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.
Margin, in market parlance, is the minimum fund or security an investor is required to pay to the stock broker before executing a trade. This is basically part of the money collected by bourses from brokerages as upfront, before giving exposure for trading in equity and commodity derivatives.
TM or CM would have time till T+2 (trading day plus two) working days to collect margins from their clients.
"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," Sebi had said.
TMs and CMs would be exempted from collecting upfront margins from the institutional investors carrying out business transactions and in cases where early pay-in of securities is made by the clients.