Securities and Exchange in India
Clarification on a news item
With a view to curbing the misuse of power of attorney (POA) given by the clients to the trading member (TM) / clearing member (CM), SEBI, vide circular dated February 25, 2020 prescribed that margin obligations to be given in form of securities by client shall be by way of pledge / re-pledge in the Depository System and title transfer of securities to the client collateral demat account of the TM/ CM for margin purposes shall not be permitted. In cases where a client has given a POA in favour of a TM / CM, such holding of POA shall not be considered as equivalent to the collection of margin by the TM / CM in respect of securities held in the demat account of the client with effect from June 1,2020.
In a news item in today’s Business Line it has been reported that SEBI has discontinued the use of POA between a client and broker in the equity markets. This is not correct – there is no restriction imposed on use of POA by broker.
The news item also quotes a statement from one Shri Vijay Bhusan that “several POA arrangements will have to be reversed and entire process of margin placement of share to broker will have to be re-done.” The apprehensions raised are ill founded. Even today, systems are in place where broker using POA transfers client securities as margin into his client’s collateral account and then place these securities with Clearing Corporation (CC) by way of Transfer or creation of pledge towards margin. There is no change caused in conditions of POA. Even after June 1,2020, broker using POA may continue to transfer client securities to his client collateral account towards margin. The only difference would be that now the Broker would not be able to report all securities lying in the demat account of the client as margin collected. In order to post securities as margin, these securities even today are required to be moved out of client demat account to collateral account of CM/CC. Securities lying in the client Demat account of client are not counted as margin by CM/CC and no exposure is permitted.
It is further envisaged that effective August 1, 2020, by operationalising the pledge and re-pledge mechanism stated in aforesaid Sebi circular, the securities of client will remain in that client’s demat account and entire trail of the securities utilised for margin purposes shall be available. In this mechanism, the TM / CM will not be able to misuse securities of client A towards margin of client B and for also for its own proprietary trades.
May 26, 2020