| Some of the small and mid-sized brokerage houses have started taking a cautious stand on margin funding, with the market falling for the second consecutive day. |
| The Bombay Stock Exchange Sensitive Index (Sensex) has declined by nearly 1,500 points, or 7.5 per cent, from its all time high of 20,498 on December 13. |
| The small-cap index has slumped by nearly 800 points, or 6.45 per cent, from its all time high of 12,402 in yesterday's initial trade, and the mid-cap index by nearly 600 points, or 6.28 per cent, from its high of 9,541 on the same day. |
| Market sources said some of the small and mid sized brokerage houses actively involved in margin funding are asking their clients to square up their equity market positions built on margins. |
| "The top broking houses have not yet started making any margin calls aggressively, but their smaller counterparts are asking clients to pay margin money," brokers said. |
| They, however, said another 300 to 500 points fall in the next couple of days could make the situation uncertain, forcing more brokers to exert margin pressures. Currently, traders are holding on to their positions as short covering ahead of the future and option (F&O) expiry may pull the markets back. |
| Most brokerages allow investors to trade or buy up to five times the margin money deposited. Some brokers also allow investors to keep good stocks, which are mostly in the F&O segment) as margins instead of money. |
| The money or the shares remain as deposits with the broker and all profits and losses are settled separately. |
| Broker usually charge interest for the client's total exposure over and above the deposit amount. This can range 15-24 per cent, depending on the client's track record and relation with the broker. |
| The squaring up of outstanding positions and closing the books keeps the brokers' books clean of sundry receivable and payable entries. |
| Market sources indicated that brokers also make money by selling entries for losses or profits to retail investors and high net worth individuals who are looking to balance their accounts for tax benefits. |
| Moreover, market entities are also concerned with retail investors buying into small-value scrips, which may have no intrinsic value. |
| "Recently, small investors are buying these stocks in the hope of riding the rally. In many cases, prices of these stocks have gone up because of front- running or manipulation and investors may end up burning their fingers," an analyst said. |
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