Sebi relaxes margin trading regulations
MUMBAI: The Securities and Exchange Board of India (Sebi) on Wednesday said new rules designed to reduce risks in margin trading will roll out on August 1 as planned, but the old system will run in parallel till Augustend, in a partial relief for brokers who had protested against them.
Brokers had made five representations to the market regulator and the finance ministry, highlighting practical difficulties in implementing the new norms announced in February.
Earlier, a trader could utilize his shares as margins by giving a power of attorney (POA) to his broker. But, beginning 1 August, he would be required to pledge them with the broker to use them as margin. Besides, brokers must collect margins upfront before executing trades. The rules were aimed to prevent a debacle like the one at Karvy Stock Broking Ltd, which misused client securities and pledged them with banks to raise funds.
A Sebi circular allowing both systems to run in parallel comes after the Association of National Exchange Members in India (ANMI), among its various demands, requested two more months to implement back-office changes.
“In view of the prevailing situation due to the pandemic... representations received from stock brokers and stock broker associations... it has been decided that the system of parallel acceptance of the client securities by way of title transfer shall be available only up to August 31,” the Sebi circular said.
The new pledge guidelines require that margin-funded stock be first delivered to the client’s account, after which the client shall pledge the same to the broker through explicit instructions. Brokers claimed this change did not reduce risks taken by them if clients refuse or delay the pledge, but Sebi refused to roll back the change.