Sebi’s new margin rules

SEBI’s new margin rules aim at bringing transparency and preventing brokerages from misusing clients’ securities. While the brokers and other participants requested longer to form their systems ready, Sebi refused to increase by saying there was enough time to try the changes.

Here are the changes:

• The stock will still remain in the investor’s Demat account and may be directly pledged to the clearing corporation. because the securities remain in investors’ own Demat account, they’re going to enjoy all corporate benefits on their shares. Under the old system, cash margins were taken care of by the broker. investors either had to transfer their shares to the brokers’ account or give power of attorney (POA) to the broker. Some brokers went on to misuse the POA assigned to them.

• it’s mandatory for brokers to gather margins from investors upfront for any purchase or sale of shares. Failing to try to so will attract a penalty.

• No Power of Attorney (POA) to be assigned to brokers. The investors want to give authority to the brokers by way of the POA to execute transactions on their behalf. The POA can’t be used for pledging anymore.

• Investors who want to avail margin now need to create margin pledge separately. Earlier collecting upfront margin wasn’t mandatory, but under the new system, investors will need to pay a minimum of 30% margin upfront to avail a margin loan,” says Angel Broking.

• Shares bought today can’t be sold tomorrow. Currently, n investors can use intraday realized profits for taking new positions on an equivalent trading day. consistent with the new norms, you’ll be ready to use it only after T+2 days just in case of equity/stocks once you receive the delivery of shares in your account.

The new rules mandate the customer or seller of securities to possess 20 percent upfront margin in their account before getting into the transaction.
Also, the trader cannot use the realized take advantage of an intraday trade to enter into another trade.

Another aspect of the new rules is pledging shares for margin requirements. rather than cash, a broker’s clients can pledge shares worth the same amount. Before the new regulations came into force, the client would give his broker Power of Attorney (PoA) over his or her demat account. Using the PoA, the broker would transfer the shares from the client demat account to his own, then further pledge the shares with the clearing corporation to satisfy the margin requirements.

Need of Change in Rules:

• Many brokerages were found to be misusing the PoA. Sometimes one client’s shares would be wont to meet the margin requirement of another client. In some cases, the broker would borrow money using the client’s shares as collateral, without informing the client.
  
• Under the new rules, the pledged shares will still remain within the client’s demat account. The client must authorize a pledge request in his broker’s favor, and once that’s approved by the depository, the broker can then pledge those shares with the clearing corporation.

• First, the client has got to generate an invitation to pledge the shares using the broker’s terminal. He will receive an authentication request from the depository, CDSL, or NSDL, via SMS or email. The client should then follow the link within the email which can take him to the depository page where he has got to verify all the small print. Then, he will get a 1 Time Password (OTP) which he has got to enter for final approval.

• If approved successfully, the securities are going to be pledged with the broker who will successively place a repledge request with the clearing corporation.

• Large traders do multiple trades during a single day. the method for pledging of shares has suddenly got longer. Also, when a trader squares off his trade, the pledge on the shares put up as margin will need to be released and therefore the information has got to be conveyed to the depository. If there’s a delay, the trader won’t be ready to pledge the shares for subsequent trade. This restricts the trader’s ability to try to multiple trades and hurts the broker’s earnings also. Tags Brokers Margin norms SEBI Securities Exchange Board of India stock exchange. SEBI New Margin Rules – How it’ll impact Investors?