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Volumes To Dive On Sebi's New Norms

BW Online Bureau Nov 08, 2014

<?xml version="1.0" encoding="UTF-8"?><root available-locales="en_US," default-locale="en_US"><static-content language-id="en_US"><![CDATA[Vijay is a sub-dealer of Angel Broking at his office in Bhandup, a suburb in north-east Mumbai. He has been busy updating his clients who trade derivatives, asking them to keep deposit adequate margin money with Angel Broking to avoid penalties that could be levied because of Securities and Exchange Board of India's (Sebi) new directive. Sebi's objective appears to be to limit excessive market volatility stemming from higher than normal trading activity in derivatives on the stock exchanges. Starting Friday, stock exchanges will monitor the margins in the derivative (future & options) segment at the client level, and not just at the broker level. If the margin requirements fall short, exchanges will levy a heavy fine on the client as well as the broker. As a consequence, traders and investors may have to keep a larger than hitherto required amount of money on deposit with their brokerage firms, which could dampen the level of trading activity. And that may be exactly what the markets need. Earlier And Now Here's an example: if a client has gone short on Reliance Industries, and the price of Reliance Industries moves upwards, it creates a shortfall. Earlier margin shortfalls were monitored by the exchanges at the broker level at a threshold acceptable to the exchange, At such times, members were issued a warning.  Beyond the threshold, members are charged a penalty which is a certain percentage of the shortfall amount with a cap on the same.  Now the exchanges will monitor the margin shortfall at the client level and any shortfall in margin money, clients will have to pay the differential immediately. In case the client fails to provide additional margin money or even if it is short by a single rupee it will attract a penalty. For shortfall up to Rs one lakh, the exchange will levy a penalty of 0.50 per cent of the shortfall amount per day and if the shortfall is greater than Rs one lakh, it will attract a flat 1 per cent penalty on the shortfall amount per day. However if there is a shortfall for 3 consecutive days or 5 days in a month, the penalty will be increased to 5 per cent of the shortfall amount per day. In fact the exchanges are going to be strict to the extent that it can even suspend trading of a member in case it comes to know that the collections are reported wrongly. With the new norms it's unlikely that with large number of brokers and their multiple branches and large number of clients they won't default on margin collection on a daily basis.  One wonders why the regulator, Sebi has been harsh on brokers who have not run into problems even on days when the market has gone into freeze. It clearly shows that the regulator perceives risk in the market and with the new norms it is trying to cut down the risk. This would certainly cut down risk as the new norms will increase cost of trading and in the current scenario with markets being volatile, clients will prefer to stay away from the market thus in the near term bringing down the volumes in the market.