In an effort to mitigate risks arising out of algorithmic trading and safe-guarding the markets from erroneous or manipulative trading activities, market regulator Securities and Exchange Board of India (SEBI) has hiked the Base Minimum Capital (BMC) for stockbrokers to Rs 50 lakh from Rs 10 lakh earlier. The BMC is the deposit given by the member of the exchange against which no exposure for trades is allowed.
The changes will be in place by March 31 next year. The last time the BMC requirement was hiked was in 1996. The order follows a 900-point flash crash of NSE’s 50-stock share index, Nifty, on October 5, due to erroneous orders worth Rs 650 crore being executed by a broker on behalf of one of its clients. However, the BMC deposit requirement prescribed for the different profiles ranges from Rs 10 lakh to Rs 50 lakh for members of stock exchanges with nation-wide trading terminals. For members of other stock exchanges the requirement would be 40% of the same.
The new rules will require brokers and trading members to deposit Rs 10 lakh if they opt for only proprietary trading without the algorithmic option, Rs 15 lakh for trading only on behalf of clients (without proprietary and algorithmic options). However, a deposit of Rs 25 lakh would be required for proprietary trading and trading on behalf of clients (without algorithmic trading) and Rs 50 lakh for trading with the algorithmic option.
Further, the exchanges can seek for higher deposits if they perceive greater risks for any broker. A minimum 50% of the deposit would be required to be in the form of cash and cash equivalents.
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