sebi news: Brokers seek easier standards, urge Sebi to approach RBI

Stockbrokers have urged the Securities and Exchange Board of India (Sebi) to approach the Reserve Bank of India (RBI) to ease recently introduced measures that have made it more costly for them to access intraday funding from banks. In a letter to the capital market regulator, the Association of National Exchanges Members of India (ANMI), an industry body, said stock trading volumes had fallen due to limited availability of margins for customers following the new rule.

“It also has a deep-rooted impact on healthy competition in the stock brokerage industry and has affected most mid-sized brokerages,” the letter said.

In May, the central bank ordered banks that intraday credit to securities dealers must be backed by a minimum margin of 50% in the form of fixed deposits and marketable securities. So, a broker needing ₹500 crore as intraday funds must post at least ₹250 crore as collateral to the lending bank.

Until recently, intraday funds paid to brokers by banks were not considered “loans”. It remained largely a gray area as neither the banks classified it as a capital market exposure nor the central bank insisted on it. Banks have extended the facility without any collateral to brokers based on their risk profile, track record and relationships.

Securities dealers require intraday funding facilities from banks to meet temporary requirements such as payment of foreign exchange obligations, execution of trades under their clients’ depositary codes and intraday margin requirements, among others . Brokers also get intraday funding from their bank to place and execute F&O trades on the exchange platform.

“After the introduction of initial margin for all trades, the segregation of client collateral and the maximum margin requirement by Sebi, the risk of default has decreased significantly. Thus, the new RBI requirement is not necessary,” said Kamlesh Shah, President of ANMI.

“Liquidity, depth and volume will be affected if the intraday facility is not available due to the 50% collateral requirement, which many brokers would struggle to arrange.”

Brokers said the move could reduce liquidity, as intraday trading accounts for more than 80% of total volumes in both the spot market and the derivatives market.

Trading volumes, especially in the cash (equities) segment, have declined in recent months following the tighter margin standards introduced by Sebi in addition to market volatility.

Average daily cash market turnover on both exchanges nearly halved to 46,490 crore in July 2022 from a high of 8,621 crore in February 2021. July spot market volumes are lower by 25% to May volumes by 38%.

Dolores W. Simon