On April 28, 2023, the Securities and Exchange Board of India (SEBI) announced a significant update for brokers regarding margin collection practices. As part of the transition from a T+2 settlement cycle to a T+1 framework, brokers are now required to gather all margins—excluding the Value at Risk (VaR) and Extreme Loss Margin (ELM)—by the end of the T+1 settlement day. This change aims to enhance the risk management process within the trading landscape.
Key Changes in Margin Collection
- Immediate Compliance: Brokers must now collect various margins upfront on the T+1 day, which is a shift from the previous T+2 timeline.
- VaR and ELM Exceptions: While the upfront collection is mandatory, brokers can still manage VaR and ELM margins differently.
- Impact of Settlement Cycle: This adjustment comes as part of a broader move to streamline the settlement process for all securities traded in the cash market.
Understanding the New Guidelines
The update, effective immediately, aims to ensure that trading and clearing members adhere to stricter margin collection protocols. According to SEBI’s circular, this decision was made following feedback from the Brokers’ Industry Standards Forum (ISF), emphasizing the need for a stronger risk management framework.
- Penalties for Non-Compliance: Clients are expected to fulfill margin requirements when notified. The time allotted until the settlement day is strictly for avoiding penalties, not for delaying payments.
- Assumptions on Payment Completion: If clients complete their pay-in of money or securities by the settlement day, it is presumed that all other margins have been collected, thus avoiding any penalties. Conversely, failure to meet this deadline will result in penalties being imposed.
Conclusion
As the trading environment evolves, these new margin collection requirements from SEBI are set to improve financial security within the markets. Stakeholders are encouraged to adapt swiftly to these changes to ensure compliance and avoid potential penalties. The transition underscores SEBI’s commitment to enhancing risk management frameworks while facilitating smoother trading operations.
