How YES Bank led to collateral damage on Sensex, Nifty

The freeze imposed on YES Bank has led to the stock markets reeling under massive margin pressure, experts said. News of the freeze on YES Bank came late in the evening of Thursday. On Friday morning, the NSE issued a notice that brokers who had placed FDs of YES Bank and other instruments as collateral for availing positions in the stock market will have to bring in additional funds of up to 100 per cent.

“The existing benefits provided to members towards bank guarantees and FDs issued by YES Bank in favour of NSE shall be reduced by 50 per cent of collateral value provided beginning March 9 and remaining 50 per cent by March 11,” said the compliance officer of a large broking house.

Meaning, brokers will have to put up 100 per cent fresh margin by March 11 to avail new position limits if they had earlier used YES Bank facility for the same, he added.

“This is a double whammy for the brokers and clients. On one side, YES Bank withdrawals are frozen and money locked and now the exchange is demanding 100 per cent margin. Also, the market crash has anyway brought up on traders huge margin burden. There is no money to fund positions. The situation demands only liquidation of all derivative positions. No broker is allowing fresh positions unless 100 per cent cash is given upfront. Not just at YES Bank, the freeze is everywhere,” said the compliance officer.

NSE also said that those who deposited YES Bank shares as collateral will have to bring in 100 per cent fresh margin. Exchanges collect upfront risk margin for giving trading limits to brokers.

Late on Thursday evening, the RBI said it had superseded the YES Bank board and limited withdrawals to ₹50,000 per account holder per month. The Sensex fell 1,300 points on opening and the Nifty index was down 375 points, the largest crash this year.

NSE, which has near-monopoly in derivatives trading has not put any number to the collateral it holds with regard to YES Bank. But the bank has more than ₹2-lakh crore in deposits in various forms.

Brokers said that a few traders made a killing in YES Bank options trading. On Thursday, news reports suggested SBI would buy a stake in YES Bank. The ₹10 YES Bank Put option, an instrument for short selling, was available at ₹0.10 on Thursday. It attracted huge open interest of around 10 lakh shares on Thursday, implying that traders were buying the Put options of YES Bank. On Friday, when the markets opened for trading, the same Put options were selling at ₹2.5, indicating a mind boggling 2,400 time gains for traders who took the bet on Thursday.

Half of Indian fintech is down because of YES Bank going down. Not a single UPI transaction on PhonePe (which is on YES Bank PSP) is going through. The same is the case at CRED, UDAAN, Swiggy, and many others. YES Bank’s own app, net banking website and accounts are inaccessible.