Sebi relaxes upfront margin framework

New Delhi: In a relief to brokers and traders, markets regulator Sebi on Friday said penalty for short-collection will not be applicable if trading members collect at least 20 per cent upfront margin from the client. The decision has been taken after receiving representations from investors, trading members (TMs) or clearing members (CMs) and stock broker associations.

"If TM/ CM collects minimum 20 per cent upfront margin in lieu of VaR (value at risk) and ELM (extreme loss margin) from the client, then penalty for short-collection/ non-collection of margin shall not be applicable," Sebi said in a circular.

Samco Group founder and CEO Jimeet Modi said the inclusion of this rule shall mean that no penalty shall be applicable in cases where margin was actually collected and is more than 20 per cent. "Genuine cases will get exempted from margin penalty."

However, the regulator reiterated that clearing corporation will continue to collect the upfront margin from the TM/CM based on VaR and ELM.

The regulator said penalty provision for short-collection or non-collection of upfront margin in the cash segment will be implemented with effect from September 1, 2020.

Earlier this month, stock brokers' association Anmi wrote to Sebi expressing concern on the margin collection framework in the cash segment saying it will cause hardship to brokers and their clients.

It had expressed concerns on the methodology of levy of margins on the sale positions resulting in deliveries, margins on square up of open positions and margins on securities intended to be delivered on T+2 day.

The Securities and Exchange Board of India (Sebi) in November said trading and clearing members should compulsorily collect upfront certain margins from their clients in the cash segment.