Bse To Permit Bank Guarantees For Base Minimum Capital

The Securities and Exchange Board of India (Sebi) has cleared the Bombay Stock Exchange (BSE) proposal to allow its members to use bank guarantees to meet additional base minimum capital requirements.

'We received the clearance last week and we are in the process of finalising the format of the bank guarantee,' said BSE executive director RC Mathur.

The Bombay Stock Exchange will soon issue a notification about the change in procedure.

Once the new norm comes into effect, brokers can deposit a bank guarantee with the exchange based on the magnitude of the exposure that the broker wishes to have.

This spares him the trouble of depositing additional cash or securities with the exchange every time he breaches the limit.

According to Jayesh K Sheth, BSE broker and governing board member: 'This is a positive development for the broking community. Besides, saving the brokers a lot of hassles the move will also bring in more liquidity for the brokers as there won't be any lock-in of cash or securities in case the broker wants to increase his turnover.'

The Bombay Stock Exchange had put forward the proposal to Sebi in August last year. Last month, the exchange had allowed the use of bank guarantees for payment of margin money up to Rs 50 lakh.

However, this facility will not be applicable in case of a base minimum capital. At present, the National Stock Exchange brokers can avail of bank guarantees for an additional base minimum capital.

As per the existing norms, BSE brokers should have a minimum capital adequacy of Rs 10 lakh.

This amount has to be deposited with the exchange in the form of cash deposits or shares.

Brokers can have an exposure 33 times their base minimum capital - that means they can deal in shares worth Rs 3.3 crore daily on a base minimum capital of Rs 10 lakh.

In case a broker exceeds the intra-day limit, he has to deposit additional cash or securities with the exchange according to the exposure he wishes to take.