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Brokers shrug off Sebi order on 10 per cent margin collection

Rakesh Sharma & Ashwin J Punnen

The Securities and Exchange Board of India ruling that brokers should collect 10 per cent of margins upfront from clients has seen very few takers.

A sizeable number of brokers on the BSE and the NSE have not submitted auditors' certificate on collection of 10 per cent upfront margins to the bourses. Sebi had earlier asked the bourses to get audited certificates from the brokers on a quarterly basis.

It appears that the brokers are not submitting the certificate, as they have not collected upfront margins from their clients. Brokers say that most of their business is done on a relationship basis and hence it is not possible to collect margins upfront from the client.

Brokers also add that on several occasions the client's position is adjusted to previous settlement and hence no margin is collected. And in these days of shrinking volumes, asking clients to pay margins upfront may also mean losing business.

BSE had even called an extraordinary general meeting to discuss the issue, where the brokers reiterated the same. BSE had recently asked its members to submit the audited certificate on collection of margins by May 15 and later extended the date to May 31.

Sebi had issued a circular in August 2000 asking brokers to collect margins in the form of cash, bank guarantees, FDRs or approved securities for 10 per cent of the net open position of the client at any point of time.

While the bourses were directed to get an auditor's certificate from the brokers, the latter in turn were asked to obtain a similar certificate from their sub-brokers.

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