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The first day of SEBI’s new pledge and margin collection system on Tuesday was marked by chaos. Friday related pay-in obligation to clients, which usually happens at 10.30 a.m., was delayed until 6 p.m, sources told BusinessLine . Also, stockbrokers said there were issues with technology as one time password (OTP) generation for the purpose of share pledging was not working smoothly. As a consequence, cash market volumes on both the BSE and the National Stock Exchange suffered.
Read also: Upfront margins on stock trades in cash segment are a good thing
The trading turnover in the cash segment was down between 10 to 20 per cent on the BSE and the NSE, compared to the average trading volumes of the past week. Depository participants (DPs) have blamed brokers for delay in upgrading their systems and the chaos in pay-in.
On SEBI’s direction, the use of power of attorney (PoA) for the purpose of margin collection and off-market share transfers has been discontinued from September 1. Now, the brokers are supposed to seek separate client instructions to use their shares for margin. Earlier, brokers managed to take client PoA at the time of account opening and used the same life long to transfer shares for margin purposes. But that was also being misused. Margin is the initial amount required to take in markets. From Tuesday, SEBI has also mandated margin collection in the cash segment for both buying and selling of shares.
Brokers have been blaming the depositories for lack of preparedness in the new system, but sources close to NSDL and CDSL said that the chaos on Tuesday was mainly because of the fact that broker systems were not upgraded on time.
Brokers to blame?
CDSL and NSDL hold client shares in demat and monitor share transfers as per client instructions. “The technology with regard to pledging of shares without PoA was available since June, but brokers did not make changes to their systems. They kept hoping for extension in permission for the continuation of the new system till the last moment. Hence, Tuesday clients were not used to the new system and there were delays. There is nothing wrong with working at the depositories,” sources close to one of the DPs said. Pay-in is the final settlement amount that is handed out to traders and investors. Markets follow a T+2 (today+2 working days) settlement cycle. Accordingly, Friday’s settlement had to happen by 10.30 a.m. on Tuesday but got delayed till evening.
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It will be better if SEBI takes a hard look at the regulatory framework for the entire trading eco-system and makes the necessary changes in one go“Pay-in delay was due to clearing corporations (CC) of stock exchanges giving brokers more time to adjust to the new system. The brokers were asked to take back their margin given under the old system and re-submit it through the new pledging norm. They all rushed to do it at the last moment and hence the pay-in got delayed,” a DP official said.
“However, blaming brokers is not good, as all of them cannot be at fault. The reason for delayed pay-in is DP’s fault, as CC has informed that the file had to come from DP which got delayed. How can that be if all DP systems were fine,” said a MD of a leading Mumbai-based brokerage.
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