MC EXCLUSIVE SEBI weighs margin reduction in cash trades; key panel takes up proposal

MC Exclusive-SEBI reviewing margin on cash segment, may bring down margin, issue discussed in key panel meet

Market regulator Securities and Exchange Board of India (SEBI) has started discussions around reviewing and reducing the margin on cash segment trades, sources have confirmed to the Moneycontrol. As per the sources, a SEBI panel had discussed the issue with clearing corporations, brokers and other stakeholders in this regard recently. Though a final view is yet to be taken, as more study of data is required but discussion have formally started on the issue.

One market participant who attended the meeting, told Moneycontrol on the condition of anonymity that, “The view is, there should be fair margin but the discussion required more data sets, the issue will be taken again for further discussion”.

Currently the margin for cash segment trades includes the minimum margin of 20 percent in lieu of VaR (Value at Risk) margin and Extreme Loss Margin (ELM). VaR margin is collected to cover the maximum possible loss over a period of time due to volatility in market. Similarly, ELM or Extreme Loss Margin is additional margin charged by exchanges beyond normal margin requirements.

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One industry participant explained that, currently some stocks attract 15 percent margin but charged 20 percent margin. Similarly, there are stocks which are under 25 percent category but they are also charged 20 percent margin and there are various such combinations based on the price variation in the stocks.

As per second person aware of the issue under review, “The discussion in the committee was that the existing margin needs to be rationalised as its high, but the committee also wants to ensure that fair margins are collected to ensure that risk is well managed”.

The focus of the regulator is to increase the volume in cash segment. Though volumes have doubled in cash segment in last three years but when compared to equity derivatives its highly disproportionate.  SEBI Chairman, Tuhin Kanta Pandey on several occasions had mentioned that the regulator is looking to deepen the cash equities market. At FICCI CAPAM Event on August 21, Pandey stated, “Volumes in cash market have grown rapidly doubling in terms of daily traded volumes over a period of just three years. However much more needs to be done”.

At CNBC TV 18 Global Leadership Summit, on November 7, Pandey said, “We are focused on deepening our cash equities market to spur capital formation. An active Securities Lending and Borrowing scheme is critical for improving price discovery and facilitating interlinkage between the cash and derivatives segments”.

As per SEBI data the average daily turnover in cash market was Rs 39,148 crore in FY20 and increased to Rs 66,007 crore in FY21, in FY22 the numbers further increased to Rs 72,368 crore, FY23 saw a small dip and number was Rs 57,666 crore, in FY 24 the number jumped to Rs 87,978 crore and by FY25 the number further jumped to Rs 1,20,782 crore. The number is expected to go further in current financial year.

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As per sources, SEBI had received wide range of suggestions on the ways to further deepen the cash market volume in equity segment. As per sources, the suggestions received include promoting stock lending and borrowing mechanism, promoting Exchange Traded Funds (ETFs), reduction or removal of Securities Transaction Tax (STT) on cash market intra-day trades etc besides reducing margin on cash segment trades,

Moneycontrol had reported earlier this month that, SEBI has sought inputs from stakeholders on ways to deepen the cash market. After collecting the views from stakeholders, the proposal was presented before the SEBIs advisory committee and issue was put up for deliberation.

An email sent to SEBI on the issue did not elicit any response.

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