The Hindu Business Line : Broking firms stop fresh buying by clients

All in the game
Total clients' payment obligation this week could be around Rs 2,000 crore
`This week crash exposed the vulnerability of the domestic stock market to speculative forces, be it overseas or local.'

Kolkata , May 19

A large number of broking firms, which have been affected by clients' non-payment, today forced large-scale square-offs and stopped fresh buying by their clients.

According to dealers and officials of the big broking outfits, who allowed funding for clients trade even up to 70 per cent of the total exposure through their in-house financial arms, clients blew out the positions on account of mark-to-market loss in the cash segment.

According to an IL&FS Investmart official, large broking houses including IL&FS, Indiabulls, Motilal Oswal, SSKI, Religare (formerly Fortis), Kotak Securities adopted this method for a large number of retail and HNI clients, both in cash and derivatives segments.

The total clients' payment obligation stomached by the broking community in the five sessions this week, according to a Dalal Street estimates, could be around Rs 2,000 crore.

Mr Ajit Day of Dayco Securities said that some of the broking firms allowed huge over-leveraged positions in cash and derivatives - in certain cases as high as 12 times the actual money invested by the client. "Much of the private financing and margin funding did not adhere to the prudential or the prescribed norms," he felt.

Mr Nilotpal Basu, a member of the JPC that went into the 2001 market scam, told Business Line that this week's crash exposed the vulnerability of the domestic stock market to speculative forces, be it overseas or local. "This was waiting to happen. Valuations were getting stretched by dint of leveraged liquidity. The retail investors have again been trapped," he added.

According to a dealing desk in-charge of an institutional brokerage, a large number of retail investors, who entered the market in the post-Budget period have either seen over 50 per cent of capital erosion or lost their shirt.

More Stories on : Stock Markets | Financial Services

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
Inflation rises to 3.96 pc on higher energy prices

Birla-Lodha tussle: Calcutta HC appoints four administrators

Bring back long-term capital gains tax: CPI(M)

SBI net rises marginally in 2005-06 at Rs 4,407 cr

Tata Motors clocks 18 pc growth in Q4 net, to pay Rs 13

The bear party continues

Broking firms stop fresh buying by clients

European cos plan to increase offshoring assets: IDC

Siemens in pact with Huawei-3Com