Traders panic on payout stoppage buzz

Some intra-day trader-clients who traded in some of the stocks that crashed on Monday have not yet received payouts

A day after the Securities and Exchange Board of India's (Sebi) Chairman U K Sinha disclosed that the regulator was probing the recent crash in some mid- and small-cap shares, panic ensued in the stock market operator circles. There was speculation that Sebi had asked stock exchanges to stop payouts to brokers and their clients under the scanner for trading in stocks that had plunged in the past two days.

While this could not be independently verified with Sebi, three brokers said some intra-day trader-clients, who were active in some of the stocks that crashed on Monday, had not received payouts even after the the second day of the trade.

Shares of Core Education, Welspun Corp, Opto Circuits and ABG Shipyard had slumped yesterday, while stocks such as Aqua Logistics, Gravita India, PG Electroplast, Sudar Industries and Onelife Capital, among others, plunged 20 per cent on Tuesday. Brokers attributed the stock declines to financers forcing many of these operators to square off their positions on fears the recent sell-off is spreading across the market.

One theory doing the rounds in the market is that Sebi, as part of its investigation, has sought details from brokers and traders who had sizeable positions in these stocks. The regulator is said to be asking them about the nature of these trades.

In the recent past, Sebi has looked into the role of brokers and traders in steep declines of various mid- and small-cap stocks that are vulnerable to margin-related selling. According to brokers, when margin-related selling happens in large numbers, it has a cascading impact on the market, even on unrelated shares. Lately, the decline in mid- and small-cap shares has caught several operators unawares, forcing their financers to dump the stock. As selling triggered by margin calls happen when shares are already falling, the pace of decline could be quick and steep.