Collection and reporting of margins by Trading Member (TM) /Clearing Member (CM) in Cash Segment
Summary
This circular mandates that Trading Members and Clearing Members in the cash segment must collect upfront VaR and ELM margins from clients, aligning with derivatives segment practices. It establishes a penalty framework for short-collection or non-collection of margins and requires reporting of such defaults to Stock Exchanges by T+5. The provisions regarding margin collection and penalties come into force on January 1, 2020, and April 1, 2020, respectively.
Text
The ‘margins’ for this purpose shall mean VaR margin, extreme loss margin (ELM), mark to market margin (MTM), delivery margin, special / additional margin or any other margin as prescribed by the Exchange to be collected by TM/CM from their clients.
Henceforth, like in derivatives segment, the TMs/CMs in cash segment are also required to mandatorily collect upfront VaR margins and ELM from their clients. The TMs/CMs will have time till ‘T+2’ working days to collect margins (except VaR margins and ELM) from their clients.
As prescribed in clause 7 of SEBI circular MRD/DoP/SE/Cir-07/2005 dated February 23, 2005, the TM/CM shall be exempted from collecting upfront margins from the institutional investors carrying out business transactions and in cases where early pay-in of securities is made by the clients.
If the TM/CM had collected adequate initial margins from the client to cover the potential losses over time till pay-in, he need not collect MTM from the client.
As like in derivatives segments, the TMs/CMs shall report to the Stock Exchange on T+5 day the actual short-collection/ non-collection of all margins from clients.
For short-collection / non-collection of client margins, the Stock Exchanges shall take the disciplinary action as per the framework specified in SEBI Circular CIR/DNPD/7/2011 dated August 10, 2011.
For false/incorrect reporting of margin collection from the clients by TMs/CMs, the Stock Exchanges shall take disciplinary action as per the framework specified in SEBI circular CIR/HO/MIRSD/DOP/CIR/P/2019/88 dated August 01, 2019.
The provisions of paragraph 4.1 of this circular shall come into force with effect from January 01, 2020 and provisions of paragraph 4.2 of this circular shall come into force with effect from April 01, 2020.
bring the provisions of this circular to the notice of their members along with illustration as required and also disseminate the same on their websites.
make necessary amendments to the relevant bye-laws, rules and regulations for the implementation of the above directions in co-ordination with one another to achieve uniformity in approach.
communicate to SEBI, the status of the implementation of the provisions of this circular in their monthly development reports.
Source: SecMarx — Collection and reporting of margins by Trading Member (TM) /Clearing Member (CM) in Cash Segment. Verbatim text is public record; SecMarx structuring (linkage to applying orders) is cited to us.