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Sebi to ask RBI for broker funding

Brokers on Monday virtually paralysed the stock markets resorting to a nationwide one-day strike to protest the ban on carry forward trading and introduction of rolling settlement, even as Sebi promised to pursue the issue of market liquidity with the Reserve Bank of India.

Bombay Stock Exchange recorded the lowest ever trading as market operators abstained from trading with the exception of a few foreign investors who transacted small volumes of business in just 42 scrips.

Trading in Delhi, Madras and Calcutta was also limited to a few counters even as brokers demanded liberal financing mechanism and bank funding to keep the market vibrant.

With Rs 76 million transactions, BSE Sensex declined by 9.77 points to 3330.98 points.

Responding to the brokers' demands, chairman of Securities and Exchange Board of India D R Mehta told reporters he would pursue the issue of margins trading, a mechanism for financing stock market trade, and related bank funding as it was a matter that concerned banking authorities.

Sebi had introduced the new trading norms from July 2 leading to a sharp fall in share prices and trading volumes, which prompted the broking community to take up the cudgels against the norms introduced by the market regulator.

Brokers also protested against the turnover tax saying, "Sebi had earlier imposed a service tax in the range of Rs 5,000 to Rs 50,000 on the annual turnover during 1992-96. The tax became a financial burden on the broking fraternity after it was converted into percentage terms."

The nationwide strike was called by the newly formed forum comprising BSE Brokers' Forum and the Association of NSE Members on July 17 attended by brokers from 16 exchanges including Delhi, Calcutta and Madras.

Commenting on the strike, Vinod Jain of Association of NSE Members of India said, "The strike is not the only solution. We will like to have discussions with the finance minister. We cannot be pushed to rolling settlement without any provision for alternate system."

He said the brokers were not against reforms but there should be an alternate arrangement like margin trading, stock lending and bank finances, which are available in international markets. Brokers went on strike to highlight weak surveillance and monitoring mechanism of Sebi, he added.

Pointing out that NSE daily volume had fallen to Rs 10 billion from a high of Rs 150 billion and in BSE it had gone down to Rs 5 billion from Rs 50 billion, he said drastic reduction in volume would ruin not only capital markets but the economy as a whole.

DSE president Sudhir Joshi said the government should reconsider the compulsory rolling settlement and ban on badla "with an open mind". If banks can offer consumer finance, why shouldn't they fund brokers, he added.

Investors, whose confidence was shaken after the stock scam and more recently by the US-64 fiasco, now have little option for investments, Joshi said.

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