE’s Grievance Redressal Committee, in its order, pointed out that despite the bandwidth utilization issue on June 30, Zerodha allowed its customers to execute orders on July 7 without a backup plan. Consequently, the claim by Zerodha that the factors were beyond their control is considered “without merit.” The GRC also noted that exchange officials had sent alerts to Zerodha regarding 70 percent bandwidth utilization, and no corrective actions were taken.

As a result, the GRC dismissed Zerodha’s arguments and issued an order to accept claims for losses. Additionally, it required Zerodha to submit an independent auditor report on the technical aspects as per the framework, and recommended that BSE thoroughly investigate the matter in the interest of investors.

Zerodha’s response

In response to the situation, Venu Madhav, Chief Operations Officer at Zerodha, stated that BSE had not sent any alerts about a breach in 70 percent of bandwidth utilization. He referred to the GRC’s observations as a “blatant mistake.”

Madhav clarified that there was no system for members to proactively track bandwidth utilization during the day until July 21, 2023, which was 14 days after the major issue on July 7. He added that the leased line with a bandwidth of 4 Mbps connecting Zerodha’s system to exchanges cannot be equated to a broadband line, as these leased lines are highly specialized and transmit compressed exchange protocol messages, which are typically only a few hundred bytes. He emphasized that only a small percentage of such dedicated leased lines is used at any given moment.

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