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Sebi
had approved margin trading and securities lending scheme,
which came into effect from April 1, 2004. This scheme became
operative based on the recommendations of the Secondary
Market Advisory Committee (SMAC) headed by RH Patil, the
Former Managing Director of the National Stock Exchange
(NSE). Under this Securities Lending Scheme (SLS), margin
trading was available to the clients through Approved Intermediaries
(AIs). Accordingly, the National Securities Clearing Corporation
of India Ltd. (NSCCL), the Clearing Corporation of the NSE
and the Bank of India Shareholding Ltd. (BOISL) were permitted
to operate as intermediaries from June 2004 (Refer to cTable
1). The Over-the-Counter (OTC) structure facilitated performance
of these operations. The clients, the brokers, the banks,
and the financial system of the countryall - these are the
major players in this market.
After
the scheme became operational, Sebi received numerous representations
and suggestions from the market players. These related to
varied areas such as securities for margin trading, margin
related issues in the form of review of the requirements,
form of maintenance and time of collection, regulatory framework,
the liquidity of the brokers, and an arbitration mechanism
for resolving disputes. Hence, Sebi thought it fit to review
the scheme. The scheme was reviewed by the SMAC on November
24, 2004. The SMAC also took note of the functioning of
the AIs under the SLS. This committee, which analyzed the
performance of margin trading facility, came to the conclusion
that the market participants failed in making the `best
use' of the scheme |
