August 2, 2017

Markets regulator Sebi today allowed stock brokers to borrow funds through issuance of commercial paper and unsecured loans from directors and promoters in order to provide margin trading facility to their clients.

Currently, a broker can use his own funds or borrow from banks and non-banking financial companies (NBFCs) for this purpose.

The move follows after Sebi received representations from brokers and their associations requesting to enable them to utilse funds from sources other than banks and non-banking financial companies for extending margin trading facility, the regulator said in a circular.

Accordingly, Sebi said, "stock brokers may borrow funds by way of issuance of CP (commercial paper) and by way of unsecured long term loans from their promoters and directors".

Commercial paper, in market parlance, refers to unsecured, short-term debt instrument issued by companies.

The Securities and Exchange Board of India (Sebi) said that a broker would not be permitted to borrow funds from any other source, apart from these.

The margin trading facility (MTF) is executed with borrowed funds or securities that enable investors to take exposure in the market over and above their resources.

Under the norms, only corporate brokers with net worth of at least Rs 3 crore are eligible for providing MTF to their clients. The brokers would have to submit to the exchange a half-yearly certificate from an auditor confirming the net worth.

[The Economic Times]