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Our Bureau

Mumbai, April 21 Monday saw stock markets grapple with three new elements to transacting – margining in the cash segment for institutions, short selling and securities lending and borrowing (SLB).

There were a lot of expectations and apprehensions among market players; and the day ended with no SLB activity at all on BSE, and only four transactions on NSE for an aggregate value of Rs 1.6 crore.

The indications are that the SLB market may move into the hands of a few investors and brokers, said analysts.

They explain it this way: US-based FIIs are not willing to cough up margins because certain Securities and Exchange Commission regulations prevent them from paying margins on cash transactions. (Most countries do not have margining in the cash segment, pointed out analysts).

To overcome this impediment, these FII margins may end up being met by brokers. Among the brokers, only the high net worth ones would be able to service the margin needs of FII clients whose transactions tend to be large, said analysts. Therefore, there is the likelihood of the cash segment business relating to FIIs will move into the hands of a few big brokers, they said.

To mitigate the burden of margin payment on institutions, SEBI is examining the introduction of cross margining, said market sources. Cross margining works in this way — if one is already paying margins in the F&O segment and takes a contrary position on the same stocks in the cash segment, then the Value at Risk margin may be waived for the cash transaction. (Other margins such as extreme loss and mark-to-market margins will continue to apply, said the sources).

That SLB may be confined to a few players is also indicated by the fact that among the FIIs themselves there are only a dozen or so which are major players in the F&O segment. And these entities are likely to benefit, said analysts.

The introduction of cross margining might lead to a surge in the cash segment of NSE versus that of BSE, since NSE’s F&O volumes are much higher than BSE’s, said market watchers.

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