What's brewing at Prime Securities? The National Stock Exchange, India's largest bourse, has withheld payout to Mumbai-based stockbroker Prime Securities. Three persons familiar with the development told ET that the exchange and the capital market regulator are investigating unusual trades handled by the broker in shares of Gitanjali Gems.

Prime Securities, headed by N Jayakumar, owes more than Rs 80-100 crore to NSE in the equity derivatives segment, said a Sebi source. The exchange is, in turn, holding back payout to Prime and a few other traders and members who are believed to have dealt with Prime. The exchange authorities and Sebi are probing whether Prime was linked to any price manipulation in the spot and derivatives markets.

"There is a fear that Prime may default on its payments, which is why NSE has been holding back on payments that are due to some of Prime's clients," said a person. The stockbroker has moved the Securities Appellate Tribunal against NSE.

E-mails to NSE and Prime on June 24 and June 27 went unanswered till the time of going to press. When contacted over telephone, Jayakumar declined to comment.

Prime, said a senior broker, had built large positions in the futures & options segment on NSE against shares that were held as collateral by the exchange. Sebi officials, who have looked into Prime's dealings, said the trouble started a few months ago when many small and mid-cap stocks crashed. Even as the value of collaterals shrank, Prime was unable to chip in with additional shares or cash to replenish its margin with NSE. It is yet to fulfill the margin requirement.

Traders can play in the equity derivatives market with 30-40% margin, which can be in the form of stocks and/ or other liquid instruments approved by the exchange.

Prime Securities directly holds stakes in several listed small and mid-cap companies. Among the stocks (in Prime's portfolio) that have plummeted include Aanjaneya Lifecare (down 62%), Gitanjali Gems (down 60%) and Aarya Global (down 55%) since April 1.

Keywords:Prime Securities, National Stock Exchange,exchange , capital market, broker ,Gitanjali Gems, NSE , Sebi source, derivatives markets,collaterals shrank,Traders, mid-cap companies,Aarya Global ,Business news