Trading terminals of 124 brokers disabled in October

Deactivation signifies lack of liquidity, say brokers.

The number of broker-member terminals deactivated by the NSE in October was more than double the deactivations in the previous month.

The stock market meltdown in October, coupled with liquidity pressures, has led to defaults in margin payments on the part of brokers, said market-men.

The trading terminals of 95 broker-members were deactivated in October in the futures and options segment and 29 deactivations occurred in the cash segment, a sharp increase from a month ago. In September, the terminals of 36 broker members were deactivated, whereas in August it was only 11.

There were 885 active trading members in the F&O segment and 984 in the cash segment on NSE in October.

Trading terminals are usually deactivated when the trading members of the exchanges are unable to meet their margin requirements.

In the case of the cash market segment, terminals of seven broker members were deactivated in September. This quadrupled in October to 28.

If there is a shortfall in margin payments, terminals are deactivated, said a member-broker at NSE.

Deactivation signifies lack of liquidity, he added.

While there are many kinds of margins that a broker is required to pay, under the mark-to-market payment the brokers have to pay additional margin depending on the fall in the market, said analysts.

The markets were extremely volatile in October, and for some brokers it was difficult to pay up the margin requirements as the market fell very steeply, said an analyst.

Sensex fell by more than 23 per cent in October, while the Nifty fell by more than 26 per cent during the same period.

When the pay-in and pay-out has not happened appropriately and the margins are insufficient to take care of the mark-to-market losses, the exchanges deactivate the trading terminals of those broker-members, said an official with a city based broking firm.

Basically, deactivations happen in the case of a mismatch between the pay-ins and pay-outs, according to brokers.

In the case of the cash market, the deactivations could be as a result of brokers not meeting their pay-in obligations fully, said Ms Anita Gandhi, Head of Institutional Business, Arihant Capital Market.

In other cases, some clients (of the brokers) might have highly leveraged positions, and in case of a failure on their part to pay the required margins, the brokers have to pay those margins, said a broker.

This constitutes improper risk management, he said.

With so many terminals shut in October, the F&O activity seems to have dropped if the figures of the total F&O turnover on the NSE are anything to go by, said market men.

The total F&O turnover, which was Rs 11,97,872 crore in September, fell by more than 21 per cent to Rs 9,41,646 crore in October.

In January’s market crash, terminals of 372 members of the 821 in the futures and options segment were deactivated for at least a day that month.

Source: TheHinduBusinessLine