Brokers to pay penalty for not collecting margin

Market regulator Sebi today asked stock exchanges to impose heavy penalty on brokers allowing their clients to trade in derivative market without sufficient
margin money and said that fines could be as high as the shortfall of funds.

While the minimum penalty is 0.5% of the shortfall of margin money, the penalty could be as high as 100%, the Sebi said in a circular. The stock exchanges will have to impose the penalties from September 1, the circular of Securities and Exchange Board of India (Sebi) said, adding, this is being done to protect investor interest and promote development of securities markets. "In consultation with the BSE, MCX-SX, NSE and USE, it has been decided that stock exchanges shall levy penalty on trading members for short or non collection of margins from clients in equity and currency derivatives segments," it said. The higher limit of exposure allowed by a broker to its clinet in the derivate market is the margin money. According to the Sebi norms, clearing members and trading members are required to collect initial margins from all their
clients and required to report on a daily basis details in respect of such margin amounts due and collected.  In derivative market if the price of a product declines, then the client comes under margin pressure. "Sebi is ensuring that collection of margin money is
synchorinsed with the trade and done without any time lag to avoid any systemic default," SMC Global Head Research Jagannadham Thunuguntla said.  The regulator said that if short/non-collection of margins for a client continues for more than three consecutive days, then penalty of 5% of the shortfall amount shall be levied for each day. If it takes place for more than five days in a month, then penalty of 5% of the shortfall amount shall be levied for each day, during the month, it added.