Why in the news
SEBI wants brokers’ capital cushions to match the operational risk of how many clients they serve. The older cash-based method has lost meaning now that client money is moved out of broker books every day.
Key facts
- Old rule: a variable net worth set at one-tenth of the daily average of client cash the broker kept.
- Upstreaming: brokers must pass client funds to Clearing Corporations daily, so they hold little cash and the requirement shrinks to almost nothing, even with millions of clients.
- The proposal combines two components, summarised below.
| Component | Basis | Requirement |
|---|
| A: client fund linked | Average credit balance of all clients over previous six months | 10% of that average, wherever the money sits |
| B: client scale linked | Number of active clients | Up to 10,000: standard base only; 10,000-50,000: extra ₹50 lakh; further buffers for every additional 50,000 |
- Graded capital is also proposed for brokers who bring in clients through Authorised Persons or sub-brokers.
IPO approvals
| Company | Issue | Note |
|---|
| EAAA India Alternatives | ₹1,500 crore, all OFS | Promoter Edelweiss Securities is the seller |
| MV Electrosystems | ₹290 crore fresh issue | Electrical equipment for railway rolling stock |
| Yatayat Corporation | Fresh issue plus OFS | Gujarat-based supply chain and logistics firm |
Background
- Variable net worth: extra capital above the fixed base requirement, varying with the risk a broker takes.
- Upstreaming: client money cannot stay overnight in the broker’s account; the Clearing Corporation acts as a central vault.
- Offer for Sale: existing shareholders sell to the public and the proceeds go to them, not the company.
Exam angle
- Regulator: SEBI; key terms: variable net worth, upstreaming, OFS, observation letter.
- Slab: 10,000-50,000 clients means an extra ₹50 lakh.