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Mumbai: In a bid to promote ease of doing business, capital markets regulator Securities and Exchange Board of India (Sebi) has allowed securities financed through cash collateral to maintain margin for margin trading facility (MTF).
This decision will help reduce the burden of additional collateral for margin while maintaining the margin trading facility. SEBI has made this change after market participants suggested easing the requirement related to margin trading facility through the Industry Standard Forum (ISF).
SEBI has said through a circular that it will be mandatory for brokers to segregate shares or units of equity exchange traded funds (ETFs) deposited as collateral and those purchased for the purpose of margin trading. These two types should not be mixed for calculating the funding amount.
If the broker has collected cash collateral in the form of margin from a client to facilitate margin trading and the trading member has delivered the cash collateral to the Clearing Corporation (CC) for settlement of the liability of the said client, it would be treated as maintenance of margin, Sebi said.
If the broker collects cash collateral from the client and uses it to meet settlement obligations with the clearing corporation. Hence the resultant securities received from the clearing corporation can be considered as margin maintenance. These securities must be pledged in favour of the broker.
SEBI has further stated that if funded stock is used as maintenance margin against cash collateral provided by the client, the funded stock should be from Group A securities.
The margin for these stocks will be five times the value at risk (VaR) and the extreme loss margin, even if they are available in the futures and options (F&O) segment. Further, regulator Sebi has asked trading members to report their exposure under MTF by 6:00 pm on T plus one.