New Delhi: Brokers may no extra settle for bank mounted deposits (FDs) from shoppers as margins for stock market transactions as clearing companies — entities related to stock exchanges to deal with affirmation, settlement and supply of all trades — are planning to take away FDs from the checklist of securities that may be put up as collaterals in opposition to trades, the Financial Instances reported citing folks with direct information of the event.
Based on the report, considerations over the authorized enforceability of liquidating bank FDs in case the investor fails to clear its dues have prompted clearing companies to think about this transfer. Clearing companies have held discussions with the market regolator Securities and Trade Board of India on the matter.
“We have been told that regulations give clearing corporations sufficient powers to take a final call and the decision has to be based on risk management practices,” the publication quoted a senior government of a clearing company as saying.
The 2 main clearing companies in India – Nationwide Securities Clearing Company (NSCCL), Indian Clearing Company (ICCL)- are promoted by NSE and BSE respectively.
Merchants normally give collateral to brokers for his or her trades. Collateral might be stocks, liquid mutual fund items or bank FDs. Whereas retail merchants normally put up stocks within the portfolios as collateral, it’s a widespread apply amongst insurance coverage firms, mutual funds — primarily arbitrage schemes and rich buyers — to place devices like FDs as collateral to boost their capabilities to commerce.
The plan to limit using FDs comes as clearing members are at loggerheads with the banks in a number of instances over precedence entry to FDs in case of a default, the publication talked about.
It has been noticed that some buyers have used FDs to avail loans and have additionally positioned the identical FD as collateral with brokers.
“The concept of FD doesn’t fit well into the risk management practices of the clearing corporations,” mentioned senior official of a clearing member informed the enterprise each day. “Discussions are underway to remove FDs from the list. Since large institutional investors use the mechanism, we are trying to explore if any alternative can be provided.”