On July 31, 2020, the Securities and Exchange Board of India (“SEBI”) issued a circular (“Circular”) on the collection and reporting of margins by trading member (“TM”)/ clearing member (“CM”) in cash segment.  

SEBI, vide, circular no. CIR/HO/MIRSD/DOP/CIR/P/2019/139, dated November 19, 2019 ("November 19 circular”), had issued guidelines with regard to the collection of margins from clients and reporting of short collection/ non-collection of margins by TM and CM. In view of the representations received from investors, TMs/CMs/stock broker associations, SEBI has decided to modify the November 19 circular to the following extent:

1. If TM/CM collects minimum 20% (twenty percent) upfront margin in lieu of VaR and extreme loss margin (“ELM”) from the client, then penalty for short collection/non-collection of margin will not be applicable. However, the clearing corporation is required to continue to collect the upfront margin from the TM/CM based on VaR and ELM.
2. The penalty provision for short collection/non-collection of upfront margin in cash segment will be implemented with effect from September 1, 2020.  

Please find a copy of the Circular dated July 31, 2020 here.

This update has been contributed by Adity Chaudhury (Partner) and Ishita Malhotra (Associate).