**Summary:**
This circular, reference number SEBI/HO/MIRSD/DOP/CIR/P/2020/146 dated July 31, 2020, issued by the Securities and Exchange Board of India (SEBI), modifies its earlier circular CIR/HO/MIRSD/DOP/CIR/P/2019/139 dated November 19, 2019, regarding the collection and reporting of margins by Trading Members (TM) and Clearing Members (CM) in the cash segment.
Based on representations received from investors, TMs/CMs, and stock broker associations, SEBI has decided that if a TM/CM collects a minimum of 20% upfront margin from the client in lieu of Value at Risk (VaR) and Extreme Loss Margin (ELM), penalties for short collection/non-collection of margin will not be applicable. However, Clearing Corporations will continue to collect upfront margins from the TM/CM based on VaR and ELM.
The implementation of the penalty provision for short collection/non-collection of upfront margin in the cash segment will be effective from September 01, 2020. All other provisions of the November 19, 2019 circular remain applicable.
This circular is issued under the powers conferred by Section 11(1) of the Securities and Exchange Board of India Act, 1992, to protect investor interests and regulate the securities market.
For further information, contact Narendra Rawat, General Manager, Market Intermediaries Regulation and Supervision Department, SEBI.
Key Entities Referenced
SEBI: Securities and Exchange Board of India, the regulator of the securities market in India.
Trading Member (TM): A member of a stock exchange who is authorized to trade on the exchange on behalf of clients or themselves.
Clearing Member (CM): A member of a clearing corporation who is responsible for clearing and settling trades.
VaR: Value at Risk, a statistical measure of the risk of loss for a portfolio or investment.
ELM: Extreme Loss Margin, an additional margin collected to cover potential losses exceeding VaR.
Securities and Exchange Board of India Act, 1992: The law that established the Securities and Exchange Board of India and defines its powers and functions.
Recognised Stock Exchanges: Stock exchanges that are recognized by the SEBI.
Recognised Clearing Corporations: Clearing corporations that are recognized by the SEBI.
CIRCULAR
SEBI/HO/MIRSD/DOP/CIR/P/2020/146 July 31, 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
1. SEBI, vide circular no. CIR/HO/MIRSD/DOP/CIR/P/2019/139 dated November 19,
2019, 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. In view of the representations received from investors, TMs / CMs, stock broker
associations, in this regard, following has been decided:
2.1. 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. However, it is reiterated that Clearing Corporation shall continue to
collect the upfront margin from the TM / CM based on VaR and ELM.
2.2. The penalty provision for short-collection / non-collection of upfront margin in
cash segment shall be implemented with effect from September 01, 2020.
3. SEBI circular dated November 19, 2019 is modified to the extent of the above. All
other provisions of the said circular dated November 19, 2019 shall continue to remain
applicable.
4. 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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