MUMBAI, May 22: National Securities Depository Ltd (NSDL) has launched an exercise to inform institutional brokers that the depository can take care of the problem of their funds being blocked in the interim period between entering into a transaction and receiving the payment from the client.

According to NSDL managing director CB Bhave currently an institutional broker receives payment for deals undertaken on behalf of a client at least a week after he has made the payment to the exchange.

"For example when a broker purchases shares on behalf of a client, he makes the payment for the shares at the NSE on Monday. He receives the shares only on Wednesday," he said.

"He then takes the delivery to the custodian of the client who takes an additional two to three days to go through the procedure of verifying the shares before he makes the payment to the broker. This results in the broker's fund being blocked for nearly a week thus depriving him of the much-needed liquidity," said Bhave.

"Now take the case of a depository where the broker makes the payment for the shares on Tuesday morning and by the evening the shares are duly credited directly into the account of the client. As the delivery is clean and paperless the broker can approach the client within a day and receive payment for the deal," he added.

"We realise that this is an important feature of the depository and have hence stressed on it in our meetings with institutional brokers over the past few days," said Bhave.

The blockage of funds has been a cause for concern for a number of domestic brokers and it is on this issue that some of them have even questioned the entry of foreign brokerage houses. According to them the foreign brokerages have the financial strength to withstand a blockage of funds for a period of a week, but the same is not true for the domestic brokers.

In fact, a section of the brokers had also approached banks to provide loans to brokers for the interim period so that they can maintain their liquidity.

"The advantage of going through the depository is obvious. We are waiting for activity in the segment to catch on so that we can avail of the benefits," said an institutional broker.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.