The market regulator has now come out with the idea of creating a bank to finance stock market operations. In an effort to provide liquidity and flexibility in funding for stock markets transactions, Sebi has mooted a proposal to set up “limited purpose bank” for margins trading and securities lending in the country.“People interested in lending the funds and securities to the market may deposit them with bank and borrowers may borrow from this independent entity having a nation-wide presence,” Sebi said in its discussion paper released here. “The margin trading is trading in the securities market with the borrowed resource funds or securities. This will help avoid a nexus build up between the lender of the funds and securities brokers and also the issuer companies. The total quantum of the funds and securities lent will be known to the market at any point in time,” it added. The risk management function would become effective and help to maintain audit trail with help of this model, it said. There are many business models for lending funds like financing by brokers and clearing corporations or exchanges but “banking model has advantage to keep track on who is lending the funds and securities in the market and to what extent”, Sebi said.
