Why some brokers force you to open new demat accounts

livemint.com:

The Securities and Exchange Board of India does not limit the number of demat accounts that an investor can open. To be sure, many investors have multiple demat accounts, usually to segregate their investments. The same goes for trading accounts but that though depends on the number of brokers they are dealing with. And most brokers won’t let you link your existing demat account to their trading account. They would rather insist you open a combined trading and demat account with them.

The reasons

Brokers often have reservations about allowing investors to link their trading accounts with demat accounts held by clients at other brokerages. For one, they face challenges in analysing an investor’s demat accounts held with other depository participants (DPs) or brokers. This lack of transparency can complicate the management and verification of an investor’s portfolio.

Two, brokers are reluctant to link another broker’s demat account to their trading account because it can cause problems with default delivery, settlement risk, and inter-DP charges. The friction in the demat account migration process is caused by the lack of interoperability and standardization among different brokers and DPs. This can lead to problems such as having to deal with multiple systems and processes, managing the risk of default or dispute, and complying with regulatory requirements, said Tejas Khoday, co-founder and CEO, FYERS.

The absence of standardized Application Programming Interfaces (APIs) for interoperability between different brokerage systems creates hurdles in facilitating seamless transfers of securities and information between accounts.

With the evolution of regulations, shorter settlement time for trades and requirement of upfront