BSE volume falls to 16-month low

BSE volume falls to 16-month low
ENS ECONOMIC BUREAU

MUMBAI, MARCH 26: With excessive speculation declining steeply, the business volume on the stock exchange has virtually crashed to a 16-month low. The total volume of business on the Bombay Stock Exchange fell to Rs 744.20 crore on Monday as against the usual volume of Rs 5,000 crore, indicating that a host of restrictions and margins are keeping away operators and day traders.

The business volume on both the BSE and the National Stock Exchange (NSE) has been falling after the regulator SEBI banned short sales and asked the exchanges to hike margins on speculative scrips.

With the exchanges hiking margins, investors or brokers will have to shell out as much as 75 per cent of the value as margin. If an investor buys NIIT stocks worth Rs 1 lakh, he will have to shell out Rs 75,000 on the same day as margins. This will be applicable to all transactions.

Now the volume on both the BSE and the NSE has come down by nearly 85 per cent. The BSE used to clock a volume of Rs 4,000-5,500 crore and the NSE around Rs 6,000-7500 crore till the presentation of the Budget. “Day traders have virtually disappeared from the market. Many of them had suffered huge losses in the last one month. Even several sub-brokers were also forced to close down operations,” said a dealer.

In an effort to avoid another payment crisis and rigging, the Bombay Stock Exchange had last Friday imposed additional volatility margin (AVM) on 164 stocks including many from the ‘A’ group from the settlement beginning on Monday. The National Stock Exchange has announced it was introducing security-wise differential exposure limits to contain the volatility in the market. This new system came into effect from March 22.

On the BSE, the AVM ranges between 10-25 per cent and would be computed on the net outstandings purchase or sales position including carry forward positions, BSE said in a notice on Saturday. “Rampant excessive speculation was going on for the last two years (1999-2000). Then the exchange and SEBI did not think of restraining price riggers. Now the exchange is shutting the stable doors after the horses have fled,” said stock analyst Pawan Dharnidhraka, on the lax trading rules in the last two years.

Stock brokers feel that with an average of 50 per cent margin already being imposed on them, the fresh AVM would further put pressure on them. They feel that the turnover on the BSE, which has already come down from Rs 5,000 crore to around Rs 1,000 crore, is likely to fall further.

This fall, according to them, could happen as the AVM imposed on 164 stocks account for major chunk of turnover on BSE.

The NSE has divided securities listed on it on the basis of three parameters. They are: impact cost (which is a measure of liquidity), market capitalisation and average number of trades per day. On the basis of this, the exchange has revised the gross exposure limits in line with the three groups.

Securities placed in group I which have outstanding positions of Rs 1 crore would now onwards have adjusted gross exposure in the multiple of one. That is, 100 per cent gross exposure will be permitted in these stocks. Group II will have adjusted gross exposure in a multiple of three, meaning 33 per cent of adjusted gross exposure would be available in these stocks. In group III, the multiple would be to the tune of five, meaning slightly less than 20 per cent of adjusted gross exposure would be available in them.