Sebi’s decision to extend deadline for F&O margin norms to protect investors’ interest: Experts

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November 24, 2021 5:18 PM

Sebi's decision to defer the implementation of the 50 percent cash margin rule for future and options traders till February 28 will help market participants to adjust to the new process of segregation and monitoring, experts said on Wednesday.

SEBI, defer the implementation of the 50 percent cash margin, extension of the deadline, futures and options traders, Paytm Money CEO Varun SridharSEBI on Tuesday, extended the deadline till February 28, 2022, for the implementation of the 50 percent cash-margin rule for futures and options traders.

Sebi’s decision to defer the implementation of the 50 percent cash margin rule for future and options traders till February 28 will help market participants to adjust to the new process of segregation and monitoring, experts said on Wednesday. The move was welcomed by market participants, as they were seeking for extension of the deadline due to operational issues.

The regulator, on Tuesday, extended the deadline till February 28, 2022, for the implementation of the 50 percent cash-margin rule for futures and options traders. The earlier deadline was December 1, 2021. ”Based on representations received from stakeholders, it has been decided that the provision of earlier circular come into force with effect from February 28, 2022, instead of December 01, 2021,” Sebi said.

Paytm Money CEO Varun Sridhar said this is a good move by Sebi as this will help the market participants, including MIIs, to test and stabilize the system developed by them for the new process of segregation and monitoring. Investor education towards the implication of new rules will be very important, and investors will also be able to adjust to the new requirements gradually, he added.

For trading in the futures and options (F&O) segment, the earlier margin rules allowed investors to cover their margins entirely with their securities. However, from February 28, 2022, clearing members will be required to maintain at least 50 percent of the total collateral in the form of cash or cash equivalents. Clearing members (CM) guarantee trade settlement to stock exchanges on behalf of clients.

For monitoring at least 50 percent cash-equivalent collateral at the level of clearing member, the excess cash-equivalent collateral of a client will not be considered for other clients or proprietary accounts of trading or clearing member. Welcoming Sebi’s decision, Vijay Singhania, Chairman, TradeSmart, said that the major issue in the implementation of the rule is the lack of practicality.

”Sebi circular requires segregation of client funds in different segments like cash, F&O, currency, etc., and to upload the same to clearing corporation/ PCM. It is practically not possible,” he said.

Further, he said that brokers are supposed to maintain a combined ledger for all segments for a client, and the client can trade in any segment based on the combined ledger balance. In all fairness, there should be only one combined consolidated margin for each client instead of segregating the same into segments. ”Besides funds, the segregation of securities given by the clients among different segments is a bigger problem. Segregation of securities by way of pledge by the client and re-pledge by a broker to clearing corporation for each segment will become a huge exercise,” Singhania said.

He, further, said the exercise will be bigger if the broker is dealing through clearing members, as one more layer of pledging and re-pledging is increased. ”The position worsens when we ask the client/investor to keep peak margin as well. A particular client may have a peak margin requirement in one segment at one time, while he /she may have the peak margin requirement in another segment at some other time during the same day. So, while he/she has the adequate margin, he/she may be penalized for no reason,” he added.

Ashish Chaturmohta, Director Research, Sanctum Wealth, said that Sebi has made a nice move by shifting the dates to a few months later, as people had made investments across IPOs, mutual funds, equity, and derivatives, and so on. These positions are majorly leveraged as currently, markets are looking very attractive in terms of returns, keeping in mind the risk-return aspects, he said.

”This rule would have hampered the trading activities as several positions across various asset classes would witness a sell-off. Hence, this decision would give time to people to manage their trading activities,” he added.

(This story has not been edited by Devdiscourse staff and is auto-generated from a syndicated feed.)

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