Sebi slaps curbs on top brokers, scrips

With share prices rising sharply and Sensex crossing the 6,000 level, the Securities and Exchange Board of India on Friday sounded the alarm bell over the volatility in stock markets by directing five major exchanges to impose incremental additional capital and margins on their top 25 brokers in the form of cash or fixed deposits only for the next four weeks. The market regulator has also advised the Bombay Stock Exchange, the National Stock Exchange and the stock exchanges Delhi, Calcutta and Ahmedabad to impose ad hoc margins on brokers and special margins for volatile scrips. Sebi has withdrawn the existing facility of accepting additional capital/margins by way of bank guarantees or securities in the case of 25 brokers. The exchanges were also directed to ask brokers who have built up sizeable positions to either reduce positions or to make advance pay-in. Such brokers could also be subjected to ad hoc margins, Sebi said in a statement here. The market regulator saidscrip-specific measures would include imposition of special margins on volatile scrips. Sebi said exchanges would select top 25 brokers in terms of the marginable gross exposure at the close of the third day of their trading cycle. The unutilised portion of bank guarantee and securities deposited by these brokers would not be considered for margin and capital requirements from the next day and all incremental margin and capital requirements would be payable in cash/FDR only. The imposition of additional capital will be effective from Monday. The move follows the continuous rise in stock prices during the week with the BSE Sensex crossing the 6000 magical mark on Friday. “There was no risk of default by brokers and settlement risk,” said a SEBI official. Stock prices rose sharply during the week with the BSE Sensitive Index (Sensex) increasing by over 650 points. Sensex has risen by almost 1000 points since January, reflecting a hefty 20% growth. The spurt has been mainly led by informationtechnology and media stocks. Sebi officials said stock exchanges have also been asked to keep a close watch on the volume of trading by big brokers. Major stock exchanges had hiked the margin on several stocks last month. "These margins have been temporarily imposed for a period of one month from Monday," he said. SEBI also advised investors to look at the fundamentals of companies before investing in these stocks. Sebi has called a meeting of major stock exchanges on February 14 to discuss the prevailing market situation. Infosys Technologies Limited , which led the bull rally in the last one week, announced that it was not aware of the reasons behind the recent trading activity in the company’s American Depository Shares (ADS). "There are no new corporate development outside of the company’s normal business activities that may impact trading," said N R Narayana Murthy, chairman and chief executive officer.