SEBI comes out with timelines for brokers to collect margins

Capital markets regulator SEBI on Monday issued revised timelines for stock brokers and clearing members to collect margins from clients in the cash market segment. The regulator directed brokers to collect all other margins, except value at risk (VaR) and Extreme Loss Margin (ELM), by the T+1 settlement day.

Currently, trading members and clearing members (CMs) are required to mandatorily collect upfront VaR margins and ELM before allowing clients to trade. They had up to T+2 working days to collect other margins.

However, with the cash market now operating on a T+1 settlement cycle, SEBI has decided that brokers must collect all other margins by the settlement day itself, according to a circular issued by the regulator.

The decision was taken after considering representations from the Brokers’ Industry Standards Forum.

"With effect from January 27, 2023, the settlement cycle has been reduced from T+2 to T+1 across all scrips in the cash market.

"In this regard, based on representation received from the Brokers' Industry Standards Forum (ISF) and to ensure a more robust risk management framework, it has been decided that keeping in view the change in the settlement cycles, the TMs (trading members)/CMs (clearing members) shall be required to collect margins (except VaR margins and ELM) from their clients by the settlement day," Sebi said in its circular.

The circular clarified that if clients complete pay-in of funds and securities by the settlement day, it would be deemed that margins have been collected, and no penalty for short or non-collection would be imposed. In case pay-in is not completed and margins are not collected by the settlement day, penalties will apply.

The revised framework comes into force with immediate effect.