Sebi allows cross margining to institutions in cash, derivatives

Written by Markets Bureau | Mumbai, May 5 | Updated: May 6 2008, 06:01am hrs
After margining of institutional trades in the cash market, the Securities and Exchange Board of India (Sebi) has allowed cross margining across cash and derivatives markets. Initially, this facility will be extended only to the institutional investors.

After extending the facility of direct market access (DMA) to the institutional investors, this is another positive step Sebi has taken for the institutional investors in the recent past.

In a circular issued on Monday, Sebi said, "In order to improve the efficiency of the use of the margin capital by market participants and as an initial step towards cross margining across cash and derivatives markets, margins shall be levied on cash market positions which have off-setting stock futures positions in the derivatives market."

Sebi said that going ahead, the facility of cross margin would be available initially for institutional trades and for positions in cash market having corresponded off-setting positions in the stock futures market. For positions in the cash markets, VaR margin shall not be levied on the cash market position to the extent of the offsetting stock futures market position, Sebi said. However, Sebi said, extreme loss margin and market to market margin would continue to be levied on the entire cash market position and there will be no change in the F&P positions.

Sebi also clarified that stock futures position in the current month due for expiry before three days will not be eligible for the cross margining benefit.

Brokers park certain funds in advance with the exchanges/clearing corporations for the margining purpose so that in the event of their exposure shooting up suddenly does not require them to arrange for the margins at the last minute.