Sebi directs exchanges to implement a framework to monitor margins

The Securities and Exchange Board of India (Sebi) has refused to tweak its new regulations on margin requirements, and has also directed exchanges to implement a framework to monitor margins maintained by clients for intra-day trades, in both the derivatives as well as cash segments

It has given the bourses a month for implementation of the new monitoring mechanism. According to two people familiar with the development, the Association of National Exchanges Members of India, the Bombay Stock Exchange Brokers’ Forum (both representing brokers),  along with exchange officials. met Sebi on Wednesday. 

However, the regulator made it clear that margin requirements would apply to intra-day trades, and directed the exchanges to introduce peak margin reporting within a month to ensure that clients maintain the upfront margin requirements for intra-day trades too.

The move is likely to have a wider impact on volumes in the futures & options (F&O) segment, in which leveraged intra-day trades had been a common practice. 

“Earlier, there was an ambiguity in the F&O segment, where margin reporting needed to be done only at the end of the day,” said one of the people familiar with the development. Due to this grey area, a large segment of brokers offered additional leverage to clients looking to participate in intra-day trades. 

However, in the coming days, brokers may propose an intra-day product to Sebi, in which margins could be offered to clients using brokers’ own funds. 

People in the know say Sebi will take a final call on whether such a product can be allowed.  

In the cash segment too, Sebi stuck to its stance during Wednesday’s meeting. The new norms will ensure that clients maintain upfront margin before taking delivery of stocks. 

Earlier, it was not uncommon for brokers to allow clients to take delivery without upfront margins. 

The new margin norms will also apply to sell delivery trades where brokers don’t have the ‘Power of Attorney’ on clients’ accounts.

People in the know have suggested that exchanges could be allowed to give some operational flexibility in the cash segment. 

“Giving leverage facility in the F&O segment had helped brokers attract retail traders, who wanted to place intra-day trades but didn’t have enough funds to meet margin requirements,” said an executive of a broking house.

According to industry data, the futures segment accounts for 10-15 per cent of the market volume, while the options segment accounts for 80-85 per cent.

In the last few months, the markets regulator has brought in several norms to tighten practices in the broking industry. 

On handling of client securities, Sebi issued a circular stating that brokers were required to ‘unpledge’ any client securities and sell them in the market if the dues were not cleared by clients.