SEBI New Margin Rules – How it will impact Investors?
There are a lot of discussions going on about the new margin rules introduced by the Stock Exchange Board of India (SEBI) recently. SEBI has introduced these new margin rules for standardizing the leverage norms and to achieve transparency in the stock market. This new pledging mechanism will also protect the investors’ interest and prevent brokers from misusing clients’ securities.
What does the Pledging of Securities means?
Using our stocks as securities for availing a loan just like we mortgage gold jewellery for a gold loan is known as Pledging of securities.
The New Margin rules:
Here are the new margin rules as announced by Securities & exchange board of India:
- Transfer of Pledged Shares: The shares will be directly pledged to the clearing corporation that is CDSL or NSDL. The investors will now enjoy all corporate benefits on their shares as these shares are already in their Demat account and not transferred to the broker’s account.
- Upfront margin collection: It has become compulsory for the brokers to collect margins from the investors upfront for any buying or selling of shares.
- Power of Attorney: There will be no Power of Attorney (POA) assigned to brokers by the investors. Earlier the investors had to give authority to the brokers for executing the transactions on their behalf.
- To Avail Margin: For availing margin, now the investors need to create a margin pledge separately.
- Margin Loan: Earlier collecting upfront margin wasn’t compulsory but now the investors will have to pay a minimum 20% margin upfront in the cash segment for availing a margin loan.
- Using intraday profit: The shares that are bought today cannot be sold tomorrow. Earlier the investors used intraday profits for making new positions on the same trading day but now the investors will be able to use it only after T+2 days once they get the shares in your account.
Earlier the stocks used to move to the broker’s account once the investors pledge their securities but now it will be kept in the investor’s Demat account. The broker will have to open a separate Demat account called ‘TMCM – Client Securities Margin Pledge Account’ for this purpose. The broker will then have to re-pledge these securities to the Clearing Corporation for obtaining margins. The broker is considered as the custodian of securities but some brokers have already been found guilty of misusing client funds and collaterals.
Thus this new margin pledge rules will help in addressing this problem as well as protect the interest of the investors.
