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SEBI imposes incremental margin on ALBM -- Exchanges told to disclose daily net open positions of 500 scrips

Our Bureau

MUMBAI, July 13

THE SEBI-promoted Risk Management Group, which met today, decided to extend the incremental carry forward margins to cover the Automated Borrowing and Lending Mechanism (ALBM) of NSCCL.

The incremental carry forward margin, which is currently applicable in the case of BSE's modified carry forward system or badla, is a measure which helps mitigate the risks in the system.

``The measure would restrict the capacity of a broker to commit an irresponsible trade,'' explained Mr. D.R.Mehta, Chairman of Securities and Exchange Board of India.

The margin, as prescribed by SEBI, is on a slab rate varying from five per cent to 30 per cent depending on outstanding paid-up shares.

The group also made it mandatory that henceforth margins for the modified carry forward system and ALBM transactions should be paid 100 per cent in cash or fixed deposits or government securities or a combination of three.

Currently, on some of the exchanges, these margins were, voluntarily, being paid on a cash basis, while in others 30 per cent was being paid in cash and the balance in bank guarantees etc.

Following today's decision, margins in all exchanges will be collected on the same basis.

The regulator also clarified that in the case of ALBM, financiers have the option (those who do not have an off-setting position in the cash market) to withdraw the shares, provided normal margins, i.e. mark to market and exposure/daily margin, are paid. In case the shares remain deposited with the clearing corporation, no margin is to be paid by the financier.

In the case of the modified carry forward system, financiers have to deposit the shares with the clearing house as their lending is fully collateralized, no margin is charged on their positions.

It was also decided that in addition to these measures, the positions of the ALBM financiers who would be withdrawing the shares, should be included in the overall limit of Rs. 40 crores and scrip-wise limit of Rs. 5 crores.

Stock exchanges will henceforth be required to disclose daily net open position of top 500 scrips. The list is to be worked out by both the Bombay Stock Exchange and the National Stock Exchange.

`Margin deposit must for all': The group stressed the need to cover the additional risk to the system because of the predominance of day trading in the country, and it was felt essential all investors in the market pay margins.

Therefore, the group decided that all clients excluding FIIs/FIs/MFs shall maintain a deposit of minimum margin with a broker in the form of cash, bank guarantees, FDRs or approved securities.The margin deposit will not be less than 10 per cent of the ne t open position of a client at any point of time. Actual delivery of shares sold or actual payment made for delivery bought shall be excluded from net position.

The Group today also recommended a move towards margining on a gross basis. It was decided that all exchanges must modify their software so the client code becomes mandatory at the broker level. The exchanges would be given 3 months time to introduce th e software change.

As regards the current high outstandings in the market, the stock exchange officials (BSE,NSE,CSE) present at the meeting maintained that they have taken several steps to deal with the situation.

For instance, several exchanges have already introduced special concentration margins and they were closely monitoring the concentrated positions.

The SEs have also stepped up market surveillance. According to Mr. Mehta, the measures now being introduced would further strengthen the margin system.

The regulator today said that it is also examining whether the margins can be simplified on a statistical basis applying the value at risk model and taking into account the beta value of stocks.

SEBI is also working on a simulation exercise, which will be discussed at the next meeting of the sub-group on risk management.