SEBI Allows Cash-Collateral Securities For Margin Trading, Eases Requirements

The Securities and Exchange Board of India (SEBI), yesterday,  introduced new regulations to make margin trading more accessible. The key change permits securities funded through cash collateral to be considered as part of the maintenance margin for margin trading facilities (MTF). This decision comes as a response to requests from market participants, particularly through the Industry Standards Forum (ISF), to ease out the operational burden on brokers and traders.

Key Changes to Margin Trading

According to the updated guidelines, if a broker receives cash collateral from a client and uses it to settle obligations with the Clearing Corporation (CC), the securities received from the CC can be treated as maintenance margin. The only condition is that these securities must be pledged in favor of the broker. This update is expected to reduce the need for additional collateral, making things simpler for both brokers and clients.

For stocks used as maintenance margin based on cash collateral, SEBI has specified that they must come from Group 1 securities. The margin for these stocks will be calculated based on the Value at Risk (VaR), plus five times the Extreme Loss Margin, regardless of whether these stocks are available in the futures and options segment.

New Reporting Requirements

SEBI is also stepping up the reporting rules for trading members. Brokers must report their exposure under MTF by 6:00 PM on the day after the trade (T+1 day), which helps keep things transparent and regulated.

Additionally, SEBI made it clear that stocks or units of equity ETFs used as collateral for margin trading, and those bought through margin trading facilities, must be kept separate when calculating the funding amount. Mixing these two types of assets won’t be allowed.

Conclusion: All in all, these changes, effective October 1, 2024, are intended at making margin trading smoother and less demanding. By addressing concerns from industry participants, SEBI is working to make the process more efficient and easier for everyone involved, while still ensuring transparency in the markets.

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Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.