Retail, HNI out of trading limits as COVID-19 lock-down hits brokerages

PALAK SHAH Mumbai | Updated on March 23, 2020

There was panic in stock markets on Monday as large number of retail investors and high net worth individuals (HNIs) were not able to trade as brokers were not giving them any limits, retail portfolio managers and traders told BusinessLine. As a major fall-out of COVID-19 containment measures, there has been huge disruption of office working staff in equity markets.

In Mumbai, Gujarat and Rajasthan stock brokers were not giving clients any limit to trade in derivatives or even buy in the cash segment, unless 100 per cent or more margin money was deposited first. In Delhi, Kolkatta and many other states brokers themselves were not allowed to open their offices due to a state government announced complete lock down. In 75 districts which have announced a lock down, brokers and equity market related workers are yet to classified as essential services.

Across the country, the main issue for stock brokers was that many of their dealers on terminals had not been able to reach to work due to suspension of transport services in states. In Mumbai too, which has the largest base of brokerage services, largely broking office employees could not reach office due to unavailability of transport. States have banned passenger trains and metros and private taxi services too had suspended their trade.

Although, stock exchanges said that broking staff can work from home, the announcement came in the evening only after markets closed. Brokers had to follow procedures to allow trading terminals to be shifted from their offices to dealers home, which has not been done yet. Exchanges need to be informed of specific locations, all of which again requires working staff. While all these logistical issues were being sorted out, broker shops were nearly shut, a Mumbai based legal compliance officer of broking firm said. Banks branches too were shut in many states and employees were not able to reach for work due to lock down.

Sensex and Nifty hit 10 per cent lower circuit levels and had to be shut for trading for 45 minutes as there was wafer thin buying volumes in the stock market. Bank Nifty index came down like and avalanche. The index was down 15 per cent or 3000 points. Even after a 45 minute break Nifty index was down over 1000 points or 11 per cent and Sensex more than 3500 points.

In an interview to a television channel Aditya Puri, MD, HDFC Bank said that he had spoken to some of the fund managers who said they were not in such panic selling mode and pressure on the markets was coming from ‘programmed selling’ (meaning computer driven algo strategies).

“On Friday, when global markets were down, India’s stock markets rose on the back of rumours that there would be a complete ban on short-selling. There is still 80,000 to 1 lakh contracts of net short positions in index futures by FPIs. These category of traders feared a ban on shorts and covered their positions on Thursday as a result of which their net shorts in index future fell below one lakh contracts. SEBI just linked short selling to limited of underlying positions held by traders. FPIs hold huge stock and still there is no panic to cover them until global sentiments do not improve,” said a research head of one of Mumbai’s largest broking house.

Effectively, SEBI on Friday hiked margins in derivatives from 15 per cent to 30 per cent for the current month derivative expiry and 40 per cent thereafter for a month. The regulator said that for shorting the equity index futures, the limit for all category of traders will be equal to their stock holdings.

Published on March 23, 2020

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