Sebi trying to reduce float to cut risk, bring transparency: WTM Narayan

Ananth Narayan says total float with brokers, custodians equals a mid-sized bank

Cash equivalent collateral of over Rs 4.5 trillion is placed with stock brokers, custodians, clearing corporations, and other market intermediaries as float, which the market regulator is trying to reduce to mitigate risk and bring transparency, Ananth Narayan, whole-time member (WTM) of the Securities and Exchange Board of India (Sebi), said on Thursday.

 

Speaking at the India FinTech Forum’s IFTA 2024 here, the Sebi official emphasised on the move towards same day settlement (T+0) and leveraging UPI to ensure that the money stays under the safeguards of the banking ecosystem, which is more regulated.

 

Narayan said that such a float, which is nearly a mid-sized bank, represents an inefficiency through which brokers earn non-transparent earnings.

 

“We are not grudging anybody their revenue. Of course, intermediaries deserve to get paid. All we are saying is, can we have a more transparent, very obvious charge around this, rather than having this hidden money lying around,” asked the official.

 

Though T+0 and ASBA (Application Supported by Blocked Amount)-like mechanism for the secondary market are optional, the volumes in the segment are negligible. Narayan said that the low volumes are a result of initial inertia and going forward both these will gain wider acceptance.

 

Sebi has recently announced the eligibility of T+0 to top 500 stocks, effective next year, as against only 25 scrips available in the segment.

 

The ASBA feature has been successful in the primary market and the regulator is nudging stock brokers to implement a similar block-mechanism for the secondary market. The move will reduce the client float lying with the brokers.

 

Such measures will reduce cost and risk, and increase transparency, said Narayan.

 

Over the years, the regulator has taken several steps to curb mishaps such as those of Karvy Stock Broking.

 

While pointing out the gap in total PAN holders to the number of unique investors in the Indian market, Narayan highlighted that Sebi’s initiatives for financial inclusion is not just about getting people to invest but making sure that they understand the risks associated with it.