Sebi extends deadline for new margin collection norms by a month

Penalty provision for short-collection, non-collection of upfront margins in cash segment will be implemented effective Sept 1, says regulator

The Securities and Exchange Board of India (Sebi) has pushed the deadline by a month for implementing the new framework pertaining to margin collection by brokers from their clients.

“The penalty provision for short-collection or non-collection of upfront margin in cash segment shall be implemented with effect from September 1, 2020,” the regulator said in a circular on Friday. According to an earlier circular, the new norms were to kick in from August 1. The markets regulator has also eased the norms for collection of margins.

“If a trading/clearing mem­ber (TM/CM) collects minimum 20 per cent upfront margin in lieu of VaR and ELM fr­o­m the client, then penalty for short-collection or non-collection of margin shall not be applicable. However, it is reit­era­ted that clearing corporation shall continue to collect the upfront margin from the TM/CM based on VaR and ELM,” Sebi said. VaR is value at risk margin and ELM is extreme loss margin. This differs from different stocks and is used for the margin a client has to pay for dealing in a particular stock.

In a circular dated July 20, Sebi had said brokers upfront margins will be increased to 70 per cent of VAR+ELM in three phases by August 2021.

Many brokers have voiced their concerns saying that the strict margin collection norms will put an end to leveraged intra-day trading.

“Going ahead, brokers won't be able to offer intraday margins beyond VAR+ELM. This could result in huge reduction in intraday turnover, which is almost 90 per cent of all turnover. Excess intraday margin provided could result in margin penalty,”said Jimeet Modi, Founder & CEO, Samco Group.

Modi said currently about a third of the turnover is due to additional leverage provided by brokers.  He said the trading turnover could reduce by up to 20 per cent due to Sebi’s tightening.

Industry body ANMI had written to exchanges, Sebi and finance ministry seeking dilution of norms.

Sebi has said the relaxations issued on Friday were “in view of the representations received from investors, TMs/CMs and stock  broker associations.”