Sebi eases disclosure requirements on shares encumbered for margin obligations

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September 2, 2020 10:31 PM

Under the takeover norms, shares taken by way of encumbrance is treated as an acquisition, while shares given upon release of encumbrance is treated as a disposal. Disclosures are required to be made in this regard by the entity concerned.

The decision has been taken after receiving representations from market participants, Securities and Exchange Board of India (Sebi) said in a circular.

Sebi on Wednesday said entities will not be required to make disclosures about shares encumbered with trading and clearing members by way of pledge or re-pledge in the depository system as part of improving the ease of doing business.

The decision has been taken after receiving representations from market participants, Securities and Exchange Board of India (Sebi) said in a circular.

“For ease of doing business, it has been decided that disclosures specified under… of the Takeover Regulations in relation to shares encumbered with TM/CM as a collateral from clients for margin obligation in the ordinary course of stock broking business are dispensed with,” market regulator Sebi said.

Under the takeover norms, shares taken by way of encumbrance is treated as an acquisition, while shares given upon release of encumbrance is treated as a disposal. Disclosures are required to be made in this regard by the entity concerned.

In February, the regulator issued guidelines on acceptance of collateral from clients in the form of securities by a TM (Trading Member) or CM (Clearing Member) only by way of margin pledge created in the depository system.

The new mechanism on ‘pledge and re-pledge’ came into force from September 1.

Under the framework, trading members or clearing members will require to align their systems and accept client collateral and margin-funded stocks by way of creation of pledge and re-pledge in the depository system.

Depositories should provide “margin pledge” for pledging clients’ securities as margin to the TM or CM. The latter should open a separate Demat account for accepting such margin pledge, which should be tagged as “client securities margin pledge account”.

To provide collateral in the form of securities as margin, a client will be required to pledge securities with TM, and TM will re-pledge the same with CM, and CM, in turn, will re-pledge the same to clearing corporation.

The complete trail of such re-pledge will be reflected in the Demat account of the pledgor.

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