ALBM volumes healthy despite SEBI margins

NetScribes/Janaki Krishnan

Nearly a month after the Securities and Exchange Board of India (SEBI) imposed limits and margins on National Stock Exchange's Automated Lending and Borrowing Mechanism (ALBM), the volumes at the exchange continue to be as healthy as ever.

According to an NSE broker, Wednesday's volumes were in the region of Rs 10 billion in the segment, with brokers still taking advantage of the window to finance their obligations on the NSE and other exchanges, especially the Bombay Stock Exchange. When the margins were introduced last month, there were fears that the ALBM window might see a dip in volumes.

A senior official at NSE said that the volumes in the window were not high enough for the impact to be felt as yet. "The margins and limits will begin to pinch only when the volumes on the ALBM cross Rs 25 billion," he said.

While the risk management measures imposed on the ALBM window were meant to bring it on par with the modified carry-forward segment of the BSE, the fundamental difference between the two windows is that while the volumes at the badla session never go below Rs 20 billion, the highest volumes under ALBM so far is of the order of Rs 14 billion, registered in June this year.

In July this year, the risk management committee of SEBI tightened the screws on trading in the ALBM window, imposing the same margins and limits as those applicable on badla trades. Brokers were slapped with an aggregate position limit of Rs 400 million and a scrip-wise position limit of Rs 50 million.

SEBI also imposed a margin of 10 per cent on positions netted against ALBM transactions. According to NSE brokers, the 10 per cent margin, when applied on the current positions, were not significant.

"We do not have the kind of volumes that they (BSE brokers) have under badla," said the NSE official. NSE brokers agree that business under ALBM is "still good", though there had been no dramatic improvement in volumes.

Volumes on the ALBM segment have not gone up significantly in the absence of the main drivers to brokers availing of the borrowing and lending facility - huge outstanding positions on the BSE, volatility in scrip prices on both the bourses and brokers getting trapped when scrips touch the circuit filter.

In July and now in August, index movements have mostly been sideways, with no major wild swings in prices. It may be recalled that in April this year, volumes under ALBM jumped from a mere Rs 100 million to Rs 5 billion and above when members at NSE and BSE found themselves without exit options after prominent scrips in which they had huge positions went into circuit.

Traditionally, brokers shifted their positions from NSE to BSE on Tuesday, which is the last day of trading for NSE. Unable to exit, the only other avenue was the ALBM window to which the brokers shifted their positions. In other words, they took advantage of the financing window to honour their commitments.

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