In a significant shift aimed at easing trading practices and benefiting investors, the Securities and Exchange Board of India (SEBI) has issued new guidelines concerning the Margin Trading Facility (MTF). The latest circular, CIRCULAR SEBI/HO/MRD/MRD-PoD-2/P/CIR/2024/118 dated on September 11, 2024, introduces key amendments to existing regulations, particularly focusing on the use of cash collateral.
SEBI's decision comes in response to various representations received from market participants through the Industry Standards Forum (ISF). These stakeholders advocated for a relaxation of the rules stipulated in the Master Circular dated October 16, 2023, specifically regarding the use of cash collateral for margin trading.
Key Amendments:
1. Use of Cash Collateral as Maintenance Margin:
The revised regulation now permits securities funded through cash collateral to be considered as maintenance margin for Margin Trading Facility (MTF). This change aims to alleviate the burden on investors who have been required to provide additional collateral.
According to the updated rule, stocks or units of Equity ETFs deposited as collateral with a stock broker for margin trading, and stocks or units purchased under the margin trading facility, must be separately identifiable. There will be no commingling allowed for computing the funding amount.
2. Modification in Maintenance Margin Calculation:
If a broker collects cash collateral from a client and subsequently deposits it with the Clearing Corporation (CC) for settlement obligations, this cash collateral can now be used as maintenance margin. The maintenance margin will be based on the securities received from the CC against the cash collateral, provided that these shares are pledged in favor of the trading member as funded stock.
3. New Clause on Funded Stock:
A new clause (4.3.3.5) has been added to the SEBI Master Circular. It stipulates that if funded stocks are considered towards maintenance margin, they must be classified under Group 1 securities. The applicable margin will be Value at Risk (VaR) plus five times the Extreme Loss Margin, regardless of whether the funded stock is available in the Futures and Options (F&O) segment.
4. Extended Reporting Time:
The reporting deadline for exposure under MTF has been extended. Trading members now have until 6:00 PM on T+1 day to report their exposure, a change from the previous reporting time.
The new regulations will come into effect on October 1, 2024. SEBI has issued this circular under the powers conferred by Section 11(1) of the Securities and Exchange Board of India Act, 1992, with the aim of protecting investor interests and enhancing the ease of doing business in the securities market.
Comments