Sebi revamps margining system

June 17: The Securities and Exchange Board of India SEBI has revised the margining system and has done away with concentration margins ...

June 17: The Securities and Exchange Board of India SEBI has revised the margining system and has done away with concentration margins in a bid to streamline and refine the existing systems on the stock exchanges.

With respect to mark-to-market margin, the margining committee of the SEBI which met here, decided that credit for mark to market gain in one scrip would now be adjusted against mark to market losses in other scrips on completion of trading cycle.

Earlier, margin exemptions were granted on the basis of declarations of sale for delivery. It has now been decided that exemption to margin and exposure limits would be given only on actual delivery. The committee felt that the volatility margin was calculated over a very short period of one week only and prescribed a new formula under which computation would be done over a six week rolling period.

8220;Volatility margins would be imposed if volatility computed exceeds 40 per cent in four slabs from five to 20 per cent, depending on the level ofvolatility. However, it would not be available for scrips below Rs 40,8221; Sebi senior executive director LK Singhvi said.

Singhvi said to bring uniformity in the composition of base capital and additional capital among the various exchanges, it was decided that at least 25 per cent of base capital would be maintained in cash and fixed deposits, out of which 12.5 per cent must necessarily be in cash.

Sebi prescribed that not more than 75 per cent should be in the form of fixed deposits, bank guarantees or securities. Additional capital would be deposited in the form of cash or bank guarantees or securities or fixed deposits, subject to condition that it should not exceed 75 per cent of the total additional capital.

Only those securities would be accepted as base capital which are part of BSE Sensex, Nifty, BSE-100, Junior Nifty, BSE-200 or NSE 200, he said. Scrips mandated for compulsory demat trading should be accepted in demat form only, Singhvi said adding that stock exchanges would be given threemonths time to ensure that no securities than those specified as base capital.

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The committee also decided that additional capital available with the stock exchange in the form of cash, bank guarantee, or fixed deposit be utilised for meeting margin requirements. Incremental carry forward margin has also been modified and a graded scale has been introduced ranging from five to 30 per cent as against a flat rate of 10 per cent for every one per cent increase of the carry-forward position.

Based on the overall assessment of risk and the rationalised margin system, the committee decided to discontinue the 90 day special margin as well as the concentration margin. The committee would also further deliberate to see if there is a need for harmonisation in exposure margins and daily carryforward limits, Singhvi said.

He clarified that these margins prescribed by Sebi are the minimum margins which the exchanges are expected to collect and in cases of excessive market volatility or circumstances where higherelement of risk exists, the exchanges are expected to impose higher margins and additional margins in the form of special or ad hoc or other margins considered appropriate by the exchanges. Earlier, stock exchanges differed in their interpretation of various margins, laying margins and methods in which adjustments were given.