is your demat A/C safe?

The depository system in India, where investors can hold shares and other securities in electronic form, has been touted as great success. Sure, in number terms, that is the case, as there are 6 million accounts in one of the depositories (NSDL) today, and the system was launched only around 2000.
But have enough safeguards been put to ensure that the system cannot be manipulated? Unfortunately, that has not been the case. The path to high demeratialisation has been short circuited by involving stock brokers in the system. There is no great barrier to stop the stockbrokers who hold investor’s shares to transfer them to their own account. Many of broker-depository participants have closed down and some random cases of investor fraud have come to light especially in Kolkotta.
Imagine a situation, where a broker faces default. He could then dip into his investor accounts and make good his losses. He could supply the investor with fake statements, which is the easiest thing to do and provide some forged delivery instruction slips (similar to check leaves) to the depository. If the victim is an old person or financially illiterate he may never notice the fraud.
By allowing a broker, who has a tremendous conflict of interest in holding securities, to become a player in the system, the security of the entire stock market has been compromised.

Extremely bullish and bearish market will put the system at risk and it will be the time brokers will have the greatest temptation to dip into the brokers account, if they are on the verge of default due to wrong bets.

PS: The delivery instruction slips of even top depository participants have no security features on them. They could be easily duplicated by the local printer or a high quality photocopier!