Funds to the tune of Rs 31,884 crore were released to about 12.3 million clients on account of the running account settlement carried out by brokers last Friday. Of this, clearing corporations released funds and fixed deposit receipts of Rs 30,173 crore to trading members, a joint note put out by brokers on Tuesday said.
Brokers expect a large portion of this amount to come back in the form of margin money from active clients over the next few days. Around 10-15% of the money, however, may not come back into the system, according to industry officials. Overall, this could result in a lower float for brokers, impacting revenues, and will necessitate a higher working capital.
The regulator, exchanges and clearing corporations took a number of steps in order to ensure smooth implementation of the single-day settlement process. The regular cut-off time to disseminate certain files by market infrastructure institutions to members was shortened on October 7 with a view to carry out the settlement process on time. The time window was extended by clearing corporations for accepting release request of cash/fixed deposit receipts from members.
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The settlement of running account of client funds was required to be carried out by all the trading members as per revised guidelines that came into force on October 7.
Brokers who don’t have adequate funding capabilities will bear the brunt of the new norms.
According to earlier regulations, brokers had to settle the client’s unused funds lying in the trading accounts at least once in 90 days (every quarter) or 30 days. This was on a rolling settlement basis and referred to as “running account settlement” or “quarterly settlement of funds”. The aim was to prevent misuse of excess cash by brokers.