Anmi writes to Sebi, expresses concerns over margin collection framework in cash segment

New Delhi, Jul 15 () Stock brokers' association Anmi has expressed concern to markets regulator Sebi on the margin collection framework in the cash segment, saying it will cause hardship to brokers and their clients.

In a letter to Sebi, the brokers' association flagged concerns on the methodology of levy of margins on the sale positions resulting in deliveries, margins on square up of open positions and margins on securities intended to be delivered on T+2 day.

In addition, it suggested that margins on small investors should be exempted for up to Rs 5 lakh of obligations in order to mitigate the hardships on small traders and investors.

"With the impending deadline of August 1, 2020, it now assumes extreme importance and significance. Anmi is of the opinion that the manner in which the proposed measures are proposed to be implemented will cause hardship to brokers and their clients," Anmi said in its letter to Sebi on Monday.

The Securities and Exchange Board of India (Sebi) in November 2019 had said trading and clearing members should compulsorily collect upfront certain margins from their clients in the cash segment.

Margin, in market parlance, is the minimum fund or security an investor is required to pay to the stock broker before executing a trade. This is basically part of the money collected by bourses from brokerages upfront before giving exposure for trading in equity and commodity derivatives.

The Association of National Exchanges Members of India (Anmi), which represents over 900 stock brokers, said there should not be any margins on sale of shares which is resulting in delivery by T+ 2 days (trade date plus two days).

Citing data collated from NSE website, Anmi said "auction percentage of short deliveries are only to the extent of 0.20 per cent which amply proves that there is no risk in sale positions resulting in delivery. The investors are forced to deliver on same day and especially in present times when there are restrictions of movement and curfew across the country."

It further said insistence of delivery on same day of sale is not practical when the settlement cycle itself is of T+2 days and investors should have the freedom to deliver within the stipulated timelines.

"Investors sell shares to raise money and failure to deliver the shares on same day or giving shares in advance to brokers resulting in a penal charge is unjust and unfair," it added.

The brokers association said that the timelines of 'early pay-in' as determined by the clearing corporations is 4 pm, which is totally out of place with the ground reality.

While the clearing corporations have not been able to give trade files before 5 pm and at times late at night, it is impracticable for brokers to do early pay-in (EPI) and reduce their working capital burden with such timelines.

Anmi said there is anomaly in EPI as any early pay-in instruction is irreversible and locked till T+2 day and therefore the risk is absolutely zero. Despite this, the full benefit is not passed on the broker and indirectly to the investor.

"The intent of Sebi in levying margins is to control mule accounts and reduce risk. We firmly believe that the intent...will not, in any manner, get diluted if the suggestions are taken into consideration," the letter noted. SP ABM ABM