Brokers May Struggle To Sell Illiquid Stocks To Comply With SEBI’s New Rules
What SEBI’s new rule to segregate client shares from broker pools means...
Brokers may be stuck with beaten-down mid caps and illiquid stocks after the regulator’s decision to segregate client shares from pool accounts.
Stockbrokers hold Rs 7,800 crore worth of mid caps and shares of companies outside the highly liquid group-A, according to BSE data. A portion of such illiquid shares is either partly paid by brokers or financed by their non-bank lending arm for clients under margin funding, BloombergQuint’s conversations with brokers revealed. Exact breakup is not available.
For shares where clients have not fully paid up, brokers will have to ask them to pay; and, if they don’t, sell the shares in a volatile market within five days. The deadline, extended by a month, ends on Oct. 1.
The segregation is aimed to prevent the potential misuse of client shares for trading or use as collateral. The Securities and Exchange Board of India, in a circular, barred brokers from pledging shares lying in the client collateral, margin trading or unpaid securities. Shares offered as collateral need to be either revoked, returned if a client pays or disposed of after giving a five-day notice.
Total shares pledged by investors other than promoters are worth Rs 81,927 crore as on Sept. 4, according to data on BSE. This pledge has been created on shares of 1,613 companies.
Nearly 90 percent of the non-promoter pledged shares belong to group-A. Mid caps contribute Rs 7,288 crore; and other shares, including trade-to-trade and stocks of suspended companies, are worth Rs 546 crore.
Brokers, speaking to BloombergQuint on the condition of anonymity, said a few large non-bank lenders have offered group-A shares as collateral. But haircut on loans against group-A shares is less and the stocks remain in demand, allowing easy exit to the lender in case the top-up margin is not maintained by a client.
According to BSE data, there are 112 companies with shares worth Rs 100 crore or more pledged each. The aggregate value of these shares is Rs 64,537 crore. Most of these stocks trade in the derivative segment, making them highly liquid.
About Rs 7,834 crore worth of mid cap and other group shares have been offered as collateral. Such shares can’t be pledged now. The regulator wants stock exchanges, clearing corporations and depositories to enforce this. But none of the entities have any structured data to corroborate the extent of unpaid shares that may face liquidation.