Bse Trade Surety Fund Cleared

The Securities and Exchange Board of India yesterday gave a historic in-principle approval to the Bombay Stock Exchange-proposed trade guarantee fund, permitting the exchange to expand across India. On implementation, all net settlement obligations of member-brokers to the clearing house of the stock exchange will be guaranteed by the fund.

Its a landmark decision which will transform the BSE into a stock exchange of international standard and make it as safe as any other stock exchange anywhere in the world, exulted BSE executive director R C Mathur. BSE president M G Damani, could not be contacted.

Last October, Sebi had approved the BSEs proposal to expand its online trading system to locations outside Mumbai on the stipulation that exchanges seeking to expand beyond their regional centres would have to set up trade guarantee schemes. The BSE governing boards meeting on November 18, 1996, approved the exchanges proposal to set up a trade guarantee fund.

 

The fund will be set up with a corpus of Rs 160.50 crore, comprising Rs 60.50 crore in cash, Rs 50 crore by way of cash/fixed deposit/securities (members base capital contributions) and Rs 50 crore through bank guarantees by the members. The income on the cash contribution, which is estimated at Rs 8 crore per annum, will be added to the fund. Additionally, members will contribute .00075 per cent of their turnover every settlement as their continuous contribution, which is expected to fetch about Rs 2 crore a year at current volumes.

The fund will be managed by an independent defaulter committee, consisting of representatives of BSE brokers and outsiders in the ratio of 40:60. In the event of a default by a member-broker in meeting his settlement liability, the defaulter committee will draw on the fund and simultaneously proceed to recover the dues of the defaulter member by possessing and liquidating his assets.

The BSE governing board is slated to decide the date from which the trade guarantee fund will be operationalised during its meeting on February 24.