Mumbai: Market regulator SEBI Wednesday increased the minimum capital deposit required to be maintained by a stock broker to up to Rs 50 lakh, from a maximum of Rs 10 lakh earlier, to safeguard against any risks posed by them to the overall market.
The Base Minimum Capital (BMC) is the deposit maintained by the member of a stock exchange against which no exposure for trades is allowed and these deposits were last hiked by SEBI nearly 16 years ago in 1996.
These are meant for meeting contingencies in any segment of the exchange and are commensurate with the risks that the broker may bring to the system.
Announcing the increase and other changes in the BMC requirements, which would be implemented by March 31, 2013, SEBI today said the market structure has undergone significant structural changes over the years.
"The various technological changes and the increased speeds of trading have brought to fore the greater quantum of risks arising during the course of execution of transactions. Hence based on deliberations at various forums, it has been decided to review and enhance the BMC requirement," it said.
As per the revised BMC framework, it would be enhanced for members holding registration as 'stock-broker' in cash segment, while BMC would also be introduced for members holding registration as 'trading member' in any derivative segment.
SEBI has proposed a higher BMC requirement for those using high-frequency algorithmic trading facilities, while the deposits would be comparatively lower for the trading members indulging in only proprietary trading.
The new BMC deposit requirements, as per the profile of the members, range from Rs 10 lakh to Rs 50 lakh for members of stock exchanges having nation-wide trading terminals, while the same for members of other stock exchanges would be 40 percent of the same.
Way back in 1996, SEBI had asked the stock exchanges to double the base minimum capital requirement for their members from Rs 5 lakh to Rs 10 lakh in the case of BSE and Calcutta Stock Exchange, from Rs 3.5 lakh to Rs 7 lakh in the case of Delhi and Ahmedabad Stock Exchange and from Rs 2 lakh to Rs 4 lakh in the case of other stock exchanges.
Later in 2005, SEBI had made certain changes in the BMC framework, but the deposit amounts remained same at that time.
The regulator said 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.
Algo refers to orders on bourses that are generated using high-frequency and automated execution logic.
SEBI said BMC limit should be Rs 15 lakh in case of a stock broker trades on behalf of client (without proprietary trading and without Algo) and it should be Rs 25 lakh in case of proprietary trading as well as trading on behalf of client without Algo.
Besides, SEBI has fixed the BMC limit to Rs 50 lakh for all trading members and brokers who participates in the trades through Algo.
The regulator said a minimum 50 percent of the deposit should be in the form of cash and cash equivalents.