SEBI has amended its regulations to allow securities funded through cash collateral to be used as maintenance margin for the Margin Trading Facility (MTF). This change was made after receiving requests from market participants through the Industry Standards Forum (ISF) and discussions with stock exchanges, brokers, and representatives. The amendment affects Chapter 1, Para 4.3.3.1 of SEBI’s Master Circular on Stock Exchanges and Clearing Corporations (dated October 16, 2023). The updated rule permits securities, specifically stocks or units of Equity ETFs, funded via cash collateral and used for MTF, to be treated separately for computing the funding amount. No commingling of securities is allowed. A new clause (4.3.3.5) is introduced, which mandates that funded stocks considered for maintenance margin must fall under Group 1 securities, with applicable margin requirements set at VaR + 5 times the Extreme Loss Margin. Trading members must report MTF exposure by 6:00 PM on T+1 day, as outlined in the revised clause 4.8.1. These changes aim to ease collateral requirements for investors and improve market functioning. The circular will take effect on October 1, 2024.
Securities and Exchange Board of India
Circular No. SEBI/HO/MRD/MRD-PoD-2/P/CIR/2024/118; Dated: September 11, 2024
To
All recognised Stock Exchanges
Sir/ Madam,
Sub: Allowing securities funded through cash collateral as maintenance margin for Margin Trading Facility (MTF).
1. SEBI has received representations from market participants through the Industry Standards Forum (ISF) to relax the requirement, under Chapter 1 at Para 4.3.3.1 of the Master Circular (Stock Exchanges and Clearing Corporations) dated October 16, 2023, allowing securities funded through cash collateral to be considered as maintenance margin for Margin Trading Facility (MTF).
2. Upon examination of the representations received, discussions were held with Stock Exchanges and representatives of the Brokers’ Associations and ISF.
3. Pursuant to the same, in the interest of investors and to alleviate the burden of additional collateral towards maintenance margin for MTF and in order to promote the objective of ‘Ease of Doing Business’, the requirement under Chapter 1 at Para 4.3.3.1 of the Master Circular (Stock Exchanges and Clearing Corporations) dated October 16, 2023 stands amended as under:
“The stocks or units of Equity ETFs deposited as collateral with the stock broker for availing margin trading facility (Collaterals) and the stocks or units of Equity ETFs purchased under the margin trading facility (‘Funded stocks’) shall be identifiable separately and no comingling shall be permitted for the purpose of computing funding amount. Further, in case the broker has collected cash collateral from the client in form of margin for availing margin trading facility and the Trading Member has given the said cash collateral to the Clearing Corporation (CC) towards settlement obligation of the said client, then same can be considered as maintenance margin to the extent of securities received from CC against such cash collateral given to CC and such shares are pledged in favor of trading member in form of funded stock.”
4. Further, a new Clause 4.3.3.5 shall be included in the SEBI Master Circular for Stock Exchanges and Clearing Corporations dated October 16, 2023, which shall read as follows:
“Incase the funded stock is considered towards maintenance margin to the extent of cash collateral provided by the client, the Trading Members shall ensure that the funded stock considered is under Group 1 securities. The applicable margin shall be VaR + 5 times the Extreme Loss Margin, irrespective of whether the funded stock is available in F&O segment or not.”
5. The extant Clause 4.8.1. of the SEBI Master Circular on Stock Exchanges and Clearing Corporations dated October 16, 2023 is modified to allow reporting of exposure under Margin Trading Facility by the Trading Members on or before 6:00 PM on T+1 day.
6. The Stock Exchanges are accordingly advised to:
6.1. make necessary amendments to the relevant bye-laws, rules and regulations for the implementation of the above decision immediately, as may be necessary/applicable.
6.2. bring the provisions of this circular to the notice of their members and to disseminate the same on their website.
7. This circular is being issued in exercise of powers conferred under Section 11 (1) of the Securities and Exchange Board of India Act, 1992 to protect the interests of investors in securities market.
8. The circular shall come into effect from October 01, 2024.
9. The circular is issued with the approval of the Competent Authority.
10. This circular is available on SEBI website www.sebi.gov.in under the categories “Legal → Circulars”.
Yours faithfully,
Vishal Shukla
General Manager
[email protected]
022-26449959
