Brokers exhaust bank guarantees for F&Os

Several commercial banks have hit the ceiling on guarantees on behalf of brokers towards margin deposit and security deposit for trades in futures and options on the National Stock Exchange (NSE).

Many brokers may find it difficult to get bank guarantees for trading in futures and options on the NSE.

Banks already used up their limits as brokers' trading volumes increased with the uninterrupted surge in the stock market recently.

This made the leading banks take the help of counter-guarantees from smaller private sector banks to continue servicing their broker clients, banking sources said.

NSE's National Securities Clearing Corporation (NSCC) on Wednesday disallowed banks, with immediate effect, from issuing guarantees on the basis of any arrangement with or counter-guarantees of other banks.

The know-how that banks were stretching too far to back their broker clients prompted the action.

NSCC sets guarantee limits for banks based on the balance sheet size of the respective bank. A senior banker said the recent trend among large banks was to "misuse" smaller banks, in the old private sector, to provide services to their broker clients on a continuous basis.

The other set of banks affected by the NSCC diktat are smaller private sector banks active in the stock market. These private sector banks, too, started taking the counter-guarantee route to provide unhindered services to brokers.

Bankers said one of them is an old private bank in Tamil Nadu that had availed of counter-guarantees from a Karnataka-based public sector bank to serve its broker clients.

A senior official of Bank of India (BoI) - a leading clearing bank - said BoI is still within the limits specified by NSCC.