SEBI raises minimum capital requirements for brokers
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Stock market regulator SEBI has revised the base minimum capital (BMC) deposit requirement for brokers (offering algorithmic trading) to a maximum of Rs 50 lakhs.
BMC for stock brokers will be enhanced and for trading members in the derivatives segment, BMC would be introduced.
The revision is based on the risk that brokers are exposed to, as a result of buying and selling stocks on their own behalf (proprietary trading) and on behalf of their clients. This applies to both algorithmic and non-algorithmic trades.
BMC is the deposit given by the member of the exchange against which no exposure for trades is allowed. It is the capital required for operational risk (for example - wrong order punched by dealer- buy instead of sell) and client claims.
Brokers are allowed to bring in liquid assets such as cash, bank fixed deposits, bank guarantees, central government securities, units of liquid mutual funds and equity shares.
“It is a prudent measure that is required. The capital requirements have been calibrated to risk,” said Nirmal Jain, Chairman IIFL.
Earlier, a flat BMC of Rs 10 lakhs was levied on members of the NSE and the BSE.
The new requirement seeks to address the increased trading speeds due to technology and therefore enhanced risk.
Stock brokers and trading members with nation-wide presence doing proprietary trading (without algorithms) will have to bring in a BMC of Rs 10 lakh.
Those who trade only on behalf of clients (without algorithms) have to bring in Rs 15 lakh. For those doing prop and client transactions (without algorithms), the BMC is Rs 25 lakh and for brokers offering algorithmic trading, BMC is Rs 50 lakh.
For brokers/trading members not having nationwide presence the BMC requirement would be 40 per cent of the above, said SEBI.
For members who are registered with more than one segment of an exchange, the BMC requirement would not be additive, said SEBI.
They would have to bring in the highest applicable BMC deposit across various segments.
SEBI has permitted exchanges to prescribe suitable deposit requirements, over and above the SEBI prescribed norms, based on their risk perception and evaluation.
Exchanges have to implement the circular by March 31, 2013. (PTI)
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