Sebi tweaks margin trading facilities' framework to ease collateral burden

To promote ease of doing business, markets regulator Sebi on Wednesday allowed securities funded through cash collateral to be considered as maintenance margin for margin trading facility (MTF).

The move will also help alleviate the burden of additional collateral towards the maintenance margin for the margin trading facility.

The development took place after the Securities and Exchange Board of India (Sebi) received representations from market participants through the Industry Standards Forum (ISF) to relax the requirement pertaining to the margin trading facility.

In a circular, Sebi said stocks or units of equity exchange-traded fund (ETFs) deposited as collateral with the brokers and those purchased using margin trading must be kept separate. There should be no mixing of these two types for calculating the funding amount.

"In case the broker has collected cash collateral from the client in the form of margin for availing margin trading facility and the trading member has given the said cash collateral to the Clearing Corporation (CC) towards settlement obligation of the said client, then the same can be considered as maintenance margin," Sebi said.

If a broker collects cash collateral from a client and uses it to meet settlement obligations with the Clearing Corporation the resulting securities received from CC can be considered as maintenance margin. These securities must be pledged in favour of the broker.

Sebi said if funded stocks are used as maintenance margin based on cash collateral provided by the client, the funded stocks must be from Group 1 securities. The margin for these stocks will be Value at Risk (VaR) plus five times the Extreme Loss Margin, irrespective of whether they are available in the Futures & Options (F&O) segment.

Additionally, the regulator has asked trading members to report their exposure under MTF by 6:00 PM on T+1 day (the day after the trade date).