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R.Y. Narayanan

Coimbatore , April 6

THOUGH the rules governing margin trading framed by the Securities and Exchange Board of India (SEBI) have come into effect from April 1, the market participants here expect that it would take at least two to three months more before it is introduced by the stock exchanges in the country.

The brokers are also not sure as to how the financial institutions would respond to the requests for funding of margin trading since they feel that barring the new generation private sector banks, the PSU banks and older private banks have been wary of lending to the stockbrokers.

Speaking to Business Line, Mr D. Balasundaram, a former President of the Coimbatore Stock Exchange and the Chairman of Coimbatore Capital (P) Ltd, said he expected the introduction of the margin trading to be delayed till June-end because the stock exchanges are yet to come out with guidelines to facilitate it, the brokers are yet to equip themselves with the systems for its smooth operations and banks do not seem to be generally enthusiastic about the idea of lending for margin trading.

He said the stock exchanges, including the NSE and the BSE, were yet to frame the guidelines governing margin trading and circulate them to their members. SEBI itself in its March 19 circular had set out the rules covering it. But this meant that margin trading has been legally permitted and the stock exchanges were required to frame the requisite rules before it could be introduced, he said.

Mr Balasundaram said SEBI has set a stiff eligibility criteria for brokers willing to enter margin trading — only corporate brokers with a net worth of at least Rs 3 crore would be eligible to offer margin trading. Since even for derivatives trading such norms have been fixed he did not expect this to put off the eligible brokers from opting for it. As there would be demand for margin trading facility from a section of the clients, the brokers who do not offer it may see flight of clients to other brokers who offer this facility.

But he feared that getting financial assistance from the banks/approved NBFCs may not be easy for the brokers since banks, other than the new generation private sector banks, have not warmed up to lending to stockbrokers. This may give an edge to the securities companies floated by new generation banks such as HDFC Bank and ICICI Bank because of their parents' support to meet the funding requirements.

Mr Balasundaram said the brokers also need the software system in place before they could offer this facility to their clients since SEBI has prescribed stringent reporting norms and disclosures have to be made by the brokers to the exchanges and by the exchanges to the public.

Client monitoring has to be done on a daily basis and in case of margin erosion, the clients should be called to replenish the loss in margin failing which the brokers may liquidate the securities.

All these could not be carried out manually and the brokers needed the requisite computer software in place before the new product could be launched. This may take time to develop.

He felt the process of getting Mapin (Market Participant and Investor Database) ID by all the market intermediaries was cumbersome since in Tamil Nadu, only two agencies — one in Chennai and another in Coimbatore — have been permitted to do that work which requires finger printing.

Asked about the impact of margin trading on the stock market, he pointed out that as SEBI has set tough minimum initial margin of 50 per cent and maintenance margin of 40 per cent he did not anticipate any surge in speculative trading.

He expected it to co-exist with derivatives trading as in other countries.

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