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Thursday, May 16, 2002

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Brokers' finance cos provide funds

Virendra Verma

MUMBAI, May 15

EVEN as margin trading in the stock market is yet to take off, private funding is regaining its place in the equity markets in a big way.

Market sources say this is another form of margin trading. Even though the quantum of funds involved in this market cannot be ascertained, it is believed that a large amount of money is being circulated in the market.

Many top broking firms in Mumbai are believed to be using this route to fund their clients. The facility was available even for retail investors, said a broker. The modus operandi of funding is that the investor pays a margin in the range of 15-25 per cent (depending on the comfort of the financier and the broker) and the rest is private funding. In order to circumvent the regulatory issues, the funding is not done directly by the stockbroker, but by a finance company belonging to the broker or his associates.

The financiers are the same players who were active in the badla market before it was banned in July last year, said a stock trader. However, the cost of funding is difficult to know as in most of the cases, the cost is included in the brokerage fee.

A dealer with a leading domestic broking firm which is active in private funding said "there has been increase in the brokerage fee for these kind of deals over the last few months and this is due to the inclusion of the cost of funds''.

But some players believe it ranges between 18 and 24 per cent per annum.

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