Sebi extends deadline till Feb 28 on segregation, monitoring of collateral at client level

By: |
November 23, 2021 7:49 PM

The move came in the wake of the Karvy Stock Broking crisis where clients' shares had been pledged illegally as collateral against loan.


Markets regulator Sebi on Tuesday extended the deadline till February 28 to comply with certain framework related to segregation and monitoring of collateral at client level. Earlier, the deadline was given till December 1. The Securities and Exchange Board of India (Sebi) in July came out with guidelines for segregation and monitoring of collateral at the client level amid instances of misuse of client collateral by trading members.

The move came in the wake of the Karvy Stock Broking crisis where clients’ shares had been pledged illegally as collateral against loan.

On the basis of representations received from stakeholders, it has been decided that certain framework will come into force with effect from February 28, 2022, instead of December 1, 2021, Sebi said in a circular. The guidelines related to collateral deposit and allocation, collateral valuation, change of allocation, blocking of margin, withdrawal of collateral and default management process will become effective from the new deadline.

In July, Sebi said that in case of securities collateral provided to CC through margin pledge or re-pledge in the depository system, clearing corporation (CC) has visibility of the client to whom such securities belong to, and accordingly is able to assign the value of the securities collateral, based on applicable haircut, to that client’s account.
Similarly, for other forms of collateral placed with the CC, the CCs will provide a facility to CMs for upfront segment-wise allocation of collateral to a TM/ client or CM’s own account.

The CCs will use such collateral allocation information to ensure that the collateral allocated to a client is used towards the margin obligation of that client only. Also, certain provisions put in place by the regulator in July related to the reporting mechanism and the web portal facility came into effect from October 1.

The regulator had asked clearing corporations to specify a reporting mechanism that will provide visibility of client-wise collateral, covering both cash and non-cash, at both the broker and clearing corporation level. The reporting structure should entail disaggregated information both segment-wise and asset type wise break-up of each client collateral.

Sebi had said the web portal facility should be provided by the stock exchanges to allow clients to view the disaggregated collateral reporting by brokers. Segregation of client collateral refers to the procedures that enable identification and protection of client collateral from misuse by trading or clearing member and protection from default of such member or other clients.

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