Mumbai, July 21: The capital market regulator, Securities and Exchange Board of India (Sebi) Monday released a framework to enable verification of upfront collection of margins from clients in cash and derivatives segments, with effect from December 1, 2020.
In a circular, Sebi has reiterated that the applicable upfront margins will be collected from clients in advance of the trade. The regulator said the clearing corporations will send minimum four snapshots of client wise margin requirements to trading member (TM) or clearing member (CM) for them to know the intra-day margin requirement per client in each segment.
It further said the number of times snapshots need to be sent in a day may be decided by the respective clearing corporation depending on market timings. The snapshots would be randomly taken in a pre-defined time windows.
For the commodity derivatives segment, Sebi said the last snapshot will be generated at 5 PM. The client wise margin file provided by the clearing corporations will contain the end of the day (EOD) margin requirements of the client as well as the peak margin requirements of the client, across each intra-day snapshots.
The members will have to report the margin collected from each client in a manner prescribed by the regulator. The EOD margin obligation of the client will be compared with the respective client margin at EOD, and peak margin obligation of the client will be compared with respective client peak margin during the day.
With regard to penalty, Sebi said higher of the shortfall in collection of the margin obligations at the two prescribed manners will be considered for levying a fine. The verification of availability of margins will be done by exchanges, or clearing corporations, on a weekly basis.
Sebi said peak margin obligation of clients across snapshots will be adopted in a phased manner. For three months of implementation, Sebi said 25 per cent of peak margin obligation of the client across snapshots will be compared with respective client peak margin available with the TM or CM during the day. This will be 50 per cent for subsequent three months, and thereafter 75 per cent for subsequent three months, and finally 100 per cent.
It further said shortfall in collection of margins will be calculated by taking into consideration the phased adoption of peak margin obligation of client. During the period of phased adoption, the member should be able to demonstrate that the balance peak margin obligation has been funded from the member’s own funds and not from any other client.
In a separate circular, Sebi said it has modified the eligibility criteria for selection of underlying commodity futures for options on commodity futures. The regulator has decided to do away with the requirement of the underlying ’Futures contracts’ on the corresponding commodity shall be among the top five futures contracts in terms of total trading turnover value of previous 12 months.
The decision has been taken on the basis of representations received from stock exchanges and stakeholders.