According to governing bodies, all Indians who wish to trade in securities such as stocks, bonds, or mutual funds must have a Trading as well as a valid Demat account, except, of course for Intraday Trading. Even then, many upcoming traders are apprehensive of whether is Demat Account safe or not?
Presently, in India, an average of 20 lakh Demat Accounts are opened per month. Such huge numbers also pose a challenge to all stakeholders to ensure robust security protocols.
So, let’s understand in detail how all these stakeholders are raising to the occasion and assuring that every Demat Account is safe.
Is It Safe To Open Demat Account Online?
Of course, the procedure of a Demat account opening online is pretty safe, however, one needs to verify certain facts such as checking the authenticity of a Depository Participant(DP) with which you are planning to open a Demat account.
And how to do that?
Well first of all you need to check whether or not a DP is registered with Depository bodies such as NSDL and CDSL as well as with regulatory body SEBI. You can get this information easily on the web by simply logging on to the website of the broker and checking for the registration details.
A genuine broker will share such details on the “About Us” page, or the “homepage” or you can contact by calling customer service. This is another test to check if your broker is open about all this information or is trying to avoid it. If the response is not satisfactory, that has to be a red flag.
Additionally, you can log on to the Depository Body website to search for the name of registered DPs or stockbrokers. In this way, one can spot false claims on broker websites as well.
On similar lines, one can also keep up to date with SEBI’s latest notices and circulars, published on its websites, where SEBI keeps updating names of stockbrokers that have been banned or are “blacklisted”, so to speak.
All these practices and subsequent observations are a good indicator of the safeness of a Demat Account.
Can Demat Account Be Hacked?
Every digital service-based product like a Demat Account will remain susceptible to hacking unless there are robust mechanisms in place to ensure safety and security.
Some of the common attacks or hacking practices that can expose the vulnerability of a Demat Account are:
- Cross-Site Request Forgery(CSRF): In this attack, a user ignorantly clicks on a link that triggers a transaction in the trading account. This puts the assets or funds in the account in a vulnerable spot and runs a high risk of theft.
- Man In The Middle (MITM): In this particular type of attack, a hacker fraudulently converts the ownership of all the stocks, whether bought or sold by the authorized user, to themselves. The victim is fooled into believing that they are placing orders on their name, unfortunately, that is not the case.
- Denial Of Service (DOS): In this attack, a hacker implements a Denial of Service fraud by which an exchange can go down for numerous trading hours. So instead of attacking one Demat account, the whole stock market system collapses.
Therefore, A Demat account is safe only if not prone to such risks. Consequently, the safety of a Demat account is the responsibility of three important stakeholders that is the stockbroker, Depository, and SEBI.
The stockbroker has to ensure that all security protocols are essential for safeguarding a Demat account especially when digital data and asset theft or leakage is a global problem. These protocols are targeted to stop unauthorized access to an individual’s Demat Account.
Stockbrokers are answerable to every customer (in this case, traders) because all customers have to pay their broker Demat Account Charges for efficient management of the account.
Another major responsibility of a Stockbroker is to watch out for cyberattacks on Trading mobile apps. Now, when trading is swiftly shifting towards the smartphone experience, stockbrokers must build apps that are secure to use and are upgraded with powerful safeguard mechanisms.
Now let’s move towards, Depository Bodies, that is, CDSL and NSDL. These bodies don’t just have the task to look after the proper functioning of Depository Participants(DPs), but will also have to take care of their databases and records, which have highly volatile information worth fortunes.
And such is the case, that even the CDSL website has simply put up a disclaimer that “just like every other website, is not free from risks of hacking”. So that’s the verdict, straight from the horse’s mouth.
The most reliable and responsible of all the stakeholders is SEBI, and time and again SEBI has defined certain benchmarks that all brokers need to meet that are directed towards assuring a safe and secure trading experience for all investors and traders.
SEBI understands the severity of the situation and has an understanding of how sensitive the information is in a Demat Account, and that if a Demat Account is compromised, that potentially means that the corresponding assets or funds record could also be jeopardized.
It is quite clear, that the question of a safe Demat Account, specifically of a given broker, is important to determine before you decide on the choice of a broker.
If you are looking for an authentic, safe and trustworthy broker that guarantees a resilient service with all the benefits of a Demat Account facility, then look no further than Choice.