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Photo: Mint

Sebi eases upfront margin collection norms

  • If brokers collect a minimum 20% upfront margin then a penalty for short collection or non-collection of margin shall not be applicable
  • Earlier in November 2019 Sebi mandated that even in cash segment the trading members and brokers would need to collect margins upfront from clients

MUMBAI : The Securities and Exchange Board of India (Sebi) has deferred penalty by a month for any short collection of upfront margin, a move that may provide some relief to stock brokers and traders. Also, if brokers collect a minimum 20% upfront margin then a penalty for short collection or non-collection of margin shall not be applicable, the market regulator said in a circular issued on Friday.

The relaxed framework will be applicable from 1 September.

This addresses one of the major concerns over buy today, sell tomorrow (BTST) trades, where a majority of brokers as a practice used to collect at least 40% margin.

Earlier in November 2019, with a view to reduce speculative trade and excess volatility, Sebi mandated that even in cash segment the trading members and brokers would need to collect margins upfront from clients, failing which the brokers would need bear penalties for any short collection. The rule came into effect 1 August, 2020 onward.

In a separate circular issued today, NSE said that securities in trading member's account will be considered as margin for sell trades. This effectively removes the restriction on proceeds from sale of shares on trade day."In respect of sale of shares by a client for which early pay-in has been accepted by CC (clearing corporation) since settlement of the trade is guaranteed by the CC, member may choose to give credit of the sale value of the shares in the ledger account of the client, which may be considered as margin towards subsequent trade/s of the client," the circular reads.

"After several representations from the broking community, a lot of the possible hardships have been corrected by the circulars issued by Sebi and NSE. A lot of the unintended adverse consequences have now been dealt with and the impact on investors will be far lower. The revised circulars now create a win win for all instead of earlier position which was a lose-lose for all market participants," said Jimeet Modi, CEO, SAMCO Securities.

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