Nse Returning Derivatives Advances
The National Stock Exchange (NSE) is returning the advances paid by the dealers who had opted for membership to its proposed derivatives segment.
This is a signal of the uncertainty which looms over the future of derivatives trading in the country, with a panel now looking into such trading and the regulatory framework, and a section clearly opposed to the introduction of derivatives which they feel is dangerous for market sanctity.
NSE managing director R H Patil said brokers are taking back their money. If they want the money, we give it to them, since there is no lock-in now, Patil explained, saying that only when the Securities and Exchange Board of India-appointed L C Gupta committee submitted its report and Sebi cleared it would derivatives trading begin.
NSE had submitted a proposal on derivatives to Sebi last year which is yet to be cleared owing to the fact that there is no regulatory framework as yet. NSE had earlier said that the derivatives segment would kick off at the bourse by the end of December 1996.
NSE brokers in Calcutta, some of whom have already received their money back from the derivatives segment, said the exchange had called them and told them to take the money back, since derivatives trading would take time to get under way at the exchange.
The brokers had put in advances of Rs 15 lakh each, and the total membership fees would amount to Rs 70 lakh each for those who did not opt for writing options. The fees for option writers was much more.
The NSE decision to return the money comes at a time when a section of brokers from the major stock exchanges have begun clamouring for the return of the old badla system in its original form, and has even said so before the standing committee on Finance.
NSE has also been giving the brokers the facility of adjusting the derivatives advances against margins. Dealers on the bourse said brokers did not want to keep the monies blocked with the exchange, since derivatives was going to take time. Some dealers said the exchange should have paid interest to them on the blocked funds, since the segment had not begun at all. The deadline for payment of the advance was October 31, 1996.
A number of NSE dealers say the future of derivatives on the NSE can only be bright if the exchange allows the existing net worth of the dealers to be used also for derivatives trading. Dealers said the exchange should fix strict exposure limits and allow smaller brokers also to get into derivatives so that they can gain experience and yet not upset the sanctity of the market.
The net worth requirement for NSE is Rs 3 crore for ordinary derivatives traders and Rs 5 crore for option writers since they have to take a higher risk.