Thursday, August 10, 2017

How Broking Houses Can Enable Instantaneous Fund Transfer (Almost) Between Accounts

If you are a trader, trading in both equity and commodity with a broker, you'd have experienced the difficulty in transferring funds between these accounts. Existing rules require traders to have separate accounts for these two divisions. This is especially relevant in India. where SEBI stipulates having separate accounts for equity/currency and commodity trading.

So if you found a trading opportunity in commodity, but needed to transfer your funds from equity, you'll first need to withdraw them to your bank and then transfer them to your commodity account, though they are with the same broker.

This creates a time delay of up to 24 hours. The expenses of NEFT/IMPS transfer also come in. Also you need to log in to the bank account, and provide the security details etc, which is a hassle.

Currently time required to transfer money between these accounts through this circuitous route is a minimum of 3 hours for premium brokers like Sharekhan. Discount brokers may take up to 26 hours.

By the time the funds arrive, your trading opportunity would have vanished.

How to reduce the cash transfer time by more than 75%


I propose an alternative using existing technology. E-wallets can be used for this purpose.

  • Either the broker can provide an e-wallet expressly for this purpose to its clients or 
  • it can collaborate with existing E-wallets like PAYTM.
The route of the transaction must be:

                         

Routing this way will reduce the transaction time to almost zero, as the separate e-wallet is solely for satisfying the legal requirements of SEBI.

Advantages of routing transfer through an e-wallet

  • Reduces time of transfer between equity and commodity accounts by more than 75%.  This increases trade volume as funds are readily available to the client.
  • The transfer can be instantaneous if the e-wallet is maintained by the broker.
  • Eliminates the hassle of logging into the bank account and providing security details. Actually the client could activate the transfer with just an SMS from the authorised mobile.
  • Reduces the load on bank servers
  • Reduces online security risks to clients because there is no need to log in to bank a/c

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