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Wisdom Capital Proves Financial Pundits Wrong As Volumes Decline Over 28% In Markets: Raises concerns over SEBI Circular

ANI | Updated: Dec 11, 2020 16:51 IST

New Delhi [India], December 11(ANI/PRNewswire): A circular on peak margin restrictions issued by the Securities Exchange Board of India (SEBI) came into effect on December 1, 2020, so have its implications. While trading, the circular decrees, investors are required to maintain a minimum upfront margin in their accounts throughout the day. Financial pundits had claimed that no immediate effect will be felt in the financial markets as a result of the circular and that the volumes in the financial markets will be down, at best, by 30% by September 2021.
In the first phase, which allows a stockbroker to offer 75% leverages to the clients from his own kitty, volumes in the financial markets are already down by more than 28% (see enclosed table): a direct contradiction to the forecasts put forward by the financial gurus.
Wisdom Capital, an online marketing and stockbroking services provider, had forewarned a week ago that the decrease in volumes may be much higher (see comparison table below) than anticipated by the industry analysts.

Wisdom Capital maintains that the peak margin restrictions will not only reduce the market volumes (a decline of over 60% by the end of 4th phase of the peak margin restrictions) and liquidity but also gravely affect retail investor participation in the markets and stockbroker's ability to service these participants.
Wisdom Capital raised a concern about the SEBI circular in the present form will negatively impact the interest of investors and very essence and philosophy of financial markets.

Deb Mukherjee, the CEO, Wisdom Capital, said "The circular leaves massive room for stock price manipulation; only affluent traders will be able to trade in the markets. The circular will chiefly affect majority of traders who have limited funds available with them. A segment of trading community which follows option writing strategies and are in the markets to make a living will be significantly impacted. In fact, distressed traders and investors have already started calling and emailing Wisdom Capital in huge numbers," Mukherjee said.
Following the writ petition (Filing Reference No. 1606452550535_5129) filed by Wisdom Capital, the Delhi High Court directed SEBI and Ministry of Finance (MoF) to submit its reply on the plea that challenges the recent SEBI circular dated 20th July 2020. Whether it is an infringement on the constitutional rights of the investors, brokers, and companies directly involved in the financial markets or against the will and provisions of SEBI Act will be decided by the court?
"There are few big broking houses out there who have vested interests in increasing their share of the pie. The circular will not only destroy the idea of a level playing field and but also challenge the democratic nature of our society in general. I would advise the Government of the day not to overlook this issue. There could be large scale protests if the people whose livelihood is directly or indirectly dependent on financial markets lose their livelihood en masse, particularly in the ongoing pandemic situation," Deb Mukherjee added. Investors, who actively participate in option writing strategies which offer a good winning formula, are being compelled to opt for option buying strategies; In essence, they are being made a scape goat. This inclination of few bigwigs of the industry is suggestive of a biased view in the markets. The claim that the circular will not hit the volumes negatively in the financial markets does not seem to hold water; volumes are already down by almost 30 % in the 1st phase of the peak margin restrictions. It is not hard to imagine what will follow by the end of 4th phase.
It is pertinent to assess, analyse, and question the main objective of the SEBI circular. It has evidently managed to create an environment of confusion and anxiety among the investors. When a broker offers leverage to its clients from his own funds, he definitely understands the risk involved. Any risk in this arrangement is a business call for the stockbroker. In addition, leverage provided by the broker to its clients is legal under the law of the land for decades. Had it been illegal, SEBI should have curtailed this practice right from the start. Disturbing the fine balance between the stockbroker and its client makes room for thinking aloud; Are vested interests involved that may have influenced the regulator?
Volumes are down as a result of the policy put forward by the watch dogs. Market participants have already seen the fate of NCDEX. Only time will answer if the regulator ends up doing the same for NSE and BSE as well. But one thing remains certain: Market participants will surely ask the MoF why these regulations were put in place if not to obstruct their participation. Impaired policy decisions by the regulators surely will not help the Prime Minister Narendra Modi's vision of India becoming a $5 trillion economy.
It is more than evident that the people with vested interests and financial pundits hardly care to know the answers and this is precisely why the pundits were proven wrong; their advice needs to be taken with a pinch of salt. And, if Wisdom Capital is to be believed, one should put one's money where one's mouth is.
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