TO COMPLY WITH SEBI GUIDELINES
Markets Could Face Unwinding of ₹ 2,500-3,000 cr of Partly-Paid Shares
Brokers have to sell off client trades that have not been fully paid in next two days
Brokers must unwind stock positions worth ₹2,500-3,000 crore within the next two days after market regulator Sebi refused to accept the request to stretch the August-end deadline for squaring off all client trades that have not been fully paid, according to market participants.
Furthermore, brokers will also have to unwind their positions where they pledged clients’ securities with banks or NBFCs to raise working capital.
The impact was visible during Wednesday’s trade, with the Sensex falling 189 points after beginning the trading day in positive territory.
Top five stocks in terms of margin funding on NSE such as Yes Bank, Reliance Industries, L&T, Maruti Suzuki and Indiabulls Housing declined between 1% and 7% on Wednesday. Yes Bank fell 7% while Indiabulls Housing and Maruti declined 3% each. RIL and L&T fell 1% each.
“We are still hoping the regulator would extend the August 31 deadline. If not, about ₹2,500-3,000 crore worth of positions need to be squared off at the end of this week to comply with Sebi’s guidelines,” said a senior official at a leading broking house. “The markets will remain under pressure in the next two days as brokers may unwind their positions.”
In June, Sebi tightened the rules for usage of client securities and funds by brokerages. As per the new guidelines, which would come into effect from September 1, shares lying with a trading member (TM) or clearing member (CM) in client collateral account, client margin trading securities account, and client unpaid securities account will not be permitted to be pledged or transferred to banks or NBFCs for raising funds by members.
In the broking industry, brokers use clients’ stocks that were financed by them and not delivered to their clients to raise funds from banks or NBFCs to refinance payment obligations to stock exchanges on T+2, which is mandatory.
These partly paid stocks will remain in the pool of the broker until clients pay the broker in full.
All the existing client securities accounts opened by TM or CM, other than pool account, client margin trading securities account and client collateral account, must be wound up on or before August 31.
Unwinding of Partly-Paid Shares
Brokers yet to comply with the Sebi order have begun calling their clients for full payments on outstanding margin positions so that the shares can be transferred to their demat accounts.
Sebi said shares purchased under margin trading facility have to be kept in a separate ‘client margin trading securities account’.
Also, Sebi has asked brokers to open a separate account — client unpaid securities account – for the securities that have not been paid for in full by the clients “Client securities not being available for pledge will curtail liquidity in the share markets and may put pressure on the stock prices this week,” said a market participant. “Now, either the broker will fund the client out of his own pocket, or where the broker cannot extend credit facility, the client will have to directly raise funds from another entity like an NBFC or a bank.”
By: via @AlliesFin Serve T.ME/ALLiESFiN
