Advice on factors to check when choosing a foreign stock broker

Buying US shares from India has become easier through applications, but it is crucial for investors to know which institution is behind these applications and who regulates it. According to a report by Business Standard, investors should examine the underlying structure rather than focusing solely on the application's appearance.

Recently, some investors of Borderless (formerly Stockal) alleged unauthorised transactions ranging between ₹80 crore and ₹100 crore in accounts holding American securities. The company stated that their investigation found signs of phishing or social engineering and no evidence of a breach on the platform. This matter is currently under investigation. This incident has raised the question of who actually holds the investors' shares and whom to contact in the event of a problem.

Most foreign investment applications rely on the structure of a foreign broker who actually manages the account. In the case of Borderless, it has been learned that there are disputes regarding liability between the Indian platform and its US partner broker. Ronit Kare, CEO of Vutrade International IFSC in GIFT City, states that investors should always know which carrying broker or bank is ultimately involved. He told Business Standard that instead of relying on promotional material, one should check how long the platform has been operational, who runs it, and what the user feedback is on forums like Reddit and X. He advised reading the details regarding the regulatory broker and custodian.

YouTuber Amit Upadhyay told Business Standard that the key question is whether the Indian app controls the entire relationship or merely provides customers access to a foreign broker. If the app only acts as a referral, it has no authority if there is a delay in onboarding by the broker or if terms change. He shared an experience where it took five days to open an account in one app because control rested with the broker.

Dipesh Raghav, a SEBI-registered investment adviser and founder of PersonalFinancePlan.in, advised choosing platforms like Interactive Brokers that control the entire chain from end to end, so that there are fewer intermediate layers. Tech professional and YouTuber Pranay Kapoor also told Business Standard that he chose Interactive Brokers due to the absence of intermediaries and lower brokerage.

Regarding regulation, Dipesh Raghav warned that SEBI does not regulate foreign investments. If a problem arises in any investment not regulated by SEBI, the investor cannot make any representation to SEBI, and the burden of proof lies with the investor to show that they were not at fault. According to the Business Standard report, even if the Indian entity is SEBI-registered, all activities of its foreign partner do not automatically come under Indian regulations.

Ronit Kare pointed to GIFT City (IFSC) as an alternative, where Indian regulators can track the fund trail and trade records. Resident investors can invest through IFSC, subject to eligibility and tax rules. Investors often rely on insurance, but American brokers are generally covered by the Securities Investor Protection Corporation (SIPC), which provides protection up to a maximum of $5,00,000 per customer, including a maximum of $2,50,000 for cash.