"In times where intrinsic values of companies are challenged, Bank Fixed Deposits -- once considered as the most reliable investment" -- have been brought under the SEBI's radar in light of subterfuge carried out by market participants, brokers and intermediaries. It is common practice that Clearing Corporations of stock exchanges have sanctioned trading limits based on fake collateral or 'non-funded' fixed deposits being offered as margin. Such dubious collateral poses a grave systemic risk for the markets although its depth and quantum remain partially undetermined as on date," said Sonam Chandwani, Managing Partner at KS Legal & Associates.
Sources said that clearing corporations have already taken up the matter with market regulator Stock Exchange Board of India (SEBI). But, the corporations themselves are sufficiently empowered to take a call on any issue that impacts their risk management practises.
The two major clearing corporations in India are National Securities Clearing Corporation (NSCCL) and Indian Clearing Corporation (ICCL). They are promoted by NSE and BSE respectively.
Under the current system of transactions on exchanges, a trader normally uses shares, MF units and FDs as collateral for allowing brokers to trade on their behalf. While shares work as the most popular form of collateral for individual traders, large business houses, insurance companies and MFs use FDs as collateral to proceed with high value transactions.
(Only the headline and picture of this report may have been reworked by the Business Standard staff; the rest of the content is auto-generated from a syndicated feed.)
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