Anyone who invests in the stock market has certainly heard reports of people who lost or stopped making money not because of economic crises, or natural market fluctuations, but because of mistakes made by intermediaries, such as brokers and independent agents. These are errors in order execution, technical failures or even the execution of unsolicited orders that can cause losses to investors. These incidents are infrequent, with fewer than 200 formal complaints registered per year since 2008. However, when they do occur, they can result in major financial disruption for the investor. Although operations on the Stock Exchange do not have guarantees similar to bank deposits, there are mechanisms to compensate for losses caused by brokerage errors. This is possible through the Loss Reimbursement Mechanism (MRP), managed by BM&F Bovespa Supervisão de Mercados (BSM), which works as a “Guarantee Fund” for variable income. Over the last 10 years, the Securities and Exchange Commission (CVM) has monitored several brokerages that have faced financial difficulties and bankruptcies. One of the most notorious cases was that of Gradual Corretora, which went into judicial liquidation in 2018 after being accused of poor management and failures in its internal controls, which impacted around 60 thousand customers with R$7 billion in custody. The CVM and MRP ensured that affected investors could transfer their investments to other brokers and request reimbursement within the established limit.

The loss compensation mechanism

As we have already said, MRP is a mechanism designed to guarantee compensation for losses caused by failures of brokers or independent agents. It offers protection up to a limit of R$70,000 per occurrence, an amount equivalent to that guaranteed by the Credit Guarantee Fund (FGC) for deposits in banks. Among the cases covered by the MRP are the incorrect execution of buy and sell orders, misuse of assets and even the judicial liquidation of the broker. The MRP is triggered when the investor is able to prove the loss caused by the broker’s error or agent misconduct, as occurred with TOV Corretora, which was liquidated after a series of irregularities highlighted by the CVM. Investors who faced problems with the company also turned to MRP to seek compensation for losses due to mismanagement and failures to execute orders to buy and sell assets. Such cases reinforce the importance of MRP in protecting investors against losses caused by brokers in bankruptcy or irregular operations. Below, check out some of the main situations in which investors can resort to the mechanism.

Situations in which it is possible to request reimbursement

1. Unfaithful execution or non-execution of orders: if the broker executes an order different from that requested by the investor or does not execute the order in a timely manner, the loss may be reimbursed. For example, if the investor ordered the purchase of asset A, but the home broker records the purchase of asset B, he can claim the amount corresponding to the incorrect operation.
2. Misuse of cash or assets: when the broker uses the client’s money or assets without authorization, such as to cover a failure in another operation, the loss generated can be reimbursed. A classic example is when a broker uses a client’s shares to cover a settlement problem for another client, preventing him from selling the shares and generating a profit.
3. Technical failures that prevent operations: if the investor is unable to carry out an operation due to a failure in the broker’s system and this results in financial loss, he or she can request compensation. This occurs, for example, when there is instability in the home broker and the investor is unable to sell his shares in time to profit from an increase in value.
4. Irregular portfolio management by independent agents: independent agents are not allowed to manage client portfolios. If an agent carries out operations without the investor’s consent, causing losses, the client may seek compensation. However, if there is evidence that the investor was aware of and consented to the transactions, the MRP will not cover the loss.
5. Excessive portfolio turnover: if an independent agent carries out a series of unauthorized operations to increase the brokerage volume, resulting in losses for the client, it is possible to request compensation. This type of practice, known as “churning”, aims to increase brokerage commissions without considering the investor’s interests.
6. Use of a margin account without authorization: if the broker or an independent agent uses the client’s margin account without authorization, generating losses, the investor may request compensation. The margin account is a line of credit provided by the broker for the purchase of variable income assets, which can result in significant losses if used without the client’s consent.
7. Liquidation of the broker: in the event of judicial liquidation of the broker, investors are entitled to reimbursement of up to R$70,000 in assets or cash held in custody at the broker.

How do I go about seeking reimbursement?

When the investor is faced with a situation that could result in reimbursement under the MRP, it is important to follow some steps to ensure that the complaint is formalized appropriately:

1. Constant checking of statements: investors must regularly review brokerage notes and Share Trading Notices (ANA), sent by BM&FBovespa, to detect possible irregularities in operations.
2. Initial contact with the broker: the first step when identifying a fault is to contact the broker’s support, either through customer service or the ombudsman. Often, the problem can be resolved directly with the institution.
3. Contact BSM in unresolved cases: if the broker does not resolve the issue, the investor must contact BSM and register a formal complaint with the MRP, detailing what happened and the loss suffered.

The complaint must be formalized in writing and presented within 18 months after the problem occurred. The document must include:

• name of the broker and those involved in the error;
• detailed description of the fact, with dates and times;
• value of the loss, limited to R$70 thousand per occurrence;
• documentary proof of the loss (brokerage notes, statements, among others).

In addition, it is necessary to attach certified copies of personal documents and proof of residence. All material must be sent by post to BSM addresses. Losing money in the stock market due to errors by brokers or independent agents is a stressful situation, but the investor is not unprotected. MRP provides an important safety net for those who suffer losses arising from intermediary failures and misconduct. Therefore, when identifying any irregularity, it is essential to act quickly, seek compensation and ensure that the broker fulfills its role in a transparent and efficient manner.

Source: Money Times