In my earlier posts on How to Open a Trading Account, I did not mentioned that your application to open a trading account could be rejected. We all assume no broker will reject a business.
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However there are another condition other than being a bankrupt that will prevent a stockbroker from opening a trading account; its called Bursa Defaulter Lists.
Prior to Bursa Malaysia being listed, it was known as Kuala Lumpur Stock Exchange and its members were all the stockbrokers. After the financial crisis in 1997, it was found that there were customers that have multiple trading accounts with multiple stockbrokers. What these customers did were, they went to broker A and start to accumulate contra losses. After he is suspended in Broker A, he went to open an account in Broker B and did the same thing there while refusing to pay for the contra losses in the previous broker. As time went on, he would have contra losses in many brokers. If he had average contra losses of say, RM100,000 in each broker, he could accumulate a total contra losses of RM1,000,000 with 10 brokers.
Since the CDS account is not centralised, ie. a person can open 10 CDS accounts with 10 brokers, similarly a customer can open 10 trading accounts with 10 different stock brokers unlike Singapore where they have a centralised similar CDS account. With centralised CDS account, if a customer has unsettled losses in Broker A and if he continued to trade with Broker B, Broker A can take legal action to ‘force-sell’ customer shares in the CDS. Since in Malaysia a customer can have many separate CDS accounts, Broker A would not know customer CDS account with Broker B and under the MCD Act that governed CDS accounts, brokers are not allowed to divulge customer CDS information to any third party.
In order to prevent abuses by customer, the than KLSE members agreed on a rule to create a Defaulter Lists. A member or participating organisation of KLSE (now Bursa) can report to the Bursa on any of their customer with unpaid contra losses that exceed RM2,000. After Bursa has investigated (based on certain required documentations from the Broker), Bursa will list the customer in the Defaulter List (Name, Identification Card Number, Amount Owing) minus the name of the reporting Broker. This list is then circulated to all member Brokers and the name is uploaded in Bursa BFE. When the name is in the BFE, the customer with matching IC will not be able to make any further Purchases with any Brokers but the system allow the selling of shares. Member Brokers will upload the Defaulter List into their Back Office Computer System which will prevent the listed name to open a new trading account with member brokers.
So, are you a Defaulter ?
There have been cases of fraud, where a known or unknown party or parties used another person IC to open a trading account without the knowledge of the IC holder. These ‘syndicate’ will create many stolen identity trading accounts and used them to create trading volume for a particular stocks to inflate the price before they ‘Cash Out’ in their own nominees accounts while creating huge contra losses in the other accounts with the stolen IC. When the geninue IC holder wanted to open its first or new trading account, he found that his name is listed in the Bursa Defaulter Lists with hugh amount of contra losses.
A good advice will be for anyone to visit a broker just to check whether he is listed as a Defaulter.
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