Mumbai, Jan 29: The Securities and Exchange Board of India's (Sebi) is likely to evolve a mechanism to regulate client code at the sub-broker level to curb any pool account kind of misuse at that level, which do not fall fully under its regulatory gaze."Though it's mandatory for the sub-brokers to get registered with Sebi, the regulator is not monitoring their trades with the same kind of accuracy that it does in case of members of stock exchanges. A mechanism will be evolved at the Risk Management Group meeting on Wednesday," Sebi sources told The Financial Express here on Monday.
"The intention was to avoid any pool account kind of misuse by sub-brokers themselves registering themselves as the clients of the brokers," the sources added.
The group, in which major stock excahnges would also participate, is also set to fine tune the Automated Lending and Borrowing Mechanism (ALBM of NSE) and its new avatar as Borrowing and Lending of Securities Scheme (BLESS, launched recently by BSE) to avoid any risk arising out of such systems. These systems, with almost the same kind of features, are considered to be more risk-prone than the Modified Carry Forward (MCF) Scheme, which was launched after the lifting of ban on Badla in 1997.
The sources said the regulator has been alarmed at some of the features such as allowing the seller to keep the shares with himself by just paying the required margins (to cover the difference between the sale price and the current market price) under ALBM against mandatory depositing of such stocks with the clearing corporation under MCF. The other issue is that the transactions under ALBM could be carried out for a week without attracting any margins, against the daily margins to be paid in case of cash transactions.
Veteran marketman and incumbent chairman of Central Depository Services Ltd (CDSL) MG Damani was of the view that ALBM and BLESS are "nothing less than crude badla that had existed before it was banned in 1992. Many loopholes in the MCF, the reincarnation of badla of yore in its modified form, were plugged to make it a risk-free system since 1997." The litmus test for comparative risk evalutaion by the market was that when the badla rates under MCF were ruling between 12 to 13 per cent, the rates for ALBM were hovering at 15 per cent, Mr Damani said.
Copyright © 2001 Indian Express Newspapers (Bombay) Ltd.
