Sebi modifies the framework on margin trading facilities

To promote ease of doing businessMarkets regulator Sebi on Wednesday allowed securities funded through cash collateral to be considered as maintenance margin for margin trading margin trading facility (MTF). The measure will also help alleviate the burden of additional collateral for the margin trading facility maintenance margin.

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 regarding margin trading facility.

In a circular, Sebi said stocks or units of equity Exchange-traded funds (ETFs) deposited as collateral with brokers and those purchased through margin trading should be kept separate. Neither of these two types should be mixed when 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 provided such cash collateral to the Clearing Corporation (CC) for settlement obligation of such client, then the same can be considered as maintenance margin,” Sebi said.

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

Sebi said that if the financed shares are to be used as maintenance margin based on the cash collateral provided by the client, the financed shares should be Group 1 securities. The margin for these shares will be the Value in Risk (VaR) plus five times the extreme loss margin, regardless of whether they are available in the futures and options (F&O) segment. In addition, the regulator has asked members who carry out trades to report their exposure under MTF by 6:00 pm on day T+1 (the day after the trade date).