Zerodha Broking Limited has blocked new purchases in all illiquid penny stocks as well as illiquid option contracts, Nithin Kamath, founder and chief executive officer of the online discount brokerage, tweeted on Sunday. He blamed phishers and ‘fraud advisers’ who could use these to execute trades to “intentionally create losses" for the company’s decision.
“We have blocked new purchases in all illiquid penny stocks and illiquid option contracts that we believe can be used for executing trades to intentionally create losses, both by phishers and fraud advisers. Hoping other brokers do the same to stop this sudden increase in frauds," he said in his tweet.
Most customers welcomed the decision while one complained that the broker shouldn’t become the regulator and therefore must provide complete access to the markets. Another person said illiquid stocks could still be multi-baggers and hence customers shouldn’t be denied an opportunity to invest in them.
Some requested the company to bring back ‘bracket order’ (BO), a feature in its product that the company discontinued. BO is an order where you can enter a new position along with a target/exit and a stop-loss order. As soon as the main order is executed, the system will place two more orders (profit taking and stop-loss). When one of the two orders (profit taking or stop loss) gets executed, the other order will get cancelled automatically. BOs are essentially algo orders.
While the brokerage has taken a customer-centric approach this time, several users have been complaining of log-in issues and technical snags on its website for some time now. An overload in last ten minutes of market closing had led to a system failure of the platform last month.
The Bengaluru-headquartered company is the biggest stock broker in India in terms of active retail clients. Over 2 million clients place orders through the company’s investment platforms. It has applied for a licence to operate a mutual fund.