Brokers may rig gilts yields
R H Patil
Chairman, Clearing Corp
The entire debate on gilts trading on the exchanges during the last three years has centred round the desirability of serving the retail customers.
However, the design that has got finally unfolded is different. The trading on the stock exchanges is no longer confined to retail customers; big players like banks and primary dealers can shift their major dealings to the exchanges.
All large players get their trades settled through CCIL by paying both exposure margin and market-to-market (MTM) margin. But they are exempted from paying any margins in respect of their trades on the exchanges since stock exchanges do not margin institutional trades. It is difficult to understand why such a liberal regulatory arbitrage in favour of the stock exchange trades has been built in.
There seems to be no restriction on short selling by the brokers who trade on their own or proprietary account.
Given the T+3 settlement cycle for the exchange trades, brokers can sell short and cover their position through the OTC market on T+2 day and deliver the stock for T+3 settlement.
This gives them scope for speculation and moves the prices. It would have been ideal if the same regulatory regime regarding margins and short-selling were applicable to all large trades in both the markets.
As volumes rise on the exchanges, they impact the volatility and price movements. If the brokers succeed in influencing price movements
