SEBI clarifies on Collection and Reporting of Margins by Trading Member (TM) / Clearing Member (CM) in Cash Segment.

On September 15, 2020, the Securities Exchange Board of India (SEBI) issued a circular for clarifying the issue related to the Collection and Reporting of Margins by Trading Member (TM) / Clearing Member (CM) in Cash Segment.

Previously on the dates of November 19, 2019, and July 31, 2020, also SEBI has regarding the same issue, in which it has mentioned about the ‘margins’ for this purpose shall mean VaR margin, extreme loss margin (ELM), mark to market margin (MTM), delivery margin, special/additional margin or any other margin as prescribed by the Exchange to be collected by TM/CM from their clients.

It also stated in the November 19, 2019 guideline, “Henceforth, like in the derivatives segment, the TMs/CMs in the cash segment are also required to mandatorily collect upfront VaR margins and ELM from their clients. The TMs / CMs will have time till ‘T+2’ working days to collect margins (except VaR margins and ELM) from their clients. (The clients must ensure that the VaR margins and ELM are paid in advance of trade and other margins are paid as soon as margin calls are made by the Stock Exchanges / TMs / CMs. The period of T+2 days has been allowed to TMs / CMs to collect margin from clients taking into account the practical difficulties often faced by them only for the purpose of levy of penalty and it should not be construed that clients have been allowed 2 days to pay margin due from them.)“

Also, SEBI said in its circular of July 31, 2020, that “If TM / CM collects a minimum 20% upfront margin in lieu of VaR and ELM from the client, then the penalty for short-collection / non-collection of margin shall not be applicable.“

Given the representations received concerning about the levy of penalty for non-collection of “other margins” (other than VaR and ELM) on or before T+2 days from clients by TM / CM, these clarifications were made :

1. If pay-in (both funds and securities) is made by T+2 working days, the other margins would be deemed to have been collected and the penalty for short / non-collection of other margins shall not arise.
2. If Early Pay-In of securities has been made to the Clearing Corporation (CC), then all margins would be deemed to have been collected and the penalty for short / non-collection of margin including other margins shall not arise.
3. If the client fails to make pay-in by T+2 working days and TM / CM does not collect other margins from the client by T+2 working days, the same shall also result in levy of penalty as applicable.

Also, SEBI reiterated that CC shall continue to collect upfront VaR plus ELM and other margins from TM / CM as applicable from time to time and has said that it has issued this circular to protect the interests of investors in securities and to promote the development of, and to regulate the securities market.

With Warm Regards,

CL Bureau.