Priya Nair

Mumbai, Sept 20

BANKS have sought more time to comply with the Securities and Exchange Board of India (SEBI) regulation requiring all institutional investors to stop delivery of shares by hand or settling equity transactions against payment.

The regulation was originally to take effect from September 19. "SEBI's regulation has caught us by surprise, for now we have to appoint a custodian to carry out the services," said an official at a public sector bank.

SEBI had issued the guideline on September 2 mandating that all transactions on stock exchanges be settled through the clearing corporation of the bourses.

"It has been decided that in consultation with stock exchanges, custodians and other market participants that all transactions executed on the stock exchanges will, henceforth, be settled through the Clearing Corporation/House of the stock exchanges. In order to give the institutional investors, custodians and other market participants some time to change over to this practice, the above will come into effect from September 19."

However, some public sector banks have sought additional 10-15 days for putting the mechanism in place. A chief of treasury with a public sector bank said, "So far we have been presenting our trades through brokers. But this rule has been enforced suddenly and we were not prepared. The settlement process could be affected for a while."

For private banks and foreign banks that offer custodial services, this is proving to be a new business opportunity. In the last 10 days several public sector banks have opened accounts with HDFC Bank, which is a custodian, said Mr P.V. Ananthakrishnan, Vice-president and Head, Capital Markets.

"Already 90-95 per cent of the trade was happening through the depository system. Many banks have opened accounts with us. Some are in the process of getting approval from their internal boards," he said.

Some of the other banks that offer custodial services include HSBC, Citibank, Deutsche Bank. The Stock Holding Corporation of India Ltd is the other big depository service provider.

According to another official from a public sector bank, this guideline will ensure that market players do not take speculative positions and will also free banks from the hassles of settlement. The only negative point was that banks will now have to pay for these services, he added.

(This article was published in the Business Line print edition dated September 21, 2005)
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