The Securities and Exchange Board of India (SEBI) has scheduled a meeting with brokers, leading corporates, exchanges to assess the new margin pledge and re-pledge system from September 1, 2020.
While depositories claim they are fully ready, brokers say that the backend system of more than 75 percent of them is not fully equipped. There are 1,500 brokers.
SEBI had come out with the norms in February 2020, and it was to come into effect from June 1. The deadline was extended to August 1 and then to 1st September.
Under the existing system, investors don’t have to pay upfront margin in the cash segment as cash margins are looked after by the broker.
Under the proposed system, brokers will have to collect margin from investors upfront for both buying and selling of securities. The securities in the demat account will not automatically become available to receive margins.
It would require stock exchanges to integrate client codes in demat accounts, depositories to enable the pledge and re-pledge system, and clearing corporations to provide margin limits to members.
Pledging through margin limits the risk exposure to the securities that has been used as a collateral. In case one cannot repay the margin, the broker liquidates the stocks in the margin account to recover the debt.
Recently, SEBI imposed a penalty on Bank of Baroda, SBI for non-compliance of mutual fund norms. Read here.
