January 31 (LBO) – The Securities and Exchange Commission has clamped down on brokers who finance customers by giving them extra time to settle, because the practice is undermining the finances of the intermediaries, an official said. No single client (a company, a group of companies or immediate family members) can be given more than 15 percent of the total credit extended by the dealers.
“We found that brokers were giving a lot of credit and they were overly exposed,” says SEC Director General Channa de Silva.
“Financial stability was in issue.”
The new rules would come into effect in July.
If brokers or dealers are not already licensed as margin traders, SEC has asked them to have a written agreement with clients.
The total credit extended should not exceed 10 times the net capital.
All credit has to be backed by listed securities of twice the value. The collateral have to marked to market everyday and topped up in the next market day if the value falls by more than 10 percent.