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SEBI moves to spread collaterals across banks
November 14, 2022
Brokers, serving as clearing members for stock transactions, are required to keep collaterals – in the form of fixed deposits, bank guarantees, securities, and cash – with the stock clearing corporations.
Over the years, half a dozen banks, specialising in capital market exposures with their dealing with brokers and investors pledging stocks to raise funds for trades, have captured the market.
As a result, these banks have ended up holding a predominant value of the FDs and securities and issuing guarantees given as collaterals with the clearing corporations.
Now, the Securities & Exchange Board of India (Sebi) is examining whether this should change and to what extent it poses a risk.
\\\\\\\”The crisis faced by Yes Bank NSE 0.89 % two years ago was a kind of wake-up call. What if a bank holding a sizable part of the collateral ran into trouble. What if such a bank faces a run and is put under moratorium by RBI (The Reserve Bank of India) to ringfence the banking system. Such a situation can block the collaterals, freeze trade limits, and affect the wider market,\” a senior banker told ET.
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