SEBI's new margin rule to come into effect from Sep 1; all you need to know

The new rules on margin pledge by Securities and Exchange Board of India (SEBI) are scheduled to kick in from Tuesday. The market regulator expects the new norms to introduce transparency and prevent brokerages from misusing clients' securities.

The decision was taken after SEBI's meeting with stock brokers' association, depositories and clearing corporations. The meeting was held to analyse readiness to implement the new norms. The regulator had come out with the norms in February which were scheduled to come into effect from June 1. It date was, however, extended to August 1 and thereafter to September 1.

"In today's virtual meeting, SEBI declined to grant extension of further time in implementing margin pledge/repledge process. This came as a big surprise to ANMI and its 900 members. ANMI is holding consecutive meetings with all stakeholders and studying all options available to it in the matter," a spokesperson of Association of National Exchanges Members of India (ANMI) said.

ANMI had requested SEBI to extend the implementation of the new mechanism on margin pledge by one month till September 30 on account of several challenges faced by market participants.

Under the framework, trading members or clearing members will be required to align their systems and accept client collateral and margin-funded stocks by way of creation of pledge and re-pledge in the depository system.

Depositories should provide "margin pledge" for pledging clients' securities as margin to the TM or CM. The latter should open a separate demat account for accepting such margin pledge, which should be tagged as "client securities margin pledge account".

To provide collateral in the form of securities as margin, a client will be required to pledge securities with TM, and TM will re-pledge the same with CM, and CM, in turn, will re-pledge the same to the clearing corporation. The complete trail of such re-pledge will be reflected in the demat account of the pledgor.

(With agency inputs)

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