SEBI stops use of bank guarantees by stock brokers created out of client funds
Market regulator SEBI He asked stockbrokers to stop creating bank guarantees using their clients’ money. Brokers mainly use bank guarantees to take advantage of trading limits from the clearing houses of the exchanges. From September, brokers will have to use their own funds to provide bank guarantees to take advantage of trading limits.
Currently, stockbrokers and clearinghouses pledge clients’ money to banks to obtain bank guarantees for clearinghouses in higher amounts. This implied leverage exposes the market and especially clients’ funds to risk. From May 1, 2023, no new bank guarantee will be generated from clients’ funds by brokers/members,” SEBI he said in a circular on Tuesday.
Bank guarantees worth thousands of crore rupees are currently being deposited by the brokers, which depend on clients’ funds.
Now all of these must be closed by September and the brokers will demand higher funds of their own for higher trading limits. Experts said this also means that the leverage that most day traders and speculators get from their brokers will be significantly reduced.
Moreover, for many years, a bank guarantee created from clients’ money was like income on the float of money that was allowed to brokers, but that will stop, experts said.