No KYC, No Records Prop Trading Scam Exploits Investor Trust with Misused Leverage
A shocking ₹150 crore prop trading scam has come to light, revealing the dark underbelly of India’s brokerage system where trades are executed without KYC, agreements, or any paper trail. According to reports, multiple investors and traders from Mumbai, Delhi-NCR, and Rajasthan have come forward alleging that several brokers were operating unauthorized proprietary trading setups.
While the amounts in individual cases vary, the rampant misuse of leverage-based prop trading has raised alarm among market participants. Everything seems smooth until a trader defaults or a massive loss hits—turning the system into chaos overnight.
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In theory, proprietary trading—or prop trading—is meant for brokers to trade with their own funds for their own benefit. However, in reality, the model has been distorted into an informal leverage-lending system that thrives on investor trust and operates entirely off the books.
At the heart of this scam lies the lure of high leverage. Middlemen or “agents” act as the invisible bridge between traders and brokers. They arrange leverage and trading limits against deposited margins. These agents are neither registered with Sebi nor officially tied to any brokerage firm—but are key to bringing in business.
Funds are often transferred through unrelated bank accounts—or worse, in cash. As long as profits roll in, everyone stays quiet. But once a trader defaults or a bad bet goes wrong, the entire structure collapses.
This ecosystem appears “win-win” on the surface. Skilled traders make profits using leverage; brokers earn from brokerage fees and interest; agents collect commissions by marking up leverage rates.
For instance, if a broker offers funds at 4% interest, an agent might lend the same at 6%, pocketing the 2% spread. In this setup, a trader depositing ₹1 crore could trade with exposure up to ₹7 crore—paying only 4% annualized interest.
Such high leverage cannot be legally obtained through any exchange-regulated mechanism, making it an irresistible offer for retail traders seeking quick gains. Brokers, meanwhile, earn interest on the margin money parked with clearing houses and benefit from profit-sharing arrangements in certain cases.
The danger lies in what happens when things go wrong. “Everyone is friends in profits but become enemies during losses,” said one industry insider.
When a trader defaults, the broker bears the brunt—especially when limits are overstretched beyond permissible risk. If the broker has taken bank guarantees for credit, the domino effect can even impact lenders and financial institutions.
Sebi has taken several steps in recent years to tighten the system, including direct payout of securities and fund upstreaming mechanisms, which reduce default risk. Yet, once such unregulated prop trading networks fail, it leaves investors struggling to recover funds—a process often prolonged and emotionally draining.
Most victims are drawn into this network through social media, private chat groups, or referrals from acquaintances. Many are lured by screenshots of fake P&L statements, claims of insider-like access, and promises of “smart money” trading opportunities.
The narrative is always the same—high leverage, high return, low margin, and minimal documentation. It’s a setup built entirely on trust, but without legal or regulatory safety nets.
Sebi regulations clearly define proprietary trading accounts as meant solely for brokers’ own capital—not for public pooling or leveraged retail trades. Yet, the misuse of prop accounts to offer massive margin benefits remains rampant in several regions, including Gujarat, Rajasthan, Delhi-NCR, Mumbai, and parts of Bengaluru.
According to insiders, this gray-market prop model expanded significantly over the past two years—especially after derivative contract sizes increased. Larger contract sizes meant higher capital requirements, prompting many unregistered entities to pool investor funds and offer illegal leverage under the guise of prop trading.
The unmasking of this ₹150 crore prop trading scam serves as a serious wake-up call for India’s financial markets. It exposes how unregulated leverage and absence of KYC can create a parallel system beyond Sebi’s supervision.
For investors, the message is clear: if an offer sounds too good to be true—it probably is. Avoid platforms or agents that promise outsized leverage without proper agreements, KYC, or documentation.
For regulators, the challenge now lies in closing the loopholes that allow these networks to flourish in the shadows of legitimate brokerage operations. source : Moneycontrol
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