In a significant move aimed at enhancing risk controls in India’s capital markets, the Securities and Exchange Board of India (SEBI) issued a new circular on April 28, 2025 mandating a tighter timeline for the collection of margins by trading and clearing members in the cash segment. This directive aligns margin collection timelines with the current T+1 settlement cycle and revises relevant provisions in SEBI’s Master Circular for Stock Brokers.
The Regulatory Context
Historically, trading members (TMs) and clearing members (CMs) were required to collect upfront Value at Risk (VaR) margins and Extreme Loss Margins (ELM) from clients before executing trades. Other applicable margins were permitted to be collected up to T+2 working days. However, with the industry-wide transition to a T+1 settlement cycle effective from January 27, 2023, the previous timeline was increasingly seen as misaligned with the new faster settlement regime.
Responding to industry feedback, particularly from the Brokers’ Industry Standards Forum (ISF), SEBI has decided to revise this timeline. From now on, all margins (except VaR and ELM) must be collected by the settlement day, i.e., T+1.
Key Changes to the Master Circular
SEBI’s April 2025 circular brings several important modifications to Paragraph 39 of the Master Circular for Stock Brokers:
- Margin Collection Deadline Adjusted to Settlement Day: TMs and CMs must now ensure that all margins (other than upfront VaR and ELM) are collected from clients by the settlement day (T+1). While clients are still required to pay VaR and ELM before placing trades, the collection window for remaining margins has been shortened.
- Deemed Margin Collection on Timely Pay-In: If clients make a complete pay-in of funds and securities by the settlement day, other margins will be considered as “deemed to have been collected.” In such cases, no penalty will be imposed for short or non-collection of margins.
- Penalty for Delayed Collection:Should the client fail to make the required pay-in by the settlement day, and if the TM/CM does not collect the remaining margins by that date, the shortfall will attract penalties as applicable.
- Clarification on Intent: The relaxation granted until the settlement day is only for operational feasibility and does not mean clients are allowed extra time to pay margins. Clients are still expected to pay all dues promptly upon margin call.
Implementation and Compliance
The circular comes into immediate effect, and all recognized stock exchanges and clearing corporations (except those dealing with commodities) are directed to:
- Amend their bye-laws and regulations accordingly.
- Disseminate the information to market participants.
- Publish the circular on their official platforms.
Investor Protection and Market Integrity
This regulatory tightening by SEBI reinforces its commitment to investor protection, systemic stability, and market discipline. By aligning the margin collection timeline with the T+1 settlement, SEBI ensures that brokers have adequate cover against market volatility, even in a rapidly settling environment.
In conclusion, while the move may require brokers and clients to adjust operational practices, it marks a necessary step in evolving toward a more secure and efficient securities market in India.
