The modalities of payment of margins for trades made by foreign institutional investors (FIIs) are expected to be worked out on the lines of the exposure limit granted to domestic stock brokers by the stock exchanges (SEs). Sources close to the development said, the Securities and Exchange Board of India (Sebi) does not have any problem with the idea.
It may be recalled here that Sebi has made it mandatory for the institutional players to pay margins for the trades carried out by them on a T+1 basis from April 21 in the first phase. In phase II, Sebi wants these institutional players to pay the margins upfront from June 16, 2008.
The regulator has made it very clear that it is in no mood to relax this deadline as it feels institutional investors have been given enough time (five weeks) to implement the phase I and given three months for the next phase. The FIIs have been reluctant to pay margins, particularly in cash.
The SEs fix the exposure limit of the stock broker on the basis of the base minimum capital (BMC) deposited by the member broker with the exchange. Based on the value of BMC, the stockbroker is granted the exposure limit, which may vary from five to seven times the BMC deposited with the exchange. The BMC includes stocks in the name of the broker, receipts of the fixed deposits maintained by the broker with various banks, cash deposits and other related instruments as recognised by the respective exchanges from time to time.
According to sources, the SEs and the representatives of the FIIs, the custodians, have undertaken a series of meetings to sort out the issue of payment of margins.
A preferred option is payment of margins on the lines of the exposure limit granted to brokers on the basis of BMC. The argument here is that
FIIs hold shares in their names, a part of which can be deposited with the exchanges in the form of margins. This move will solve the problem partly as only balance margins will have to be paid by FIIs in cash.
Though no formal decision has been taken on the issue, the regulator seems to be comfortable with the idea. TC Nair, whole-time member, Sebi, told FE, ?No formal decision has been taken in this regard. But the issue is expected to be sorted out sooner than later.?
However, Sebi sources familiar with the development said, ?The regulator has taken a policy decision to level the playing field between the retail and the institutional investors. Now, how to collect the margins from the institutional investors is a call that exchanges will have to take. Sebi does not come into the picture. However, it is open to any idea, where its main objective of levelling the field is met.?
Sources say it is not the FIIs but the custodians who are making a hue and cry. ?The custodians are already taking full payment from their FII clients before undertaking any FII transaction on their behalf. If this is the situation, what stops them from paying margins (part of the entire transactio)?, the sources added.
However, the custodians could not be reached for their comment on the issue.