Brokers demand pass on of interest on cash float lying with stock exchanges

MUMBAI: After the Reserve Bank of India (RBI) recently asked clearing corporation and stock exchanges to pass on the interest earned on float money of sovereign gold bond subscription, stock brokers are also demanding a similar treatment on the float money of membership deposit and cash margins in the equity segment.

The RBI asked clearing corporations to pass on the interest on gold bond subscription float at prevailing savings bank rate (currently at 4 per cent per annum) from the date of realisation/receipt of funds by clearing corporations from members till the date of transfer of funds to RBI. There was a gap of few days between the allotment of bonds and subscription money received by the clearing corporations. The clearing corporation earn interest on this float by deploying the money in the overnight money market.

“Taking the RBI directive, we will yet again demand that at least a portion of interest earned on membership deposit with stock exchanges and huge float of cash margin, be passed on,” said S K Rustagi, President, ANMI (Association of NSE Members of India). “It has been a long pending demand and voices from brokers are now only going stronger. In fact, exchanges have verbally told us that they will look into passing some interest on broker’s cash deposits.”

Stock exchanges are holding around Rs 500-800 crore as membership deposit from brokers, on which no interest is passed on. This apart, a huge float of cash margin running into several hundreds of crore is often lying with the clearing corporation, wherein too no interest is paid. The exchanges and clearing corporations, however, earn 6-7% annualised interest by deploying cash in liquid money market instruments.

“After the RBI directive, we are planning to make a representation to the Securities and Exchange Board of India (Sebi) on the issue of passing interest on cash float lying with clearing corporations," said Alok Churiwala, vice-president, BSE Brokers Forum. “It is only logical that interest on membership deposits and cash margin be passed on. Earlier too Sebi officials had said that they will look into the demand.”

Sebi is already working on enhanced supervision for stock brokers related to client funds and a proposal with regard to passing on interest on cash with clearing corporations was discussed earlier, brokers said. The proposal did not get Sebi approval due to lack of real-time mechanicism to calculate interest on cash margin.

“Passing on interest on cash deposits and margin money will significantly cut cost of funding in equity market and is a necessary step for which representations have been made,” said Deven Choksey, MD, K R Choksey Shares and Securities. “The RBI directive has given more tooth to brokers now.”