Sebi May Give Fis Two Options

The Securities and Exchange Board of India (Sebi) is planning to give an option to institutions to either pay flat margins or move to rolling settlements. The regulator is keen to ensure that the fall-out of the move to put margins on institutions would be a shift of these investors to rolling settlements, which Sebi is now keen to promote to remove excessive volatility from the markets.

This is among a series of issues which are expected to be discussed when Sebi meets institutions on Thursday on its proposed move of margining them. The meeting is expected to be a stormy one as institutions have given a feedback to the regulator over the past couple of days that they are not happy with the regulator's decision.

 

Even if the institutions do not take the option, Sebi feels that eventually the margins would be much lower in rolling settlements mode which would push institutions automatically to this form of settlement owing to the flat margin being proposed for them.

In past meetings, stock exchanges have suggested to Sebi that they should either ask institutions to pay margins or trade in rolling settlement mode where they could continue not to pay margins.

The regulator which is meeting institutions, brokers and custodians on Thursday, realises that in terms of actual amount of margins collected from institutions as and when they do come under the ambit of margins, will not be too significant as compared to the margins collected right now from the rest of the market.

The intention is more to create a level playing field rather than looking at this mode as one which would enhance fund collection in the form of margins.

Sebi sources said that in terms of money, it would not mean more than a Rs 100-200 crore extra margin collection if margins are charged at a flat 10 per cent on institutions. This would be very minute compared to the current margin collection of Rs 6,000 crore and more.

What the regulator appears more keen on doing is to ensure that institutions start moving to rolling settlement mode of transactions. There is already a separate rolling settlement segment at stock exchanges for all scrips but this has remained dried-up owing to the regulator not making it mandatory for all investors.Sebi will be shortly coming out with a set of margin norms for rolling settlements and the margins payable here would be lower than that on the account period settlement mode.

"If the contention of institutions is that this (margins) would increase their cost of transactions, then they could trade on rolling settlement mode where the margins for them could be exempted or in any case would be much lower," said a Sebi source.

It will be remembered that even in the case of dematerialisation, compulsion had been first brought in for institutions and then extended to other investors. Here, it would not be so simple as there are fears of the market getting segmented.