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NEW CIRCULAR OF SEBI ON MARGINAL TRADING

Courtesy/By: THEJA G SHASTRI | 2020-08-01 12:06

NEW CIRCULAR OF SEBI ON MARGINAL TRADING 

 Amidst the covid-19 pandemic, Securities Exchange Board of India (SEBI) which is the regulator of securities and commodity market, has issued a circular in which SEBI has eased the compliance requirement for brokers, depositaries and the share transfer agents till 30th of September 2020 with respect to processing of Demat Account Request Form by issuer or registrar of share transfer agents (RTA) and depositary participants (DP), and SEBI has also issued a circular regarding New Marginal Rules. 

Margin is the upfront amount that brokers collect as security to extend leverage. Margin trading is a process where individual investors buy more stocks than what they can afford. To claim derivative trading limits, shares can be placed as margins. To transfer client shares into separate margin accounts, the broker has been using Power of Attorney (PoA) to do the same. Since the broker held PoA, they did not have to seek permission from clients to transfer shares for marginal trading. But now SEBI has discontinued PoA process for marginal trading, instead now SEBI has made it mandatory to pledge client's shares with brokers. For now, SEBI has allowed the brokers to continue marginal trading with power of attorney from their client’s shares till august 31st 2020 

This revocation of pledge attracts charges from depositary participants, and this charge has to be taken care by the clients. Two depositary participates i.e., Central Depository Service Limited (CDSL) and National Service Depository Limited (NSDL) hold all the Demat accounts. Crores worth of pledges will have to be created and revoked on a daily basis. The new circular with updated rules and regulations was released by SEBI that has granted brokers a month time, so they can apply new rules and regulations regarding marginal trading where they can restrict the risks which could be coming from the same, which is currently happening in the situation of COVID-19. 

Courtesy/By: THEJA G SHASTRI | 2020-08-01 12:06