The Telegraph
Since 1st March, 1999
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Sebi stamp on margin trading

Mumbai, Jan. 7: Carry-forward trading is on the comeback trail, this time with enough checks and balances to ensure it is not abused the way it was under badla.

The Securities and Exchange Board of India (Sebi) today ushered in margin trading and stock lending, two arrangements that brokers have long wanted to be given a second chance since badla was banished after 2001 scam.

Margin trading norms will be set by February 1, but Sebi officials say the system will officially take off when exchanges gear up for it. That could mean March or April. The idea is to snuff out the unofficial illegal margin trading business already being done on bourses.

Brokers can borrow from banks or non-banking finance companies (NBFCs) up to five times their net worth to fund clients’ stock purchases. The client will have to deposit an initial margin of 50 per cent. The margin will be 40 per cent of the share value. If it falls below that, the broker will have to sell off the stock immediately, unless the client coughs up the extra margin.

Sebi chairman G. . Bajpai said the new margin trading was different from the old badla system, the ALBM and BLESS mechanisms. “There are sufficient checks and balances in the new system this time,” he said.

“Unofficial margin trading is rampant. What we are trying to do is to bring it under official channels. “We are trying to move margin trading from the unorganised to the organised market,” another Sebi official said.

Corporate brokerages will now be free to directly lend funds to investors to finance trading in the cash market. Those holding shares will also be able to lend them, though this will have to be done through exchanges.

Bajpai said the margin trading was open to corporate brokers only, and that too with many disclosures on the profile of shares involved and the clients.

“The Sebi board cleared the proposals in Calcutta on Tuesday. Detailed notifications will come soon,” Bajpai said, adding the scheme will be reviewed after six months.

Sebi executive director Pratip Kar said the new system was not badla in the practical sense. “The US Federal Reserve has the same scheme. If what we announced today is badla, then that scheme (US’) is badla too.”

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