Strengthening the safety and integrity of
the secondary securities market

• Mark to market margin system

  To ensure integrity and safety of the markets, SEBI advised all the exchanges to introduce daily mark to market margin system and to collect scrip wise, 100% of marked to market notional loss of a broker on a daily basis. This margin is in addition to any other margin that the exchange may be levying and is collected in cash/bank guarantee without netting gain or loss across scrips. The effectiveness of the measure was tested out during the periods of volatility witnessed by the securities markets in early 1997.
  
  

• Price band

  To curb undesirable volatility, all exchanges were required to fix uniformly the daily price band at 10% and a weekly overall limit of 25%. However in case of scrips up to the value of Rs. 20, the price bands could be decided by the stock exchanges. The price band would be calculated on the basis of the closing price of the scrip on the previous day, which will be the weighted average price of the last half hour of trading in the scrip on that exchange.
  
  

• Intra-day trading limits

  The exchanges were also advised to impose intra-day trading limits on brokers commensurate with their base minimum capital. This limit calculated on a gross basis is 33 1/3 times the base minimum capital of the broker. To trade in excess of this limit, a broker would be required to deposit additional capital with the exchange which cannot be withdrawn for a period of one month. With this the capital adequacy requirement is 3%.
  
  

• Enhancement of base minimum capital for stock brokers

  To ensure adequacy of the capital base of stock brokers, SEBI required all the stock exchanges to double the amounts prescribed for the base minimum capital for brokers from January 1996. This amount now stands at Rs.10 lakh for members of the Mumbai and Calcutta stock exchanges, Rs.7 lakh for brokers who are members of the Delhi and Ahmedabad stock exchanges and Rs.4 lakh for brokers on the remaining exchanges in the country.
  
  

• Clearing Houses, Clearing Corporations and Settlement Guarantee

  The National Stock Exchange has set up a clearing corporation, the National Securities Clearing Corporation Limited, which acts as a counter party to every trade executed on the Capital Market Segment of the exchange. The establishment of clearing houses has helped streamline the clearing system. SEBI also gave "in-principle" approval to The Stock Exchange, Mumbai, for their trade/settlement guarantee fund. A settlement guarantee fund ensures the timely completion of settlement irrespective of any broker defaulting to the exchange. SEBI has been promoting the establishment of trade/settlement guarantee funds at the stock exchanges. The existence of a trade/settlement guarantee fund or clearing corporation which provides a trade/settlement guarantee generates confidence among investors dealing on the exchange and enhances the overall safety of the market. SEBI also directed all stock exchanges to establish clearing houses and to settle all deliveries through the clearing house.