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SEs, depositories plan level field for equity buyers

Janaki Krishnan

Stock exchanges and depositories are devising a plan, which will see clearing corporations providing a level playing field to buyers of equity.

For instance, take the case of a seller wanting to offload 100 shares of Reliance Industries.

In an ideal situation, the seller delivers the 100 Reliance shares to the exchange and takes the money on the payout date, while the buyer takes delivery of the shares and pays up on the pay-in date.

Now take the case where the buyer is unable to pay for the shares. This is treated as a default by the buyer and penalty, depending on the offence, is imposed on him.

The seller, however, makes good his loss through margin money and other securities deposited by the buyer with the exchange.

Now take another situation where the seller is able to deliver only 50 Reliance shares. In this case, the buyer gets only 50 shares, while the remaining shares are delivered after an auction two days later. In both cases the system is skewed against the buyer.

To eliminate such bias against buyers, depositories and exchanges are devising a plan, whereby clearing corporations would stand guarantee for the seller or buyer.

That is, in case the seller is unable to deliver the required quantity of shares, the clearing corporation would step in and fill the gap. And if the buyer is unable to pay up, the corporation makes good for the temporary liquidity problem.

C B Bhave, managing director of National Securities Depository Ltd, said the idea would be forwarded to the Securities and Exchange Board of India once it finds favour with the exchanges.

"There should be a stock lending and borrowing mechanism to take care of temporary shortages in stocks and funds," Bhave said.

The National Stock Exchange had launched the automated borrowing and lending mechanism, while the Bombay Stock Exchange had its borrowing and lending of securities scheme.

However, both the schemes were discontinued last year after the ALBM was found to be misused by brokers.

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