Executive Summary:
This SEBI circular clarifies the collection and reporting of margins by Trading Members (TM) and Clearing Members (CM) in the cash segment. It addresses penalties for short collection/non-collection of margins, particularly concerning the T+2 day timeframe. It modifies previous circulars from November 19, 2019, and July 31, 2020, regarding margin collection.
Key Points / Main Content:
* **Background:** Refers to SEBI circulars CIRHOMIRSDDOPCIRP2019139 (Nov 19, 2019) and SEBIHOMIRSDDOPCIRP2020146 (July 31, 2020) regarding margin collection from clients and reporting of short collection/non-collection by TMs/CMs.
* **Upfront Margins (VaR and ELM):** TMs/CMs must mandatorily collect upfront VaR and ELM margins from clients, similar to the derivatives segment.
* **T+2 Day Rule Clarification:**
* If pay-in of both funds and securities is completed by T+2 working days, other margins are deemed collected, and no penalty applies.
* Early Pay-In of securities to the Clearing Corporation (CC) implies all margins are deemed collected, and no penalty applies.
* Failure to collect other margins from clients by T+2 working days results in penalties.
* **CC Margin Collection:** CC will continue to collect upfront VaR plus ELM and other applicable margins from TM/CMs.
* **Modification of Previous Circulars:** SEBI circulars dated November 19, 2019, and July 31, 2020, are modified as per the clarifications provided. Other provisions of said circulars remain applicable.
Impact Analysis:
**Recognized Stock Exchanges:**
* Impact: Must note the clarifications regarding margin collection timelines and penalties.
* Action Required: Ensure compliance with the updated guidelines and disseminate information to TMs/CMs.
**Recognized Clearing Corporations:**
* Impact: Must continue to collect VaR, ELM, and other margins from TM/CMs as applicable.
* Action Required: Enforce the clarified guidelines and monitor TM/CM compliance.
**Trading Members (TM) / Clearing Members (CM):**
* Impact: Affected by the clarified rules regarding margin collection, pay-in timelines, and penalties.
* Action Required: Ensure timely collection of VaR, ELM, and other margins, monitor client pay-ins, and comply with the T+2 rule to avoid penalties.
Key Entities Referenced
Securities and Exchange Board of India (SEBI): The regulatory body for securities markets in India, which issued the circular.
Recognised Stock Exchanges: All stock exchanges recognized by SEBI in India.
Recognised Clearing Corporations: All clearing corporations recognized by SEBI in India.
Trading Member (TM): A member of a stock exchange authorized to trade on behalf of clients.
Clearing Member (CM): A member of a clearing corporation responsible for clearing and settling trades.
VaR margin: Value at Risk margin, a type of margin required to cover potential losses.
extreme loss margin (ELM): A margin levied to cover extreme losses.
Securities and Exchange Board of India Act, 1992: The act of parliament that established SEBI and defines its powers and functions.
CIRCULAR
SEBI/HO/MIRSD/DOP/CIR/P/2020/173 September 15, 2020
To,
All Recognised Stock Exchanges
All Recognised Clearing Corporations
Dear Sir / Madam,
Subject: Collection and Reporting of Margins by Trading Member (TM) / Clearing
Member (CM) in Cash Segment - Clarification
1. SEBI, vide circular no. CIR/HO/MIRSD/DOP/CIR/P/2019/139 dated November 19,
2019 and SEBI/HO/MIRSD/DOP/CIR/P/2020/146 dated July 31, 2020, issued
guidelines with regard to collection of margins from clients and reporting of short-
collection / non-collection of margins by Trading Member (TM) / Clearing Member
(CM).
2. Paragraph 4.1.1 and 4.1.2 of the SEBI circular dated November 19, 2019, specifies
the following:
The ‘margins’ for this purpose shall mean VaR margin, extreme loss margin (ELM),
mark to market margin (MTM), delivery margin, special / additional margin or any
other margin as prescribed by the Exchange to be collected by TM/CM from their
clients.
Henceforth, like in derivatives segment, the TMs/CMs in cash segment are also
required to mandatorily collect upfront VaR margins and ELM from their clients. The
TMs / CMs will have time till ‘T+2’ working days to collect margins (except VaR
margins and ELM) from their clients. (The clients must ensure that the VaR margins
and ELM are paid in advance of trade and other margins are paid as soon as margin
calls are made by the Stock Exchanges / TMs / CMs. The period of T+2 days
has been allowed to TMs / CMs to collect margin from clients taking into account
the practical difficulties often faced by them only for the purpose of levy of penalty
and it should not be construed that clients have been allowed 2 days to pay margin
due from them.)
3. Paragraph 2.1 of the SEBI circular dated July 31, 2020, inter-alia, specifies the
following:
If TM / CM collects minimum 20% upfront margin in lieu of VaR and ELM from the
client, then penalty for short-collection / non-collection of margin shall not be
applicable.
Page 1 of 24. In view of the representations received with regard to levy of penalty for non-collection
of “other margins” (other than VaR and ELM) on or before T+2 days from clients by
TM / CM, following is clarified:
4.1. If pay-in (both funds and securities) is made by T+2 working days, the other
margins would deemed to have been collected and penalty for short / non
collection of other margins shall not arise.
4.2. If Early Pay-In of securities has been made to the Clearing Corporation (CC),
then all margins would deemed to have been collected and penalty for short /
non-collection of margin including other margins shall not arise.
4.3. If client fails to make pay-in by T+2 working days and TM / CM do not collect
other margins from the client by T+2 working days, the same shall also result in
levy of penalty as applicable.
5. It is reiterated that CC shall continue to collect upfront VaR plus ELM and other
margins from TM / CM as applicable from time to time.
6. SEBI circulars dated November 19, 2019 and July 31, 2020 are modified to the extent
of the above. All other provisions of the said SEBI circulars dated November 19, 2019
and July 31, 2020 shall continue to remain applicable.
7. This circular is being issued in exercise of powers conferred under Section 11 (1) of
the Securities and Exchange Board of India Act, 1992 to protect the interests of
investors in securities and to promote the development of, and to regulate the
securities market.
Yours faithfully
Narendra Rawat
General Manager
Market Intermediaries Regulation and Supervision Department
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