Volumes hit by move to penalise brokers for short collection of margins

SEBI's move to penalise brokers for short collection of margins from September 1 has started shrinking retail volume, said market men.

“Our average daily volume of Rs 20 crore came down to Rs 6 crore last Friday,” said a broker. The average daily turnover on the BSE was in excess of Rs 2,600 crore since May. But it fell to around Rs 2,100 crore in September. However, turnover on the NSE was normal.

According to the SEBI circular, which came into effect on September 1, short collection of margin from a client would result in a maximum penalty of up to five per cent of shortfall.

Non-reporting would attract 100 per cent of the short collection as penalty, whereas false reporting would attract 100 per cent penalty on the falsely reported amount along with one day suspension in that segment.

In case of index movements of three per cent and above, SEBI has specified that the penalty would be imposed only if the shortfall continued to the T+2 day.

However, there is no allowance if stocks (but not the index) move in excess of three per cent resulting in a margin call, especially when the market is about to close.

Will increase costs

“This will only increase costs and make trading a more complex and cumbersome process,” said Mr Trivikram Kamath, Executive Vice-President, Kotak Securities.”

Experts said that almost all brokers with large distribution network and clientele were bound to be penalised every day for reasons beyond their control.

“Earnings from a position could get lower than the cost of taking or holding an open position in the market as brokers will start asking clients to keep excess margins to avoid penalty resulting in money sometimes lying idle, said Mr Kamath.

According to those in the trade, market liquidity will go down and broker-client disputes could increase when brokers forcibly cut client positions and minimise the shortfall in margin.

More disputes likely

Experts also said that debarring a broker for a day could also result in clients not being able to book losses on the day of debarment, thereby increasing disputes.

Margin calls are triggered due to price volatility, change in portfolio composition, change in the value of collateral provided, collateral being declared ineligible due to illiquidity, and daily mark to market losses booked.

There are instances where a call for additional margin was not possible due to client being out of station, abnormal quantum of margin, non-availability of liquid assets; and inability of intermediaries such as banks and depository participants to speedily process the margin call within the requisite time.

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