The Hindu Business Line : SEBI puts on hold upfront margin plan for institutions

Mumbai, May 22 SEBI on Monday said that it has decided to keep in abeyance the requirement of upfront margining for institutional trades, which was supposed to commence on June 16 this year.

The regulator said this was being done in the light of difficulties expressed by the market participants. SEBI had imposed margining on cash transactions for institutional investors on a T+1 basis for institutional investors, starting April 21 this year. This was supposed to move to upfront margining in June.

The entire move was intended to bring institutional trades on a level-playing field with retail trades.

In upfront margining, the margin money has to be paid immediately upon placing of orders, whereas in T+1 it is paid on the day following the trade.

This eases somewhat the situation for foreign institutional investors, for whom the margins would constitute a large amount and for whom the kind of instruments they can produce as collateral is limited. It is a relief to them, but only to an extent, said Ms Anita Gandhi, Head of Institutional Trade at Arihant Capital Markets. “FIIs can do cross margining, where if you have a position in the F&O segment and an opposite position in the cash segment you can offset it. So the margining requirement was not too bad.”

Domestic institutions such as Life Insurance Corporation, who cannot, are not allowed in the F&O segment, and some mutual fund schemes, cannot avail themselves of this cross margining facility, she said. It is to the custodians (from whom the margin money is to be collected on confirmation of a trade) that this announcement will make a large difference, she said.

Custodians are finding cash margining operationally so difficult that they are burning the midnight oil, she said. For retail investors, the broker often supplies the margin, collecting it from him later. But for institutional investors, the amounts are so large that only very large networth brokers can do this for them, said market watchers.

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