Credit not a right but at broker discretion, capacity

Thursday, 25 August 2011 00:33 - - {{hitsCtrl.values.hits}}

Following the SEC’s directive early this month, some broking firms are being demanded credit by clients, causing friction.

These clients are demanding that broker give credit, citing the SEC’s 16 August directive.

However, sources said that credit is not a right but falls under broker’s discretion and capacity to give credit. Analysts said that following the directive, there was misconception that broking firms can lend as free as banks or finance companies, which is not the case.

In the last directive SEC allowed licensed stock brokers to extend credit to investors over T+3 days based on the computation of liquid assets less obligations, maintaining a leverage at zero level.

Whilst most retail heavy broking firms have benefitted from the directive and it also brought in about Rs. 1 billion in new investments thereafter, there are some brokers who don’t lend beyond T+3 as a policy.

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