New rules kick in with respect to how clients pledge/re-pledge securities for margin purposes and the system now moves to a pledge/re-pledge mark versus title transfer earlier. Nikhil Kamath, co-founder and CIO of Zerodha and True Beacon; and Deena Mehta, MD at Asit C Mehta Investment Intermediate shared their views and outlook on the system.
Here's what they told CNBC-TV18:
“The customers are expected to give margins if they want to buy or sell any security be it in derivatives market or in cash market. In cash market earlier they did not have initial margins, post the trade was executed there were margins and the customers didn’t have to pay margins on sell transactions. Now SEBI has mandated that purchase as well as sell transaction will have margins.
"Second thing is – earlier the shares used to be in the collateral account of the broker, there was a separate account which the broker open which was called as a collateral shares account and the broker used to give a holding statement to the customer on daily basis saying that we are holding so many shares as collateral on your behalf. Now SEBI is saying that shares which are physically moved from the client account to the brokers account as collateral should not move but the customer should put a pledge in favour of the broker so the shares will remain in the customer’s account only and there will be a pledge flag which will be put on the shares which are being held,” Mehta explained.
“I don’t think one particular reason can be attributed to yesterday’s fall. I think there were a bunch of moving parts yesterday. People were very sceptical about what will happen with the gross domestic product (GDP) numbers, there was some India-China news which was coming out. Inherently the markets have run up so much that people are sceptical about what is happening. At some level maybe this RBI’s operational issue was responsible but it would be very hard to determine what exactly caused the correction. However, definitely the confusion around the operational issue has not been good for the market,” said Kamath.
When asked if system is ready to smoothly enable this pledging or re-pledging mechanism, Mehta replied, “Definitely the system is not ready. One particular professional trading member has sold all the brokers who are attached to it not to pledge any shares because their systems are not ready. None of the participants are ready.”
Watch the video for more.