MUMBAI: Stock brokers who offer several services, such as lending money to their customers to buy shares in their fight to continue to exist, can have a hard time in the future with the market regulator barring them from pledging customers’ stocks to elevate their budget.
The Securities and Exchanges Board of India (Sebi) has issued a new set of rules to ensure brokers don’t misuse the securities of one customer to fund another purchaser. However, these adjustments can have a chief impact on agents’ operating capital and their business as they will restrict their access to funds, marketplace individuals said.
“The flexibility loved by using the clients wherein brokers should improve funds for them with the aid of the usage of their securities for his or her positions has been withdrawn,” stated Uttam Bagri, chairman at Bombay Stock Exchange Brokers Forum. “Now, either the dealer will fund the consumer out of his pocket, or wherein broker cannot extend credit score facility, the purchaser directly improve finances from another entity like an NBFC or bank.”
According to the new tips, which would come into impact on September 1, stocks mendacity with a trading or clearing member in a client collateral account, consumer margin buying and selling securities account, and client unpaid securities account will now not be approved to be pledged or transferred to banks or non-banking financial corporations (NBFCs) for raising finances by individuals.
Sebi announced the brand-new recommendations on Thursday.
“Client securities now not being available for pledge will curtail liquidity in the share markets, for which alternative mechanisms like low-value custodian can be vital,” said Vijay Bhushan, president of the Association of National Exchanges of Members of India (ANMI). Narinder Wadhwa, national president of the Commodity Participants Association of India (CPAI), said brokerages require greater operating capital.
The market regulator has asked buying and selling members to preserve a separate ‘client unpaid securities account’ for clients who have partially paid for the shares they bought. Shares stored in this account must only be transferred to the client’s demat account after full payment. If the customer fails to make a full charge, these shares must be disposed of inside the marketplace through the member within 5 days from the settlement date, it stated.
“The requirement of compulsory doing away with unpaid consumer securities inside T+five days could purpose heavy losses during periods of surprising fall in proportion markets,” stated Bhushan of ANMI.
Sebi also said shares purchased underneath the margin buying and selling facility should be saved in a separate ‘consumer margin trading securities account’. The regulator similarly stated all the present patron securities debts opened via the buying and selling member (TM) or clearing member (CM), other than the pool account, patron margin buying and selling securities account, and patron collateral account, will be wound up on or earlier than August 31.
Brokers In a Fix as Sebi Bars Pledging Of Clients’ Shares
The regulator has asked exchanges, clearing corporations, and depositories to install a tracking mechanism for dealing with client’s securities.
Sebi has been planning a new mechanism that could ring-fence clients’ shares from any utilization by brokerage companies. Some instances have surfaced wherein agents have been determined to have been engaged in manipulative activities involving misuse of customers’ cash and shares.
Although brokers, since these have been one-off few cases that don’t pose systemic hazards, the new circular from the regulator would require redefining margins and controlling customers’ budgets or share techniques at the stock agents’ stage.
“We foresee operational issues in the implementation of this round, like what happens for debit customers when their inventory lying with agents are at lower freeze for seven days, remedy of stocks of inoperative and untraceable customers,” said Wadhwa of CPAI. “For issues like this, our association will supply our submissions to Sebi.”
