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Our Bureau

Mumbai , March 19

SEBI has finally decided to introduce margin-trading system, with corporate brokers with net worth of at least Rs 3 crore being eligible for providing this facility.

For securities borrowing and lending system, clearing corporations of the stock exchange would be the nodal agency.

In a circular issued today, the market regulator said for providing the margin-trading facility, a broker may use his own funds or borrow from scheduled commercial banks or NBFCs regulated by the RBI. A broker is not allowed to borrow funds from any other source.

The "total exposure" of the broker towards the margin-trading facility should not exceed the borrowed funds and 50 per cent of his "net worth". While providing the margin-trading facility, the broker has to ensure that the exposure to a single client does not exceed 10 per cent of the "total exposure" of the broker.

For margin-trading, a client has to pay 50 per cent margin and the rest has to financed by the broker. In addition, the borrower will have to put up a maintenance margin of 40 per cent.

In case the margin falls below 30 per cent and the clients fail to bring in the margin then the brokers can sell the shares in the market, the circular said.

However, the facility of margin-trading will be available only for stocks in Group-1 of the SEBI risk management system, numbering around 150.

In addition, a broker has to disclose to the stock exchange details on gross exposure including name of the client, unique identification number under the SEBI (Central Database of Market Participants) Regulations, 2003, and name of the scrip.

If the broker has borrowed funds for the purpose of providing margin-trading facility, the name of the lender and amount borrowed should be disclosed latest by the next day.

The stock exchange, in turn, has to disclose the scrip-wise gross outstanding in margin accounts with all brokers to the market. Such disclosure regarding margin-trading done on any day shall be made available after the trading hours on the following day.

On the securities lending and borrowing system, clearing corporations of the stock exchange would be the nodal agency. However, other agencies are also eligible for this system.

The clearing corporation has to be registered as an approved intermediary with SEBI under the securities lending and borrowing scheme for handling settlement shortages.

The clearing corporation can borrow, on behalf of the members, securities for the purpose of meeting shortfalls. The clearing corporation can borrow the required securities to meet the shortfall on the day of settlement, for a maximum period of seven trading days, excluding the day of borrowing.

The defaulter selling broker may make the delivery within three trading days from the due date, i.e. the settlement date, subject to charges for late delivery as may be prescribed by the stock exchanges. In the event of the defaulted selling broker failing to make the delivery within the aforesaid three trading days, the clearing corporation has to buy the securities from the open market and return the same to the lender within seven trading days.

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