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Banks to stop collateral-free intraday funding to brokers

May 23, 2022

Banks to stop collateral-free intraday funding to brokers
Banks are being told by the regulator to end the decades-long practice of financing stockbrokers during the day without collateral.

Intra-day funding also called ‘daylight exposure’ in banking parlance is a critical office that enables brokers to hold north of a couple of hours hole forthcoming receipt of cash from stock buyers, or in furnishing derivatives trade margin the morning or paying for spot trades by organizations in case of mismatches.

The Reserve Bank of India (RBI) has recently communicated to four large private sector banks that such intra-day credits that to be baked by a minimum margin of 50% in the form of FDs and marketable instruments, two senior bankers told ET. In this way, a dealer drawing ₹500 crore as intra-day fund must give pledges of somewhere around ₹250 crore to the lending bank.

“Brokers will have to arrange collateral; a portion of the smaller ones will think that it is extremely challenging. Their expense is supposed to rise. They should raise funds, make fixed stores that can be given as collateral, and may in the process run a negative carry. We keep thinking about whether there is a strong rationale for this when there is a strong margin system and other checks and balances put in place by stock exchanges and clearinghouses,” said one of the persons.

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