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Is the Sebi targeting volatility or stock prices? - Views on News from Equitymaster
 
 
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  • Mar 14, 2000

    Is the Sebi targeting volatility or stock prices?

    In a surprise move, the Securities and Exchange Board of India (Sebi) has decided to roll back the additional margins imposed in stockbrokers in recent months. The authority has also scrapped the requirement that 50% of the margins be deposited in cash by 31st March 2000.

    The Sebi's announcement comes in the wake of a sharp erosion in stock prices across the board. At the time of imposition of these margins, the markets were trading in record territory. The Sebi had rightly tried to curb the speculative activity by imposing additional margins.

    It is uncertain what the Sebiís proposed measures aim to fulfill. In a statement the Sebi has stated that the brokers are facing a cash crunch and therefore there is a need for a roll back. With March 15 being the deadline for the payment of advance tax, it was only natural that there would be tightness in liquidity. Maybe then the Sebi's timing was not appropriate.

    A prime reason for the imposition of the margins was to control volatility in the markets. However, in view of the sharp rise in volatility in post budget trading, it is uncertain whether such a roll back was called for. In any case, the successful implementation of the new margin structure (cash component of 50%), would have gone a long way in improving the security checks in the market.

    The Sebi, however, needs to be rightly given credit for a large number of measures it has taken in recent years to improve the functioning of the stock markets. The authority has time and again taken decision to protect the interests of the shareholders. However, its latest decision seems to imply that Sebi is targeting stock prices as against volatility. The Sebi needs to come clean on this decision by laying down the rules for imposition and removal of margin requirements.

     

     

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