Mechanism for regular monitoring of and penalty for short-collection/non-collection of margins from clients

SEBI/HO/CDMRD/DRMP/CIR/P/2016/80 · 2016-09-07 · SEBI Division of Risk Management and Products, Commodity Derivatives Market Regulation Department

Summary

This circular consolidates and updates the norms for monitoring margin collection and levying penalties for short-collection or non-collection by members from clients. It establishes a penalty structure based on the amount of shortfall, with specific timelines for collection and reporting to exchanges. The document mandates that penalties be credited to the Investor Protection Fund and requires exchanges to implement mechanisms for regular monitoring.

Text

Rules made by the erstwhile Forward Markets Commission (FMC) applicable to recognised associations under FCRA continue in force for one year from September 29, 2015, or till notified by SEBI.

This circular is issued to consolidate and update norms prescribed by the erstwhile FMC regarding monitoring of and levy of penalty for short-collection/non-collection of margins.

Margins include initial margin, extreme loss margin (ELM), mark to market margin, special/additional margin, delivery margin, or any other margin prescribed by the Exchange.

Members must collect upfront initial margins; they have until T+2 working days to collect other margins. Clients must pay initial margins in advance and other margins as soon as calls are made.

Members shall report actual short-collection/non-collection of all margins from clients to the Exchange on the T+5 day.

Penalty is levied per day on members for short/non-collection beyond T+2: 0.5% if shortfall < INR 1 lakh and < 10% of margin; 1.0% if shortfall >= INR 1 lakh or >= 10% of margin.

For short-collection/non-collection of initial margins, the penalty structure applies from the T day.

Exchanges must put in place a mechanism for members to report collection of all margins at the end of each trading day and short-collection/non-collection on the T+5 day.

All instances of non-reporting amount to 100% non-collection of margin, and the prescribed penalty shall be charged.

Exchanges shall collect the penalty not later than five days of the last working day of the trading month.

For members defaulting 3 times or more during a month, the penalty is 5% of the shortfall from the 4th instance onwards.

All penalties collected shall be credited to the Investor Protection Fund.

Source: SecMarx — Mechanism for regular monitoring of and penalty for short-collection/non-collection of margins from clients. Verbatim text is public record; SecMarx structuring (linkage to applying orders) is cited to us.