Stocks

SEBI puts off upfront margin plan for cash segment

Our Bureau Mumbai | Updated on July 31, 2020 Published on July 31, 2020

20% upfront margin will suffice in cash segment

Markets regulator SEBI has yet again deferred its decision to collect upfront margin in the cash segment. On Friday, SEBI said the norms will 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. 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.

 

Hopes over new chief

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 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 1, 2020,” said the SEBI circular.

 

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Published on July 31, 2020
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