SEBI eases margin rules for investors using early pay-in facility

Mumbai: The Securities and Exchange Board of India (SEBI) on Thursday introduced a revised framework under which clearing corporations will not collect margins on clients' subsequent buy or sell positions in the cash segment up to the value of securities for which an early pay-in (EPI) request has been successfully accepted.

The decision is intended to provide margin relief to investors who have a net sell obligation in a settlement and have completed the EPI process through the clearing corporation.

In a circular, SEBI said that where a client has a net sell obligation in a settlement and the EPI request for the sold securities has been accepted by the clearing corporation, margins will not be collected from the trading member (TM) or clearing member (CM) on the client's subsequent cash-market positions up to the amount covered by the accepted EPI.

According to the regulator, the move follows proposals received from the Broker Investor Service Fund (ISF), recommendations made by SEBI's Risk Management Review Committee (RMRC), and internal deliberations.

Under the revised mechanism, clearing corporations will calculate the available EPI value on the trade date. The value eligible for margin benefit will be the lower of the value of securities for which EPI has been made and the value of securities sold by the client.

When clients take fresh positions in the cash segment on the same day using the EPI benefit, clearing corporations will assess the available margin after adjusting the eligible EPI value.

However, the market regulator clarified that if a client subsequently squares off the sale position against which the EPI benefit was availed, the benefit will be withdrawn. Any margin shortfall arising from such action will be blocked from the proprietary collateral of the trading member or clearing member.

The regulator further stated that the provision will not apply to securities traded under the trade-for-trade segment, as such transactions are settled on a gross basis.

To ensure prudent risk management, SEBI has directed trading members to configure their risk management systems in a manner that allows clients to square off positions against which EPI benefits have been availed, or take fresh positions, only if the required margins are available.

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