The Hindu : Margin trading from February 1

Online edition of India's National Newspaper
Thursday, Jan 08, 2004

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Business

Margin trading from February 1

By Our Special Correspondent

MUMBAI JAN. 7. The Securities and Exchange Board of India has approved the newly formed margin trading and securities lending scheme that would give more flexibility for trading on stock exchanges. The scheme will become operational from February 1.

The SEBI board, which met here on Tuesday, took these decisions based on the recommendations of the Secondary market Advisory Committee of SEBI headed by R. H. Patil, former Managing Director of National Stock Exchange (NSE).

"Margin trading will be provided directly by the brokers,'' said G. N. Bajpai, Chairman, SEBI, while addressing a press conference here today. However, only corporate brokers with a net worth of Rs. 3 crores and above will be allowed to offer margin trading.

On the lending part, only banks, the Reserve Bank of India approved non-banking financial institutions (NBFCs) and `qualified institutions' will be allowed. The SEBI will come out with the details on definition of `qualified institutions' later.

Margin Trading will be allowed only in A Group securities, which also will be decided by SEBI later, where the impact cost is less than one per cent. For margin trading, the initial margin set is 50 per cent and the maintenance margin is 40 per cent, subject to exchange requirements. If margin calls are not met on a T+1 basis, or if balance is below 30 per cent, the broker can liquidate the security. The total indebtedness of the broker should not be more than five times of his networth.

There should be an agreement between the broker and the client before entering into margin trading. The brokers will have to disclose client-wise, scrip-wise and bank-wise, his gross exposure on a daily basis for the margin accounts. "This will give more transparency,'' said Mr. Bajpai.

On difference of the margin trading from the banned Badla (carryforward system) trading, he said while in Badla, futures and cash market were mixed, margin trading involved only the cash market. On the phenomenal rise in the stock market, Mr. Bajpai said, "the sharpness of rise is a cause of concern.''

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