Lc Gupta Panel Suggests Strict Margin Regime

The L C Gupta panel set up by the Securities and Exchange Board of India for drafting regulations for derivatives trading has decided to have stringent norms for collection of margins.

The committee has appointed a draft group of five members of the L C Gupta panel.

This group met yesterday at the Securities and Exchanges Board of India office and thrashed out issues related to modalities involved in margin collection for derivatives trading.

L C Gupta said a section of the market players were apprehensive about the introduction of derivatives trading in the country as they feel foreign institutional investors would dominate this trading segment.

 

Gupta said: "The committee will meet leading financial institutions, non-banking financial institutions , mutual funds and market players on May 20 to allay apprehensions.

A detailed questionnaire will be circulated and feedback sought.

The committee is of the opinion that the lack of knowledge about derivative trading has led to such fears."

On the issue of margins to be collected by the clearing corporation, Gupta said: "Funds collected through margins have to be maintained separately by the clearing corporation."

However, he declined to comment on the specific regulations that would be included in the draft report on margin collection.

A view expressed in the meeting was that the regulator should conduct inspections to confirm that margin payments are being calculated as claimed, and actually being charged to members.

It is expected that the clearing house must charge initial margin using a "portfolio approach" to measure risks.

This was discussed at length in the meeting.

It was observed by the committee that in India, the banking system is unable to move funds swiftly.

A situation may arise where a broker may pay the initial margin after the position is adopted. This is unsafe for the clearing house.