Executive Summary:
This SEBI circular modifies the framework for verifying upfront margin collection from clients in cash and derivatives segments, including commodity derivatives. It mandates that End of Day (EOD) margin collection requirements in derivatives segments be calculated using fixed Beginning of Day (BOD) margin parameters. The circular comes into effect three months from its issuance date of February 1, 2023.
Key Points / Main Content:
* **Background and Context:**
* The circular modifies the framework established in previous circulars (July 20, 2020; December 16, 2021; May 10, 2022) related to upfront margin collection verification.
* **Change in Margin Calculation:**
* EOD margin collection requirements from clients in derivatives segments, including commodity derivatives, must now be calculated based on fixed BOD margin parameters.
* This change applies *only* to the verification of upfront margin collection.
* **Margin Parameter Updates:**
* Clearing Corporations will continue to update margin parameters for actual margin obligation collection on an intraday and EOD basis.
* **Amendments and Applicability:**
* Previous SEBI circulars (July 20, 2020; December 16, 2021; May 10, 2022) are modified to the extent specified in this circular; all other provisions remain applicable.
* **Effective Date:**
* The provisions of this circular are effective three months from the date of issuance (February 1, 2023).
* **Directives to Stock Exchanges and Clearing Corporations:**
* Implement the circular's provisions, including amending relevant byelaws, rules, and regulations.
* Inform members about the circular's provisions and disseminate the information on their websites.
* Report on the status of implementation in the Monthly Development Report to SEBI.
Impact Analysis:
* **Stock Exchanges:**
* Impact: Required to update systems, byelaws, rules, and regulations to align with the new margin calculation methodology for verification purposes.
* Action Required: Implement necessary system changes, amend regulations, inform members, disseminate information, and report implementation status to SEBI.
* **Clearing Corporations:**
* Impact: Must ensure their systems and processes align with the new EOD margin calculation based on BOD parameters for verification.
* Action Required: Adjust systems, inform members, and continue to update margin parameters intraday and EOD for actual margin collection.
* **Members of Stock Exchanges:**
* Impact: Affected by the change in margin calculation for verification purposes.
* Action Required: Understand and comply with the new margin calculation methodology for EOD margin collection verification.
* **Investors:**
* Impact: Indirectly impacted by the changes in margin calculation for verification, intended to protect investor interests.
* Action Required: Be aware of the changes in margin verification processes.
Key Entities Referenced
Securities and Exchange Board of India: Regulatory body for securities market in India, also referred to as SEBI.
Stock Exchanges: Recognized entities involved in trading of securities.
Clearing Corporations: Organizations that provide clearing and settlement services for securities transactions.
Securities and Exchange Board of India Act, 1992: Act of Parliament of India that established the Securities and Exchange Board of India (SEBI).
Securities Contracts Regulation Act, 1956: Act of Parliament of India that regulates securities contracts.
Vishal Shukla: General Manager, Market Regulation Department at SEBI, signatory of the circular.
Derivatives segments: Refers to segments dealing with financial derivatives, including commodity derivatives.
Monthly Development Report: Report to be submitted to SEBI by Stock Exchanges and Clearing Corporations regarding the implementation status of the circular.
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Securities and Exchange Board of India
CIRCULAR
SEBI/HO/MRD/MRD-PoD-2/P/CIR/2023/016 February 01, 2023
To
All Recognized Stock Exchanges and Clearing Corporations
Dear Sir/ Madam,
Sub: Changes to the Framework to Enable Verification of Upfront Collection of
Margins from Clients in Cash and Derivatives segments
SEBI, vide circular SEBI/HO/MRD2/DCAP/CIR/P/2020/127 dated July 20, 2020, prescribed
the framework to enable verification of upfront collection of margins from clients in cash and
derivatives segments.
2. Further, SEBI, vide circular SEBI/HO/CDMRD/CDMRD_DRM/P/CIR/2021/689 dated
December 16, 2021, inter alia, modified the aforesaid framework prescribed vide said
circular dated July 20, 2020, providing for additional snapshots for commodity
derivatives segment.
3. Subsequently, SEBI, vide circular SEBI/HO/MRD2/DCAP/P/CIR/2022/60 dated May 10,
2022, inter-alia, modified the aforesaid framework specifying that the margin
requirements to be considered for the intra-day snapshots, in derivatives segments
(including commodity derivatives), shall be calculated based on the fixed Beginning of
Day (BOD) margin parameters. It was also specified therein that there shall be no
change in methodology of determination and collection of End of Day (EOD) margin
obligation of the client.
4. In view of the representations received from market participants and based on
deliberations with various stakeholders, it has now been decided that EOD margin
collection requirement from clients, in derivatives segments (including commodity
derivatives), shall also be calculated based on the fixed BOD margin parameters.
5. It is clarified that the above mentioned change is only for the purpose of verification of
upfront collection of margins from clients. The margin parameters applicable for
collection of margin obligation by Clearing Corporations shall continue to be updated on
intra-day and EOD basis, as per the extant provisions.
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Securities and Exchange Board of India
6. SEBI circulars dated July 20, 2020, December 16, 2021 and May 10, 2022 shall,
accordingly, stand modified to the above extent. All other provisions of the said SEBI
circulars dated July 20, 2020, December 16, 2021 and May 10, 2022 shall continue to
remain applicable.
7. The provisions of this circular shall come into effect from 3 months from the date of
issuance of this circular.
8. Stock Exchanges and Clearing Corporations are directed to:
a) take necessary steps to put in place systems for implementation of the circular,
including necessary amendments to the relevant bye-laws, rules and regulations;
b) bring the provisions of this circular to the notice of their members and also
disseminate the same on their websites; and
c) communicate to SEBI, the status of implementation of the provisions of this circular
in the Monthly Development Report.
9. This circular is being issued in exercise of powers conferred under Section 11(1) of the
Securities and Exchange Board of India Act, 1992, read with Section 10 of the
Securities Contracts (Regulation) Act, 1956 to protect the interests of investors in
securities and to promote the development of, and to regulate the securities market.
10. This circular is available on SEBI website at www.sebi.gov.in at “Legal
Framework→Circulars”.
Yours faithfully
(Vishal Shukla)
General Manager
Market Regulation Department
Email: vishals@sebi.gov.in
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