Payment crisis looms large

NetScribes/Janaki Krishnan

With the BSE Sensex dropping 700 points within seven trading sessions, there are fears of a payment crisis in the stock markets? The sudden and steep fall in the markets seems to have taken everyone unaware. Investors and dealers are especially apprehensive that a number of clients might not be able to meet their payment obligations.

Chief dealer with Kotak Securities, Ketan Jhaveri, said, "Considering the margins which are collected daily by the BSE in the official trades, there would not be a crisis so far as the brokers-exchange side is concerned, but I fear a crisis on the client-broker side." He pointed out that the week so far has not seen any major unwinding by clients or brokers and the outstanding positions have been piling up.

Investors have been going long and in some of the scrips, and the long outstanding positions are huge. They were waiting for the market to show a significant uptrend to sell out and take the profits home. However, what they have been presented with, is a 5 per cent-plus fall in the Sensex, and a sharp depreciation in almost all the tech stocks.

With the steep depreciation in scrip prices, clients will have to pay out hefty mark-to-market margins and mark losses on it, but whether they would have enough to make good on their commitments, is what the market is asking. "Where are the funds?" asks Jhaveri.

Rajiv Sampat, dealer at Parag Parikh Securities, said that the larger and medium sized brokers might not be affected by clients being unable to pay up, but smaller outfits were liable to face some pressure in their obligations to the stock exchange.

The next few days are expected to see some hectic selling as the clients will be offloading their stocks in order to meet their payment obligations.

Sampat said that the growing oil pool deficit, depreciation in the rupee and the fall in the overseas markets had all contributed to the September 22 fall. A more basic reason is that the Calcutta Stock Exchange will be closed from the middle of next week onwards and brokers on BSE and NSE who will be unable to shift their positions to CSE were desperate to unwind. The Calcutta exchange is a very large and lucrative market for badla traders.

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