SEBI Decision: Market regulator Securities and Exchange Board of India (SEBI) has barred stock brokers and clearing members from taking fresh bank guarantees on client funds from May 1. The Securities and Exchange Board of India (SEBI) said in a circular on Tuesday that stock brokers and clearing members have also been directed to withdraw all their existing bank guarantees by the end of September.
SEBI has said in the circular- “From May 1, 2023, stock brokers and clearing members will not be able to take any bank guarantee from customers’ money.” All bank guarantees taken so far from customers’ funds will have to be covered by September 30, 2023.
What is the current method of using bank guarantee
Currently, stock brokers and clearing members pledge customers’ money with banks. Banks issue this amount in the form of bank guarantees to clearing corporations for higher profits. In this process the money of the customers is exposed to market risks. However, this provision will not apply to funds owned by stock brokers and clearing members.
What did the Founder and CEO of Samco Securities say?
In a statement to Financial Express, Jimeet Modi, Founder and CEO, Samco Securities, said that stockbrokers were making huge profits by using clients’ money, whereas in case of any risk, clients’ money could get stuck or become subject to market risks. Could. Based on this circular, SEBI has ensured that such money circulation is banned.
According to him, today, for Rs 100 of funds lying in a customer’s account, a stockbroker can create a fixed deposit of Rs 100 and then take an additional bank guarantee of Rs 100 on that. In this way, with a fund of Rs.100, the total collateral can be taken up to Rs.200. In this additional bank guarantee and leverage of Rs 100 comes to the broker’s account, while the original amount used was that of the customers. Jimeet Modi said this could potentially result in a black swan event, where a broker could be busted and guarantees could be invoked.
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