Nithin Kamath, 39, Founder and CEO, Zerodha.
Nithin Kamath, 39, Founder and CEO, Zerodha.

Will Zerodha compensate investor losses caused by tech glitch?

  • Users and investors took to Twitter in large numbers to express their concerns because this is not the first time such a situation has risen
  • Users said they’ve experienced similar technical issues in the past during event days--days with heavy traffic

On Thursday Zerodha’s online trading platform Kite crashed for about 25 minutes between 9:55 am and 10:20 am due to a technical glitch, resulting in many users not being able to place orders through the platform. Users and investors took to Twitter in large numbers to express their concerns because this is not the first time such a situation has risen. Users said they’ve experienced similar technical issues in the past during event days--days with heavy traffic.

Users posted screenshots of how much they’d lost due to the glitch and some even went on to say that Zerodha should be held responsible and must compensate customers for the loss. A user reported a loss of up to 2 lakh because he wasn’t able to book profits due to the black out. But is Zerodha really liable to compensate?

An executive at a leading stock brokerage told Mint on condition of anonymity that under a model contract between the broker and client drafted by SEBI and used by all brokerages including Zerodha, the broker would not be liable to compensate clients for non-executed online trades due to a system failure. Zerodha client contracts contain two such terms and conditions (from the SEBI model agreement) which may exempt Zerodha from any liability in the matter.

"The client is aware that trading over the internet involves many uncertain factors and complex hardware, software, systems, communication lines, peripherals, etc. are susceptible to interruptions and dislocations. The stock broker and the Exchange do not make any representation or warranty that the Stock broker’s IBT Service will be available to the Client at all times without any interruption," says one clause in the client agreement signed with Zerodha at the time of account opening. Another clause adds that, "The client shall not have any claim against the exchange or the stockbroker on account of any suspension, interruption, non- availability or malfunctioning of the Stock broker’s IBT System or Service or the Exchange’s service or systems or non-execution of his orders due to any link / system failure at the Client/Stock brokers/Exchange end for any reason beyond the control of the stockbroker/Exchanges."

Nikhil Kamath, co-founder and chief executive officer, Zerodha told Mint that with technology there will be instances notwithstanding how robust the system is and how many back ups are in place. “Nobody can guarantee a 100% up time. One thing we ensure is having better up time than any other broker out there. This is the best we can do," said Kamath. He added that nothing could be done from their end about the things that go wrong during downtime. However, the company is working on avoiding such a glitch in the future by reducing time taken to switch to a backup line.

“It would be impossible for us to compensate for the losses because we cannot guarantee 100% up time especially in our country where a small dig into the road could result in loss of internet connection. Having enough backups is all we can do," said Kamath. Some users also posted screenshots saying the particular orders were not placed by them but Kamath said doing so was not possible because each order is mapped to the IP address. “This we can directly contest because it’s not possible to do so," said Kamath.

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