The stock market has tightened the rules related to collateral, which will result in 1,010 stocks being removed from the list of 1,730 stocks starting August 1. This means that traders and businessmen will be able to raise money by pledging only 720 stocks in the future.
Understand what these steps are
Banks, financial institutions or any lender keep an asset as collateral to secure the loan given so that in case of non-payment of the loan, the money can be recovered by selling this asset.
Along with houses, plots, cars, and gold, stocks are assets on which loans can be obtained. In margin funding or margin trading facility, brokers offer short-term loans in exchange for shares already held by the trader for trading in shares.
However, not every share can be mortgaged.
Considering the risks associated with funding, the market keeps special rules for these shares. Money can be obtained by mortgaging only those shares that fulfil these rules. These rules have become strict due to which the number of shares included in the list will decrease rapidly in the coming time.
According to the new circular, only such stocks will be included in the collateral list where trading has been seen in 99% of the sessions during the last 6 months and their impact cost i.e. the cost of completing a transaction is not more than 0.1% on an order size of one lakh.
Based on these rules, a total of 1,010 stocks including Adani Power, Yes Bank, Suzlon, HUDCO, Bharat Dynamics, Bharti Hexacom, IRB Infra, NBCC, Paytm, Inox Wind, JBM Auto will be out of the list.
Benefits and impact of the decision
Margin trading benefits both the trader and the brokerage house. The trader can make bigger deals despite the small amount of money he has because the brokers are ready to give them additional funds. At the same time, the broker gets additional income in the form of interest.
After the new decision, the risks related to funding will now decrease because, after the implementation of the rules, there will be such stocks in the list whose liquidity is very high and which are considered strong stocks.
In an exclusive interview with CNBC-TV18, HDFC Securities Director Ashish Rathi said that investors pledge their shares with the broker, and then the broker pledges these shares with the clearing corporation.
After the new rules, the process of pledging shares with the clearing corporation will be affected because the corporation will now accept fewer shares than before. However, he said that it will not have much impact on the margin trading facility book because strong and liquid stocks remain on the list.
Omprakash Tiwary is a business writer who delves into the intricacies of the corporate world. With a focus on finance and economic landscape. He offers readers valuable insights into market trends, entrepreneurship, and economic developments.
