Sebi proposed to ring fence clients’ money and collaterals from such risks through steps like
greater Internet-based trades and faster settlements. The proposed move, which was issued
today by Sebi as a ‘discussion paper’ inviting public comments, might also have a bearing on
sale of pledged shares by large brokers or financiers which often leads to a panic-selling in
the market.
Sebi said the current regulatory framework for mitigation of margin-related risks to clearing
corporations has “given rise to another risk — the risk of clients losing their collateral in
the event of default/bankruptcy of the broker or TMCM, and accordingly there is a need to take
steps to mitigate this.”
“Further, the overall risk in the system is dependent on the number of unsettled trades in the
system at any point of time. A shorter settlement cycle can go a long way in reducing the risk
in the system,” Sebi said in the paper, titled ‘Risk Management ¿ Safer Markets for
Investors’.
The regulator said the extant system of risk management could be fine tuned for more efficient
use of capital and enhancing safety of investors.
For the same, Sebi has broadly proposed three steps — incentivising Internet Based Trading
(IBT) models posing minimal risk, mitigation of risk to client collateral, and T+1 settlement
as a measure to reduce overall risk in the system.
‘T+1′ refers to settlement of trades with all the required payments one
day after the execution of the trade order. Currently, most of the trades are settled on T+2
basis, meaning two days after the execution of trade.
Sebi said the brokers trade in the market for their business, but investors come here to
invest their savings.
Source PTI
©2009 Copyright by Invest In India