Bse Trade Guarantee Fund To Be Activated

With the Securities and Exchange Board of India (Sebi) clearing Bombay Stock Exchange's trade guarantee fund (TGF) last week, it will not be easy for the other bourses to meet these high safety standards .

The BSE's Rs 172.5 crore TGF, which becomes operational from today, was granted clearance after prolonged deliberations and detailed scrutiny by the regulator. It may be of interest to note that this is the first TGF cleared by the Sebi which could well be the reason why the regulator was extra cautious while approving it.

The market regulator asked the exchange not only for amendments of the bye-laws but also collected data of over 10 years on default record including gross default and the average rate of net default.

 

According to BSE top brass, gross defaults between 1987-97 was to the tune of Rs 20 crore while the net shortage was placed at Rs 39 lakhs. According to BSE president M G Damani, the core fund of TGF, which is Rs 60 crore, will not be touched at all. The risk management cover which would be provided by the income from the fund which is calculated at Rs 8 crore per year. The amount of Rs 8 crore would be sufficient to take care of the risk management as historical data suggests that the annual default at the exchange in the past decade has been only Rs 2 crore per year. The BSE governing board had met on Saturday to discuss the issue of TGF and other related matters. The TGF will have an initial corpus of Rs 172.50 crore. Out of the total corpus, BSE will bring in Rs 60 crore from the members' contribution, and Rs 55 crore from the base capital lying with the exchange. The remaining Rs 55 crore will come in the form of bank guarantee at the rate of Rs 10 lakhs each from 550 active members.

Apart from this, Rs 55 lakhs will come as the initial contribution of Rs 10,000 each from active members. In addition, Rs 2 crore will accrue to the fund by way of levy of members' turnover during 1997-98. The exchange does not mind the stringent levels which we have been asked to maintain but it would be rather difficult for a smaller exchange to comply with this benchmark in the current market condition,