The Securities and Exchange Board of India on 19th November 2019, has issued a circular on collection and reporting of margins by trade members/clearing members in cash segment in order to align and streamline the risk management framework of both cash and derivatives segments.
Highlights from the circular:
- Collection of margins from the clients by TM/CM in cash segment: The ‘margins’ shall mean VaR margin, extreme loss margin (ELM), mark to market margin (MTM), delivery margin, special or additional margin or any other margin as prescribed by the Exchange to be collected by TM or CM from their clients.
- The TMs/CMs in cash segment are also required to mandatorily collect upfront VaR margins and ELM from their clients.
- The members shall have time till T+2’(Trading day plus two) working days to collect margins from their clients.
- TM/CM shall be exempted from collecting upfront margins from the institutional investors carrying out business transactions and in cases where early pay-in of securities is made by the clients.
- If the TM or CM had collected adequate initial margins from the client to cover the potential losses over time till pay-in, he need not collect MTM from the client and the TMs and CMs have to report to stock exchange about the actual short-collection or non-collection of all margins from clients.
The Above provisions shall come into effect from 1st January 2020.
Further the circular has also mentioned the penalty structure that would also be in place to deal with instances of short-collection or non-collection of margins as well as for false or incorrect reporting of margin collection from the client by TMs and CMs.
The provisions of the penalty structure shall come into force with effect from April 01, 2020.
Click here to read the Notification.
