MUMBAI: Stock brokers who offer a number of services such as lending money to their customers to buy shares in their fight to continue to exist can have a hard time going forward with the market regulator barring them from pledging customers’ stocks to elevate budget.
The Securities and Exchanges Board of India (Sebi) has come out with a new set of rules basically to ensure brokers don’t misuse securities of 1 customer to fund some other purchaser. However, these adjustments can have a chief impact on agents’ running capital and their commercial enterprise as these will restrict their get admission to to price range, 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brokers should improve funds for them with the aid of the usage of their securities for his or her positions has been withdrawn,” stated Uttam Bagri, chairman at Bombay Stock Exchange Brokers Forum.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 own pocket, or wherein broker cannot extend credit score facility, the purchaser will must directly improve finances from another entity like an NBFC or bank.”
As according to the new tips, which would come into impact on September 1, stocks mendacity with a trading or clearing member in 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 had 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 Association of National Exchanges of Members of India (ANMI). Narinder Wadhwa, national president of Commodity Participants Association of India (CPAI), said brokerages will now 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 be transferred to the client’s demat account only after full payment. If the customer fails to make complete charge, these shares must be disposed of inside the marketplace through the member inside 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 additionally said shares purchased underneath margin buying and selling facility ought to 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 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 and clearing corporations and depositories to put in location a tracking mechanism with appreciate to dealing with of clients’ securities.
Sebi has been running to plan a new mechanism, one which could ring-fence clients’ shares from any utilisation by way of brokerage companies. Some instances had surfaced wherein agents had been determined to have been engaged in manipulative activities involving misuse of customers’ cash and shares.
Although brokers sense these have been one-off few cases that don’t pose systemic hazard, the new circular from the regulator would require redefining of margins and control of customers’ budget or shares techniques at stock agents’ stage.
“We foresee operational issues in 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.”