The Hindu Business Line : For whom the margin bell tolls?

Kolkata, Jan 21 It’s ring-ring margin calls when all equities fall down. The Monday morning session begun with many traders’ terminals shut and more got shut during the day today.

According to sources in the intermediaries, large brokerages mostly resorted to forced square offs and small brokerages bore the brunt of the carnage. “If the clients fail to pay up the enhanced margins early tomorrow to the brokers, and the market does not open with an upward gap, greater square-offs would be a reality”, a chief of operations at a broking firm said.

As valuations plunged in waves of margin calls during the day, the pressures of mark-to-market (MTM) margin were felt across the country. By noon, it was clear that many could not meet the Friday’s margin calls and more reports of terminals going off created panic in the afternoon.

Higher obligations

Increase in MTM margin obligation for the day over the that generated on Friday caused sharp drop in available liquidity in the system and today’s incremental MTM further complicated the situation.

Though a complete picture was impossible to draw, market sources said that huge amount needed to be paid up tomorrow morning before the cut-off time.

A number of large brokerages in Mumbai, Kolkata and Ahmedabad, who allow traders to use their terminals, were on the top of the hit list. The no-holds-barred sell-offs by a section of market participants incrementally eroded prices across the board. “Possibility of such mayhem over the next few days looms large”, felt Mr Ajit Day of Dayco Securities. He, and Mr V K Sharma of Anagram Stockbroking, felt that the large outstanding derivatives positions could have accentuated the fall.

Mr Sudip Bandopadhyay, the CEO Reliance Money, said that his organisation did not feel much pressure on the MTM score, as it took precaution on the margin situation last week.

“Some will, unfortunately, go broke or find their fortunes hammered down. This is an ugly face of the leverage game”, Mr Day commented.

Sell-off

Mr Ajay Jaiswal of Angel Broking, however, felt that today’s meltdown was characteristically different from three earlier examples of value erosions – in 2004, 2006 and 2007.

“This time around the meltdown is because of the cash market sell-offs by the financiers – be it brokerages, banks or private financiers and not for over-leverage in the F&O market”, he said.

Unlike in other occasions when derivatives market prices were at a discount to the cash market prices, this time it is either at a premium or at a nominal discount on the closing basis. “Even if you take the day’s lowest prices, the picture remains the same. Take for example the counters such as RNRL or Reliance Petro, ACC, IDFC or IDFC – the trend is identical.”

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