Brokers to discuss raising their collateral

BROKERS meet today to discuss increasing the security collateral of brokerages — which hasn’t changed since the market was dabbling in maximum volumes of two million pounds daily.

The brokers association, which is responsible for the financial clearing of transactions, is worried that with a dearth of new people entering the profession it may be impossible to keep tabs on financial obligations of CSE members.

Traders said yesterday the CSE avoided getting involved in the issue because they were "worried at the financial repercussions to them," according to one broker. In other countries the responsibility is undertaken by the respective bourses.

Brokerages now have a security collateral of £25,000, claimable if they fail to honour their financial obligations. That figure was imposed more than three years ago, when volumes at the stock market barely exceeded two million pounds a day and the number of brokers in the profession was considerably less.

"What we tried to do was function on a basis of my word is my bond…. With the continuous entry of new people into the profession we are talking about millions of pounds in deals. We are bouncing the idea of increasing the security collateral," said Stavros Agrotis, vice-chairman of the brokers’ association.

He added, however, that occasions where other members failed to pay into the financial clearing system were few and very isolated.

However, another broker said the situation could cause turmoil because there were cases where some brokerages extended credit to their clients. A default could spill over and cause serious complications.

In those cases, a £25,000 collateral would barely meet a fraction of financial requirements on a market where the average turnover is 30 million a day.

"It is very risky and it is a miracle that we haven’t had any hiccup yet," said trader Neophytos Neophytou.

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