The Parliamentary Standing Committee on Finance is understood to have called for a meeting of various regulators, market participants and exchanges to look into various operations and guidelines prevalent in stock markets in view of the recent volatility and declining indices.
The drop in the stock market started in January and has continued since then.
Zeroing in
- On Tuesday, the Parliamentary Committee is said to have met officials of the Securities and Exchange Board of India, RBI, stock exchanges, various brokers, Unit Trust of India, Life Insurance Corporation and State Bank of India
- The panel is looking into various operations and guidelines prevalent in stock markets in view of the recent volatility and declining indices
The committee is believed to have discussed the prevalent margin system in various segments of the stock market -- cash and derivatives.
The panel's move follows complaints by brokers that the steep margining system of exchanges had led to a cascading fall in the equity market.
Sources said banks and exchanges assured market players that they would cooperate with them for easing out margin payments. However, in reality, exchanges not only expedited margin calls, which were in line with their risk management norms, but also hiked them in many cases.
After the initial fall on January 22, exchanges also specified that margins for the F&O segment would either be paid in cash or stocks listed in the F&O segment.
To avoid disconnection of trading terminals, brokers had to sell off additional stocks to pay up the margin money. Banks, in turn, had to sell stocks to realise the value of the collateral, against which they had lent to retail investors for financing stock market transactions and initial public offers.
The committee is also reported to have sought data and views from various regulators and exchanges to find out whether the recent volatility and fall in stock markets were triggered by operations of foreign institutional investors.
A few day ago, Sebi had proposed to examine the entire margining system of exchanges, which includes brokers and their clients, clearing and trading members of exchanges.
The review was aimed at easing the system for retail investors, while adhering to the risk management practices.
According to market sources, the Sebi move followed some observations that a few banks had issued overdrafts to brokers for their margin payments when the actual margins had been already exhausted.
Thereby even if brokers had already exhausted the margin, they could get an extension for their trading limits from exchanges on the back of the assurance provided by banks to exchanges, said market sources.
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