On November 27, 2020, the BSE issued a notice (20201127-12) regarding the guidelines and clarifications on Peak Margin collection and reporting. This notice was in reference to SEBI’s circular - SEBI/HO/MRD2/DCAP/CIR/P/2020/127 - dated July 20, 2020. The said circular dealt with the “Framework to Enable Verification of Upfront Collection of Margins from Clients in Cash and Derivatives segments.”
Based on the contents of that SEBI circular, it was decided that the Stock Exchanges/ Clearing Corporations were to adopt the framework specified for the purpose of ‘Mechanism for regular monitoring of and penalty for short-collection/ non-collection of margins from clients’ in both the cash and derivative segments with effect from December 01, 2020.
The BSE, in its recent notice (20201127-12), elaborated on the guidelines regarding peak margin collection and reporting, as follows:
1. In case of any sale of shares by a client, if the early pay-in (EPI) of such shares has been accepted by the Clearing Corporation, then that would be considered as the upfront or peak margin for the said sale transaction.
In case of any sale of shares by a client, if the early pay-in (EPI) of such shares has been accepted by the Clearing Corporation and the credit entry of such sale value of the shares has been posted in the client’s ledger account, then the EPI value would be considered as the margin collected towards any possible subsequent margin requirements with regard to that client.
However, the sale value of such securities (or the EPI value), as reduced by value of the 20% upfront margin, shall be available as the margin for other positions across all other trading segments.
2. If the early pay-in of securities is made by the clients into the pool account of the trading member on the date of execution of the transaction, then, in such cases, the upfront/peak margin collection need not be done for such clients.
3. Depending on the availability of margin, the Trading Member can give clients exposure in different segments at different times. In other words, a client can square off the position in one segment during the day and use the same margin, which would be released due to the squaring off of the position, in different segments on the same day.
However, it is the responsibility of the member to execute proper risk management procedures and make sure that at every point during the day, the maximum exposure given to clients across segments does not exceed the margins available with the member for such clients. Members are also responsible for keeping track of all the square off positions and exposures during the day.
4. This next point was to clarify the process of collection and reporting of the peak margin on the settlement day (T+2), since the peak margin is generally captured in snapshots that are taken before the pay-in on T+2 day. In this regard, the notice clarified that if the member has collected sufficient upfront margin on T day, and if the same is available till the pay-in day, then such margin can be considered as the peak margin for the said transaction on the settlement day.
5. All upfront margins are to be collected from clients in advance, as applicable. Regarding the question of whether the member can release the margin on T day after they’ve fulfilled the peak margin obligation, the notice clarified that free and unencumbered collaterals can be released in case the peak margin obligation across all segments has been fulfilled.
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