Brokers opt for ?voluntary close out? to avoid terminal shutdown

More than 700 broker members of the National Stock Exchange (NSE) have opted for a ?voluntary close out? facility that allows the brokers to minimise the possibility of the trading terminals getting shut due to lack of margin money.

According to industry participants, ever since the facility was introduced around a year back, instances of broker trading terminals getting shut due to non-availability of margin money in the broker?s account has significantly reduced. Early this year, the scheme was extended to the derivatives segment also.

According to the current regulations, brokers have to maintain a certain amount of margin (by way of cash, bonds, fixed deposits, etc) in their account before placing any trades. In instances wherein the broker has used 100% of his margin money, his trading terminal gets shut so that he cannot place any more trades until he gets more margin.

Under the voluntary close out scheme, the broker can voluntarily define a limit (say 60% or 75%) beyond which if his margin account is used, he will move into the voluntary close out mode. According to an NSE circular, all orders received in the voluntary close out mode are validated at the time of accepting the order and not after the order is executed.

The scheme essentially gives the broker a head-start when the quantum of margin money goes below a pre-decided limit. In 2008, when the benchmark indices nose-dived to fall to record lows after a three-year bull run, many brokers saw their margin money wiped out due to mark-to-market losses and many terminals were shut.

?Most of the large domestic and foreign brokerages have opted for this scheme with only the smaller and old brokers who do not do much trading on client behalf still staying out,? said an industry participant. ?The paperwork and other regulatory requirements in the event of a terminal getting shut is cumbersome and no broker wants to go through it. This scheme has been used by all the leading brokerages,? he added.

Meanwhile, the exchange has also allowed brokers to specify more than one bank account from which funds can be pulled at the time of pay-in. Earlier, the broker had to specify one primary account and had to transfer funds from his other accounts to the primary account. With the new feature, the pay-in can be executed from multiple banks.