Last Thursday's expiry of the monthly contract saw the cost-of-carry for stock market traders shoot up to 18-24 per cent in many counters.

This is a sharp jump from 10-15 per cent in the previous two months. The rates are as high as 36 per cent for traders who are seeking funds from other sources like high net-worth individuals (HNIs).

"Many operators were forced to liquidate their positions as they could not pay additional margin after the recent fall in share prices. Short sellers were also unwilling to take positions as they were trapped when the market rose sharply on September 16 and 17," said a top Mumbai-based stock broker.

The September series witnessed a total rollover of 76 per cent (six-month average is 81 per cent). The Nifty rollover was even lower at 60 per cent (six-month average is 68 per cent).

Market experts said this is common in a rising market because overbought positions are carried forward. In a falling market, it is expected that short positions are already built into the system. So, the cost-of-carry should not rise. Effectively, this means that there is a serious liquidity crunch. Also, caution is being exercised by institutions and other financiers.

Amitabh Chakraborty, head (equities), Religare Securities, said: "There is a liquidity crunch because of advance tax payments and lack of new dollars in the market, which has led to this high cost of rollover."

Margin funding, the method through which traders get cash to roll over settlements, is generally done by non-banking finance companies (NBFCs) of foreign institutions and brokerage firms.

Sources said that institutions are now giving fresh loans only to traders with whom they have a long-term relationship. For retail investors, this source of funding has dried up in the last six months.

Loans from banks are also hard to come by because they give only 50 per cent of the value of shares and there is an upper limit of Rs 20 lakh (Rs 2 million). At present, NBFCs of foreign and domestic institutions and HNIs are the only source because they are willing to fund up to 70-80 per cent of the share value.

In the former option, shares pledged stay in the custody of the NBFC and are sold immediately if the margin call is triggered. Since January, the margin funding by institutions have come down dramatically. A senior official in a brokerage house said that his margin funding book has fallen by one-third in the last six months.

The international financial crisis is one of the main reasons for this recent rise in the cost-of-carry.

In the last two weeks, the world markets have witnessed the fall of a leading investment bank (Lehman Brothers), followed by a takeover of an insurance firm (American Insurance Group) by the Federal Reserve, the bailout of mortgage firms (Freddie Mac and Fannie Mae) and more recently, the takeover of a commercial bank (Washington Mutual by JP Morgan Chase).

Even investment banks Morgan Stanley and Goldman Sachs are going to be transformed into banks.

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