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Non-funded FDs as collateral under SEBI lens

The use of ‘non-funded’ fixed deposits (FDs) as collateral to get a trading limit in equity and commodity markets has come under the scanner of the Securities and Exchange Board of India (SEBI).

The regulator has sought details of ‘cash collaterals’ from exchanges’ clearing corporations (CC), where private banks promise ₹100 worth FDs against ₹50 actually deposited by a broker.

Yet, banks call such an arrangement a ‘funded bank guarantee’ and the CCs have extended trading limits to brokers against it. Banks earn a fee on such guarantees.

CCs are exchange-promoted entities that settle trades taking place on an exchange ...

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