Executive Summary:
This circular addresses the implementation of SEBI's guidelines regarding margin obligations via pledge/re-pledge in the depository system. It provides revised timelines for adopting the pledge/re-pledge mechanism, allowing a temporary parallel system of title transfer until August 31, 2020. The circular also reiterates the deadline of August 31, 2020, for closing existing Client Margin Collateral demat accounts.
Key Points / Main Content:
Implementation of Pledge/Re-pledge Mechanism:
* The pledge/re-pledge mechanism, as per the February 25, 2020 circular, will be implemented from August 01, 2020.
* Trading Members (TM) and Clearing Members (CM) should align their systems to accept client collateral and margin-funded stocks via pledge/re-pledge in the depository system.
Parallel Acceptance of Client Securities:
* TM/CM are allowed to accept client securities as collateral via title transfer into the Client Collateral Account until August 31, 2020.
* No further extension of the title transfer system will be granted beyond August 31, 2020.
Margin Trading Facility:
* TM/CM should preferably hold funded stocks under the margin trading facility by way of pledge from August 01, 2020.
* Funded stocks can be held in Client Margin Trading Securities Accounts until August 31, 2020, after which all such accounts must be closed.
Closure of Existing Demat Accounts:
* All existing demat accounts tagged as Client Margin Collateral must be closed by August 31, 2020, as per the February 25, 2020 circular.
Dissemination of Information:
* Stock Exchanges, Clearing Corporations, and Depositories are directed to inform their members/participants about this circular and display it on their websites.
Impact Analysis:
Recognized Stock Exchanges:
* Impact: Required to disseminate the circular's provisions to their members and display it on their websites.
* Action Required: Notify members and publish the circular on their websites.
Recognized Clearing Corporations:
* Impact: Required to disseminate the circular's provisions to their members and display it on their websites.
* Action Required: Notify members and publish the circular on their websites.
Depositories:
* Impact: Required to disseminate the circular's provisions to their participants and display it on their websites.
* Action Required: Notify participants and publish the circular on their websites.
Trading Members (TM) and Clearing Members (CM):
* Impact: Affected by the revised timelines for implementing the pledge/re-pledge mechanism and the temporary parallel system of title transfer.
* Action Required: Align systems for pledge/re-pledge by August 01, 2020, utilize the title transfer system only until August 31, 2020, preferably hold margin funding stocks via pledge from August 01, 2020 and close Client Margin Trading Securities Accounts and Client Margin Collateral demat accounts by August 31, 2020.
Key Entities Referenced
SEBI circular no. SEBIHOMIRSDDOPCIRP202028: A prior circular issued by SEBI on February 25, 2020, regarding margin obligations and pledge/repledge in the Depository System, the implementation of which is addressed in the current circular.
COVID19: The pandemic that caused disruptions and led to extensions in the implementation date of the SEBI circular.
Depositories Act, 1996: One of the Acts under which the circular is issued, related to the regulation of depositories.
Securities and Exchange Board of India Act, 1992: The primary Act under which SEBI derives its powers to regulate the securities market.
Securities and Exchange Board of India (SEBI): The regulatory body issuing the circular and responsible for regulating the securities market in India.
Recognised Stock Exchanges: Entities to whom the circular is addressed and expected to implement the guidelines.
Recognised Clearing Corporations: Entities to whom the circular is addressed and expected to implement the guidelines.
Depositories: Entities to whom the circular is addressed and expected to implement the guidelines regarding pledge/repledge in the Depository System.
CIRCULAR
SEBI/HO/MIRSD/DOP/CIR/P/2020/143 July 29, 2020
To,
1. All Recognised Stock Exchanges
2. All Recognised Clearing Corporations
3. All Depositories
Madam / Sir,
Subject: Implementation of SEBI circular on ‘Margin obligations to be given by way
of Pledge / Re-pledge in the Depository System’
1. SEBI, vide circular no. SEBI/HO/MIRSD/DOP/CIR/P/2020/28 dated February 25,
2020, specified mechanism with regard to Margin obligations to be given by way of
Pledge / Re-pledge in the Depository System. The provisions of this circular were
initially to come into effect from June 01, 2020. The implementation date of the circular
was extended till August 01, 2020 vide SEBI circular no.
SEBI/HO/MIRSD/DOP/CIR/P/2020/88 dated May 25, 2020 read with SEBI circular no.
SEBI/HO/MIRSD/DOP/CIR/P/2020/90 dated May 29, 2020 in view of disruptions on
account of COVID-19 pandemic including restrictions in movement of people.
2. In view of the prevailing situation due to Coivid-19 pandemic, partial lockdowns in
various areas of the country, representations received from the stock brokers and
stock broker associations and that the changes to the systems and software
development still under progress, it has been decided that
2.1. The mechanism of pledge / re-pledge issued vide circular no.
SEBI/HO/MIRSD/DOP/CIR/P/2020/28 dated February 25, 2020 shall be
implemented with effect from August 01, 2020. Trading member (TM) / Clearing
member (CM) shall endeavor to align their systems and accept client collateral
and margin funded stocks by way of creation of pledge / re-pledge in the
Depository system.
2.2. The TM / CM shall also be allowed to accept client securities as collateral by way
of title transfer into the Client Collateral Account as per the present system. The
system of parallel acceptance of the client securities by way of title transfer shall
be available only upto August 31, 2020 and no further extension shall be granted.
2.3. Funded stocks held by the TM / CM under the margin trading facility shall preferably
be held by the TM / CM by way of pledge with effect from August 01, 2020. TM / CM
may continue to hold funded stocks in respect of margin funding in ‘Client Margin
Page 1 of 2Trading Securities Account’ till August 31, 2020 by which date all such accounts shall
be closed.
3. It is reiterated that, in terms of paragraph 12 of the circular dated February 25, 2020,
the TM / CM shall be required to close all existing demat accounts tagged as ‘Client
Margin / Collateral’ by August 31, 2020.
4. Stock Exchanges, Clearing Corporations and Depositories are directed to bring the
provisions of this circular to the notice of their members / participants and also
disseminate the same on their websites.
5. This circular is issued in exercise of powers conferred under Section 11(1) of the
Securities and Exchange Board of India Act, 1992, and Section 19 of the Depositories
Act, 1996 to protect the interests of investors in securities and to promote the
development of, and to regulate the securities markets.
Yours faithfully
Narendra Rawat
General Manager
Market Intermediaries Regulation and Supervision Department
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