For the broking industry, fears of liquidity drying up loom large

Brokers that have been issued bank guarantees against fixed deposits (FDs) of YES Bank are likely to get into a liquidity maze, with bourses halving the collateral value of such guarantees.

Bank guarantees are typically used for leveraging and getting credit lines from exchanges for trading. 

A Rs 50-crore FD, for instance, could get a broker a Rs 100-crore bank guarantee on paying a small fee, and subsequently a Rs 100-crore credit line from the exchange.

The NSE and BSE issued notice on Friday, saying no fresh bank guarantees and FD receipts issued by YES Bank, or renewals of such instruments, will be accepted by their respective clearing corporations.

For existing benefits provided to members, the collateral value will reduce to 50 per cent from Monday. Further, a haircut in respect of shares of YES Bank provided as collateral will be revised to 100 per cent from March 6. No F&O contracts in YES Bank will be available for trading from May 29. The counter has seen the formation of a significant number of shorts in the recent past. Brokers holding a clearing and settlement account with YES Bank will be affected and will have to link a new account with the exchange.

The funds lying in this account are mostly those of clients and will be blocked. Also, broker money routed through the payment gateway of YES Bank — popular because it gives third-party authentication — is also stuck.

Brokers have blocked payouts to YES Bank accounts and disabled YES Bank in the payments gateway. Clients have been told to change their primary bank account or pay by cheque. 

“We have cancelled all fund withdrawal requests made by clients to their YES Bank accounts so that the money doesn’t get blocked. Clients have been told to change their primary bank account, if it is YES Bank, to any other and withdraw the funds,” said Nithin Kamath, founder, Zerodha.

He added investors needed to update their demat accounts if YES Bank was the beneficiary account. Dividends from stocks get credited to this account and clients may not be able to withdraw this money.

YES Securities Ltd (YSL), a wholly owned subsidiary of YES Bank, meanwhile, said it would not allow fresh purchase in cash and derivatives till further notice. In a note to clients, the broker said it was working with regulators to shift the YSL settlement account from YES Bank to another private-sector bank.

Clients will be allowed to square off their existing open derivatives positions, along with their existing leveraged cash positions, under MTF/CnC/NRML (MTF is margin trading facility that offers leverage. CnC is used for delivery-based trading in equity without leverage. NRML is used for overnight trading of futures and options without excess leverage.) 

The note reassured customers that the restrictions in YSL trading accounts were temporary and normalcy in operations and risk policy would be reinstated at the earliest. 

“Over the next few days, the YSL team will work closely with you to collect cancelled cheque leaves of other banks that you would be banking with. This would ensure all future pay in/pay-out of cash obligations to and from the exchanges would not be affected by the gazette notification,” the note observed. 

“YES Bank is counter party in so many financial transactions due to its wide client base across the country. Now these transactions are under risk as RBI has put various restrictions on the bank,” said a note by Ashika Institutional Equity Research.

9 March

Reduction in 50% of collateral values for bank guarantees 
 

11 March

Reduction in remaining 50% of collateral

6 March

100% haircut in YES Bank shares as collateral

29 May

Halt in YES Bank F&O contracts

Source: Exchanges