SEBI issues clarification on Collection and Reporting of Margins by Trading Member / Clearing Member in Cash Segment [Read Circular]

The Securities Exchange Board of India (SEBI) has clarified the issues regarding the Collection and Reporting of Margins by Trading Member (TM) / Clearing Member (CM) in Cash Segment.

SEBI had issued circulars previously stating that the ‘margins’ for the collection of margins from clients and reporting of short collection / non-collection of margins by Trading Member /Clearing Member shall mean VaR margin, extreme loss margin (ELM), mark to market margin (MTM), delivery margin, special/additional margin or any other margin as prescribed by the Exchange to be collected by TM/CM from their clients. Henceforth, like in the derivatives segment, the TMs/CMs in the cash segment are also required to mandatorily collect upfront VaR margins and ELM from their clients. The TMs / CMs will have time till ‘T+2’ working days to collect margins (except VaR margins and ELM) from their clients. (The clients must ensure that the VaR margins and ELM are paid in advance of trade and other margins are paid as soon as margin calls are made by the Stock Exchanges / TMs / CMs. 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. If TM / CM collects a minimum 20% upfront margin in lieu of VaR and ELM from the client, then the penalty for short-collection / non-collection of margin shall not be applicable

In view of the representations received with regard to levy of penalty for non-collection of “other margins” (other than VaR and ELM) on or before T+2 days from clients by TM / CM, the following clarifications have been made :

• If pay-in (both funds and securities) is made by T+2 working days, the other margins would be deemed to have been collected and penalty for short / non-collection of other margins shall not arise.
• If Early Pay-In of securities has been made to the Clearing Corporation (CC), then all margins would deemed to have been collected and penalty for short / non-collection of margin including other margins shall not arise.
• If the client fails to make pay-in by T+2 working days and TM / CM does not collect other margins from the client by T+2 working days, the same shall also result in levy of penalty as applicable.

SEBI has also reiterated that CC shall continue to collect upfront VaR plus ELM and other margins from TM / CM as applicable from time to time.