Heightened activity in markets ahead of election results; Exchanges hike margins, regulators step in

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Heightened activity in markets ahead of election results; Exchanges hike margins
A week ahead of the election results authorities are trying to calm nerves and ensure minimum chances of defaults, liquidity crunch and other issues relating to heightened volatility ahead of the election results exactly a week (May 16) from now.

Exchanges have already hiked margins and brokers are notifying their clients. On Thursday, Sharekhan, a leading brokerage firm sent a message to its clients stating that in view of the elections, margins have been increased from May 9 until May 20.

This is of course a precautionary measure, just in case there is a sharp rise or a sudden collapse in the markets, the margin funding should be adequate.

Reports suggest that the Securities and Exchange Board of India (SEBI) has asked clearing corporations to ensure adequate funding in the system.

The Reserve Bank of India is also believed to have stepped in asking banks to ensure adequate liquidity in the banking system.

Authorities have learnt from the last two election results, which saw volatility on the day of the election results.

The Sensex in May 2009, rallied 17 per cent in a single day. In fact, the markets in May 2009 rallied to such a degree that it hit the circuit filter limit and the stock exchanges had to be closed for the day.

In May 2004, there was a collapse in the markets after clarity emerged after the election results. Authorities are learning from the past experience and have hiked margins, given that there was hardly any derivative activity back then, which means exposures and volumes are much higher then they were back in 2004 and 2009.

All in all hiking margins would ensure safety and protection, particularly of small investors, ahead of one of the biggest events for the stock market.


Read more about: elections 2014, sensex
Story first published: Friday, May 9, 2014, 9:05 [IST]
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