Tech glitches mar SEBI new margin regime

Stock trading was disrupted for the third day this week on the back of a new margin collection regime introduced by SEBI.

On Thursday, the brokers were complaining about the tech systems of exchange clearing corporations (CCs) and depositories participants (DPs) as they were jammed due to overload. Margins collected for trading limits were not reflecting correctly with CCs, brokers said. In the past three days, shares auction due to margin shortfall shot-up to more than ₹100 crore, data showed.

Pay-in and pay-out of funds, which in simple terms is debit and credit, too was disrupted for the third straight day on Thursday, brokers said. Stock markets follow a T+2 (today+2) fund settlement cycle and entries are settled at 10.30 a.m. every day on normal days.

But Monday’s pay-in happened at 10 p.m. on Wednesday and pay-out took place at 4 a.m. on Thursday. The T+2 cycle was disrupted for the first time in its 25-year history of stock market trading at the National Stock Exchange (NSE). Tuesday’s pay-in happened at 4 p.m.

The CCs are supposed to extend trading limits to brokers based on their collateral. On Thursday, brokers said CCs were extending limits arbitrarily and some amount of it did not reflect the actual collateral. As a consequence, the cash market volumes of both the BSE and the NSE have come down by 12 to 24 per cent respectively in three days. For instance, the amount of trading volumes that Reliance Industries witnessed in half a day during normal course, fell woefully short during entire days trading.

“Due to the load, the MII (market infrastructure institutions) systems got overwhelmed,” said Uttam Bagri, chairman, BSE Brokers Forum.

“Forced implementation of the new system has derailed the entire settlement cycle. Due to technical issues, systems are in deep mess and members, investors are in great hardship. Members are facing financial pains and deep financial losses. There are multiple technical glitches including release of securities, OTP, pledge and re-pledge, delay in pay-in, pay-out process and disruptions in margin collections and reporting,” NSE Brokers Association said in a letter to the Finance Ministry and SEBI.

ANMI has also requested waiver on short margin penalty. “Postpone the penalty provisions on the Cash & Derivative Segment till 15th September as systems are not geared and tested fully, in spite of the assertions of MII’s. The ground reality is different and members and the investors are being put to great difficulty due to the inadequate systems which have been developed to implement these measures will result in short margin because of system related issues,” ANMI said in a letter to SEBI.

The key source of chaos has been the new pledge and re-pledge system for margin collection. Margin is the initial amount in the form of cash, shares and other liquid assets that brokers collect from clients and deposit with exchanges to get trading limits. Earlier, brokers used power of attorney (PoA) to transfer shares from client accounts to their account for margin purposes. No specific instructions were required for this from clients as they had given PoA in the name of the broker.

From September 1, SEBI discontinued the use of PoA and said that shares need to be pledged and re-pledged with brokers for margin. For this, separate instructions have to be issued by clients each time. With several millions of pledge and re-pledge instructions of clients going to the depository participants (DPs) NSDL and CDSL, which hold shares in demat, their systems have been reeling under load, brokers say. Both DPs and brokers have been trading charges against each other saying their systems were not upgraded for the new regime.

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