Brokers urge Sebi to review 'harsh' 100% penalty on margin reporting

Industry body Anmi writes to market regulator seeking leeway

Brokers have urged Securities and Exchange board of India (Sebi) to review the penalty structure on margin reporting. The market regulator has directed exchanges to levy stringent penalty of up to 100 per cent, along with suspension of trading, on false reporting of client margins by brokers.

The industry body Association of National Exchanges Members of India (Anmi) has written to the regulator asking for leeway.

"We are of the strong opinion that 100 per cent penalty for mis-reporting is very harsh and not required in all instances of false margin reporting," Anmi has said in a letter to Sebi.

Sebi has asked exchanges to impose heavy penalties on brokers that allow their clients to trade in the derivative market without sufficient margin money. While the minimum penalty is 0.5 per cent of the shortfall of margin money, the penalty could be as high as 100 per cent, it had said.

However, the industry body is of view that there could be some genuine errors at the time of margin reporting which need to be kept separate.

"It is astonishing that the circular does not envisage any kind of discretion while levy penalty which may vary in view of the facts and circumstances of each and every case, said one of the brokers who is the member of the Anmi.

It further said that Sebi should reconsider the penalty structure and impose harsh penalty on those who are misusing client's funds for funding other clients not on the genuine and technical errors.

According to the Sebi norms, clearing members and trading members are required to collect initial margins from all their clients and are required to report on a daily basis detail of such margins.

Sebi's latest tightening of the reporting structure is aimed at curbing misuse of client funds by brokers and also to clamp down on speculative trading in the derivatives segment.