Markets regulator SEBI has yet again deferred its decision to collect upfront margin in the cash segment. On Friday, SEBI said the norms would now be applicable from September instead of August.

Most brokers are opposing SEBI's new rule on margin — an initial security amount usually collected upfront by brokers for trading in the derivatives segment as it involves highly leveraged and speculative bets — rule as they believe that it can shift their business to discount brokerages, which charge no, or very little, fees on plain vanilla buying and selling of stocks.

With SEBI chairman Ajay Tyagi likely to retire on August 31, if the government does not grant him another extension, brokers are hoping that the new chief will give them a fresh hearing on the matter, sources told BusinessLine .

SEBI had in in November 2019 envisaged upfront collection of a margin in the cash segment and planned to implement the rule from January 2020. But due to opposition and fear of hurting trading volumes, the regulator delayed its implementation for six months. Brokers have also told SEBI that their trading systems were not ready for the new rule.

So far, retail investors largely did not pay any margin for trading and buying/selling of shares in the cash segment. On Friday, SEBI said a 20 per cent margin in cash will suffice.

“If a trading/clearing member (broker) collects a minimum 20 per cent upfront margin in lieu of VaR (value at risk) and ELM (extreme loss margin) from the client, then penalty for short/non-collection of margin shall not be applicable. The penalty provision for short/ non-collection of upfront margin in the cash segment shall be implemented with effect from September 01, 2020,” said the SEBI circular.

Markets follow T+2 (today+2 days) settlement cycle and money from share transactions gets credited to a client account on the third day. But SEBI's new norms stipulate that no new trading limit can be given for two days to a client against the sell transaction. Currently, if a client sells shares owned by him, the broker would extend the trading or buying limit of an equivalent amount based on the sale credit.

"Traders will get deeply impacted. Market needs all forms of participants including investors, speculators, short and medium traders, jobbers, etc. The new rule will have a far-reaching impact on several participants and liquidity. Likely outcome: reduction in liquidity and Increase in impact cost. We don't see how that's in the interest of investors," said Jimeet Modi, Founder & CEO of discount broker Samco Group.

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