The Bombay Stock Exchange (BSE) has tweaked the Base Minimum Capital (BMC) norms for brokers, a move that will ensure that the deposits are maintained with the exchange and not with the clearing corporation.
The Base Minimum Capital (BMC) is the deposit maintained by the member of a stock exchange against which no exposure for trades is allowed.
It is meant for meeting contingencies in any segment of the exchange and commensurate with the risks that the broker may bring to the system.
"... All deposits towards BMC will be required to be maintained with (the) exchange," BSE said in a circular.
Currently, the BMC is blocked from the collaterals maintained with the bourse's clearing corporation, ICCL (Indian Clearing Corporation Limited).
"The Exchange (BSE), with ICCL, has initiated the process of segregating and taking over the collateral towards BMC from the collaterals maintained with ICCL," it added.
In the initial phase, the cash equivalent component of BMC collateral, to the extent possible, will be segregated from the collateral deposits maintained with ICCL and kept separately with the exchange.
Any shortfall in BMC collateral taken over by the exchange would be blocked from the collateral deposits of trading member maintained with ICCL.
The bourse said trading members would be intimated on the collaterals that have been taken over from ICCL towards BMC.
Brokers have been asked to ensure that at the time of renewals of fixed deposits (FDs) and bank guarantees (BGs) given as collateral to the clearing corporation, such amounts (to the extent of the shortfall) are deposited with the exchange.
"Trading Members, whose shortfall in BMC is blocked from the collateral deposits maintained with ICCL, shall ensure at the time of renewing their bank guarantees, fixed deposits with BGs/ FDs with ICCL or depositing additional collaterals with ICCL, that FDs/ BGs to the extent of such shortfall is drawn in favour of the BSE and deposited with the exchange," the BSE said.
"Such Trading Members can also voluntarily deposit FDs/ BGs with BSE towards BMC and to that extent the BMC will not be blocked at ICCL," it added.
According to norms, stock brokers or trading members should maintain a minimum capital of Rs 10 lakh in case of trading of securities are done through their own money rather than customer's without using Algo trade.
In 2013, capital market regulator Securities and Exchange Board of India (Sebi) has increased the base minimum capital (BMC) deposit for stock brokers to up to Rs 50 lakh, from a maximum of Rs 10 lakh earlier, especially the ones dealing with algorithmic trading (algo), in order to mitigate risks in the market.