Financial Daily from THE HINDU group of publications
Tuesday, May 23, 2006
Financial Daily from THE HINDU group of publications Tuesday, May 23, 2006 |
|
|
|
|
|
|
|
Home Page
-
Stock Markets Markets - Stock Markets Jayanta Mallick
1,100 WORRIES: The expressions on the faces of share traders on Monday at SMC Global Securities Ltd, a share trading house in Kolkata, says it all. — A. Roy Chowdhury
Kolkata , May 22 Market players concede that "systemic" problems may not have actually come in the way of "successful" completion of pay-ins at both NSE and BSE. But they insist that the "systems" did not measure up, and have hit many brokers and their clients in terms of payment obligation and forced a square-off, which in turn precipitated a crisis over margin calls witnessed last Friday and on Monday. Some major brokers and financiers opted for heavy distress selling of the pledged or warehoused stocks of HNI and retail clients in a desperate bid to limit their losses or meet the payment obligation to the exchanges. Ms Deena Mehta, former President of the BSE and Director of Asit C. Mehta Investment Intermediaries, told Business Line that some 25 broker-attached NBFCs, who had funded leveraged cash and derivatives positions and an array of unauthorised private financiers, sold whatever they could at any prices. This group, according to conservative market estimates, might have had funded leveraged trading worth Rs 10,000 crore in the last few months. Market insiders knew that these "stock financiers" had violated all the norms laid down by the RBI and the SEBI in terms of margin lending or financing against shares. "The banking and market regulators have been found lacking in terms of feeling the pulse of client-level enormous leveraged positions and the quantum of stock lending that had permeated the system in the post-Budget period this year. A large chunk of this was sans prudent risk management," Ms Mehta said. "On one hand, these financiers did not adhere to daily reporting to the SEs or stock selection criteria (as required under the SEBI rules), and on the other, they neither conformed to the RBI guidelines on lending against shares be it the individual level ceiling or percentage of margin, or selection of shares or the overall cap," she said. Unauthorised funding, too, by small brokers had played a crucial part in leveraged trades, most of which resulted in non-payment by the clients after unprecedented and almost continuous decline in valuations in the last nine sessions. In a falling market, they stepped up selling of shares and further depressed the prices as buyers were outnumbered. "Since the opening of the day's trading till the market was suspended at 11.56 a.m. for an hour, this indiscriminate sell-off ensured a free-fall in all indices," head of the dealing desk of an institutional brokerage said. Market insiders said for the first two hours, institutions and mutual funds preferred to be on the sidelines after a few token trades. Brokers also said that absence of a smooth and quick funds transfer system across the country or willingness to provide cheque discounting facility by clearing banks of the major exchanges created an artificial liquidity crunch. "Clearing banks refused to cooperate, and money got stuck in the system, while valuations dipped in the past four days forcing sell-off as the only option available," said the CEO of a large broking firm.
More Stories on : Stock Markets | Stock Markets
Article E-Mail :: Comment :: Syndication :: Printer Friendly Page
|
Stories in this Section |
|
The Hindu Group: Home | About Us | Copyright | Archives | Contacts | Subscription Group Sites: The Hindu | Business Line | Sportstar | Frontline | The Hindu eBooks | The Hindu Images | Home |
Copyright © 2006, The
Hindu Business Line. Republication or redissemination of the contents of
this screen are expressly prohibited without the written consent of
The Hindu Business Line
|