Framework to Enable Verification of Upfront Collection of Margins from Clients in Cash and Derivatives segments- (Securities and Exchange Board of India) (20 Jul 2020)

MANU/SDER/0009/2020

Capital Market

1 With respect to equity derivatives and currency derivatives segments, Stock Exchanges/Clearing Corporations have mandated clearing members/trading members to collect applicable margins from their clients/constituents on an upfront basis. Similarly, SEBI Circulars CIR/CDMRD/DRMP/01/2015 dated October 01, 2015 and SEBI/HO/CDMRD/DRMP/CIR/P/2016/80 dated September 07, 2016 directed to National Commodity Derivatives Exchanges, inter alia, require members to collect Initial Margin and ELM upfront from their clients as applicable at the time of the trade.

2 In order to align and streamline the risk management framework of both cash and derivatives segments, with respect to collection of margins from the clients and reporting of short-collection/non-collection of margins, SEBI, vide Circular no. CIR/HO/MIRSD/DOP/CIR/P/2019/139 dated November 19, 2019, inter alia, required the Trading Members (TMs)/Clearing Members (CMs) in cash segment as well to mandatorily collect upfront VaR margins and ELM from their clients.

3 Subsequent to the aforesaid Circular dated November 19, 2019, representations were received from the market participants raising issues in operationalization of collection of upfront margin from clients. SEBI held detailed discussions with the market participants so as to evolve a monitoring mechanism for verification of upfront collection of margin from clients.

4 Based on deliberations with the market participants, with an objective to enable uniform verification of upfront collection of margins from clients by TM/CM and levy of penalty across segments, it has been decided that the Stock Exchanges/Clearing Corporations shall adopt the framework specified in the Annexure, for the purpose of 'Mechanism for regular monitoring of and penalty for short-collection/non-collection of margins from clients' in Cash and Derivatives segments.

5 It is reiterated that the applicable upfront margins are required to be collected from the clients in advance of the trade. The aforesaid framework prescribed in the Annexure is only for the purpose of verification of upfront collection of margin and levy of penalty.

6 The provisions of the Circular SEBI/HO/CDMRD/DRMP/CIR/P/2019/149 dated November 29, 2019 shall, accordingly, be amended to the extent mentioned above. All other provisions/conditions specified in the Circular dated November 29, 2019 shall remain unchanged.

7 The provisions of this Circular shall come into effect from December 01, 2020.

8 Stock Exchanges and Clearing Corporations are directed to:

a) take necessary steps to put in place systems for implementation of the circular, including necessary amendments to the relevant bye-laws, rules and regulations;

b) bring the provisions of this circular to the notice of their members and also disseminate the same on their websites; and

c) communicate to SEBI, the status of implementation of the provisions of this circular in the Monthly Development Report.

9 This circular is issued in exercise of the powers conferred under Section 11(1) of the Securities and Exchange Board of India Act 1992, read with Section 10 of the Securities Contracts (Regulation) Act, 1956 to protect the interests of investors in securities and to promote the development of, and to regulate the securities market.

Tags : VERIFICATION MARGINS CLIENTS