Sucheta Dalal :Cross Margining: Helps Investors Hurts BSE
Sucheta Dalal

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Cross Margining: Helps Investors, Hurts BSE  

May 21, 2008

Exclusive news, the stories behind the headlines and the truth between the lines Edited by SUCHETA DALAL

Cross Margining: Helps Investors, Hurts BSE

In the past few weeks, SEBI chairman CB Bhave has introduced a number of policy measures that tighten some margin requirements and relax others. For instance, institutional investors have been brought on par with retail ones by asking them to pay margins on a T+1 basis forcing them to bring in their money upfront. Foreign institutional investors (FIIs) (especially those with a high churn rate and more short-term outlook to investment) as well as their custodians (who lose income on float funds) are unhappy and claim that it will increase their transaction costs.

On the other hand, SEBI has allowed them direct market access through brokers’ infrastructure, eliminating the possibility of front-running on their stocks by these entities. Also, as SEBI’s circular says, it will permit faster access, lower impact cost and lesser errors.

SEBI has also introduced cross margining across the equity and derivatives segment. This helps all investors who trade in cash and derivatives. For them, margin payment is significantly rationalised; it also reduces transaction costs. Apart from reducing margin requirements, it could cut investors’ trauma at times when a sharp fall in prices creates mayhem in the market. But, this positive move of SEBI could sound a death knell for 135-year-old Bombay Stock Exchange (BSE) which has no derivatives