According to stock brokers, the real pain in markets started with the over-zealousness on the part of stock exchanges in collecting margin money after the 700 points fall on January 18 and another 14,00 points fall on January 21.The trading terminals of nearly 90 per cent stock brokers were shut on Tuesday when the markets hit the lower circuit of 10 per cent within a few minutes of opening bell, as the National Stock Exchange doubled the margin money overnight.
"The exchanges wanted stock brokers to pay additional margin money immediately. How can we do this when our clients' cheques take at least two days to clear?" asked a Bombay-based broker who deposited an overdue margin of about Rs 1,000 crore (Rs 10 billion) with the exchanges on Wednesday.
A payment crisis was already looming in the aftermath of the Reliance [Get Quote] Power IPO.
The call for more margin money, from stock exchanges, had a domino effect on the markets.
How far is this explanation valid? Well, increased margin requirements for brokers at a time of falling markets are always a reason for the sharpness of market declines. But, it is not as if the problem will go away if the cheque settlement system is improved.
That's because many of the investors who get into payment difficulties are those who have borrowed in order to speculate in the market. They borrow for day-trading, for IPOs and for any other investment in the stock market. They will have to sell their shares any way in order to meet margin calls. Whether the shares are sold by the brokers on whom margin demands are made or by the investors makes no difference- there will be huge sales and there will be overshooting in the market.
Theoretically, banks can provide finance to investors but they will be wary of lending when markets are in a state of free wall. As the BS report mentions elsewhere, there has to be some proportionality between margin payments made by investors and their brokers- the less stringent the margin requirement, the greater are the chances of a decline in the stock market escalating into a crash.
6 comments:
Great post which summed up a lot of important points. Thank you.
Stock market India is volatile and all those who speculate in market are loosing everyday. Please remember stock market is not for speculation purpose. If one feel investing in stock market is gamble then its better to think again.
One should always note that if they want to invest money they should do proper research be it fundamental research or technical research. Just think how come you can invest
your money without any convincing reason for the same?
Indian stock market is one of the most happening and emerging market. Major Indian stock exchanges are BSE and NSE and both are of world class standards.
So grab good stocks and invest that’s the bottom line.
We hope to see you in major profits.
100% Sure Shot Share Tips || Commodity Tips On Yahoo
Great informational article. I learned quite a bit . I will be using the things I learned from your article.
Thank You
mcx tips
This is one of the most interesting articles I ever read. Very helpful! So many thanks for you guys. Thanks for putting this together. With all heart I must say that this is an amazing post with so much to learn from.
Mcx trading Tips
Hey there,You've done an excellent job. I’ll definitely digg it and personally recommend to my friends. I am sure they will be benefited from this site.
Very nicely you describe all the Indian market, I like your post...
Thanks For sharing
Billion Tips
Post a Comment