Mayur Chedda, a Mumbai-based investor, wanted to buy shares today but his broker refused as he did not have prior deposits with the broker.
As the Sensex touched a two year low of 10,740 points, most could not stomach the extreme volatility.
“The broker refused to take my buy order as the cheque that I was giving did not belong to the same bank in which his firm has an account. He was of the view that the cheque would take a long time to clear as banks are shut on Thursday,” said Chedda.
As the Sensex opened nearly 400 points down, domestic stock brokers today maintained extreme caution in allowing clients to trade. Like Chedda’s broker, a host of others were also taking extra measures and discouraging clients to take fresh positions in the derivative segment or even buy in the cash market. Purchases were only allowed up to the limit of cash deposited with the brokerage firm.
A Mumbai based broker said that they were merely trying to avoid a repeat of a situation like the one witnessed on January 21, 2008 when the markets crashed. Trading terminals of nearly 90 percent stock brokers across the country were shut as the stock exchanges almost doubled the margin money after the Sensex fell 700 points on January 18 and was followed by a 1,400-point crash on January 21.
A payment crisis was already looming large as banks were grappling to clear large number of applications for the Reliance Power IPO then. The brokers could not pay money as clearing of clients’ cheques took at least two days, which resulted into further chaos.
“This time we feared the same could happen as the stock exchanges are overzealous in increasing the margin money. In fact, today, the exchanges had marginally increased the volatility margins at around 3 PM,” said the broker.
Already, there is a credit crunch in the system as non banking financial companies (NBFC) of many brokerages houses have shut their activities.
