SEBI Allows Cash-Collateral Securities For Margin Trading, Eases Requirements

The Securities and Exchange Board of India approved on Wednesday using securities funded by cash collateral as part of the maintenance margin for margin trading to promote ease of doing business.

The move will also mean to help ease the burden of additional collateral towards the maintenance margin for the margin trading facility.

This change came after SEBI received requests from market participants through the Industry Standards Forum to ease the margin trading requirements.

SEBI's circular specifies that stocks or exchange-traded funds used as collateral with brokers and those bought through margin trading must be kept separate and not mixed when calculating funding amounts.

"In case the broker has collected cash collateral from the client in the form of margin for availing margin trading facility and the trading member has given the said cash collateral to the Clearing Corporation (CC) towards settlement obligation of the said client, then the same can be considered as maintenance margin," SEBI said.

If a broker takes cash collateral from a client and uses it to fulfill settlement obligations with the Clearing Corp., the securities received from the Clearing Corp. can be used as maintenance margin. These securities must be pledged to the broker.

SEBI said if funded stocks are used as maintenance margin based on cash collateral provided by the client, the funded stocks must be from Group 1 securities. The margin for these stocks will be value at risk, plus five times the extreme loss margin, irrespective of whether they are available in the futures and options segment.

Additionally, the regulator has asked trading members to report their exposure under margin trading funds by 6 p.m. on T+1 day (the day after the trade date).

(With Inputs From PTI)