These case studies have been modified so as not to identify any actual cases at FIDReC. They are provided for purposes of learning and are not necessarily indicative of outcomes at FIDReC.
In 2020, Benny opened a cash account funded in Singapore Dollars (SGD) with a brokerage firm (the “FI”). He made a few trades denominated in US Dollars (USD) on the FI’s trading platform following a friend’s tip. He put money into his SGD cash account to fund those trades.
A few years later, Benny logged into his account to make a new trade. He noticed a negative USD account balance with outstanding interest of more than USD4,000. He called the FI and found out that his earlier trades were settled using his USD account, which did not have enough funds. This resulted in a deficit, which had accrued interest charges over the years.
Benny said that the FI had not informed him about the outstanding interest charges for the past few years. He insisted that the FI should have deducted the funds from his SGD cash account.
The FI explained that according to the terms of use of their platform, when a trade is placed without sufficient funds in the same denominated currency, the trade will be made on margin. This meant that funds would be borrowed from the brokerage. What Benny should have done was to convert his SGD into USD as the FI does not automatically convert funds for their customers to settle the trades.
Dissatisfied with the FI’s response, Benny came to FIDReC. FIDReC facilitated discussions between Benny and the FI. Benny shared his frustrating experience. In his view, there would be no interest charges if the FI had notified him earlier.
The FI explained that Benny could download the account statement from the website. Had Benny done so, he would have noticed the interest charges. The FI said that it was Benny’s duty to review his account balance and inform them of any discrepancies. However, Benny had not contacted them for the past three years. Benny explained that there were always sufficient funds in his SGD cash account, and he did not have
any reason to suspect that anything was amiss.
any reason to suspect that anything was amiss.
Out of goodwill, the FI offered to waive 30% of the interest charges. Benny decided to accept the FI’s offer. He acknowledged that he should have checked his account balance regularly, especially after making a trade.
Key Learning Points
- When you open an account with a brokerage, please ensure you understand the terms of use of the account. Ask the brokerage firm for an explanation if you are not sure.
- For margin accounts, you may wish to find out whether there is any automatic conversion of funds to settle foreign-denominated trades. If not, the account holder will have to settle the trade by performing funds conversion at the prevailing foreign exchange rates.
- As an investor, you should keep track of your investments.
- When you trade using a brokerage account, you have a responsibility to read your account statements and notify the brokerage if the statements are not accurate.
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