The Securities and Exchange Board of India (Sebi) on Wednesday allowed securities funded through cash collateral to be considered as maintenance margin for margin trading facilities (MTF) in a bid to alleviate the burden of additional collateral, and promote ease of doing business.
If a broker receives cash collateral from a client as margin for margin trading and subsequently provides this cash collateral to the clearing corporation (CC) to fulfil the client’s settlement obligations, such cash collateral can be treated as maintenance margin, the circular said.
This applies only to the extent of securities received from the CC against the cash collateral provided, with those securities being pledged as funded stocks in favour of the trading member.
The new rules will come into effect from October 1.
Further, 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 (VaR) plus five times the Extreme Loss Margin, irrespective of whether they are available in the futures & options (F&O) segment.
Sebi clarified that stocks or units of Equity ETFs used as collateral with stock brokers for margin trading (referred to as collaterals) and the stocks or units of Equity ETFs acquired through margin trading (referred to as funded stocks) must be distinctly identifiable and must not be mixed when calculating the funding amount.
Additionally, the regulator has asked trading members to report their exposure under MTF by 6:00 PM on T+1 day (the day after the trade date).