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Did the sudden withdrawal of bank guarantee (BG) limit worth more than ₹100 crore to Anugrah Stock Broking (ASB) is among the key reasons that may have led to a run on the Mumbai broker?
Investors have now complained about default by the broker to SEBI. For several years, ASB churned high returns for clients by trading in the derivative segment in the stock markets but the broker is likely to have defaulted on payments now. ASB has told its clients that its clearing member, another large private bank, liquidated its assets and shares causing it to come under a funding crunch.
ASB was asked to bring additional cash margin to meet the market to market and other risk parameters, after its BG was withdrawn, sources told Business Line .
On August 3, the NSE had withdrawn trading rights of ASB on the back of reports that the broker was running unauthorised derivative advisory services. The NSE had also asked the broker to deposit ₹165 crore, a sum which the broker had allegedly collected from clients for trading in derivatives.
Even though the broker managed to obtain a stay on the NSE order from the Securities and Appellate Tribunal (SAT), the assets of the broker lying as margin with the clearing member were liquidated, the source said. A clearing member is responsible for settlement of trades between the exchange and brokers, who have to deposit margin with the clearing member.
Under scanner
A key reason for withdrawal of BG limits is said to be both allegations against the broker of unauthorised services and regulatory scrutiny of margin funding to brokers by banks.
Short term loans (STLs) under which brokers were granted BG and fixed deposits (FDs) by private banks are all under the scanner of SEBI for the past few months. The regulator has tumbled upon instances where private banks had extended FDs, partly funded by them, for margin purpose to stock brokers. Such STL products could have been offered in a regulatory vacuum and hence the banks have started withdrawing broker limits.
After ASB’s BG was cancelled, the broker could not immediately arrange for such a huge cash amount quickly. SAT has yet again listed for hearing ASB's plea in October. ASB did not respond to repeated calls and messages from Business Line .
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