Sebi slaps margin on ALBM

The risk management committee of Sebi, which met here today, decided that the incremental carryforward margin – applicable for both ALBM and badla trades – would be based on a combination of outstanding paid-up shares and the absolute outstanding market-wise carryforward position in a scrip.

The formula would be worked out by Sebi and intimated to the stock exchanges soon, Sebi said in a statemenet. The margin as prescribed by Sebi varies from 5 per cent to 30 per cent depending on the outstanding paid up shares, while some of the stock exchanges levy additional carry forward margin based on the absolute outstanding market position in the scrip.

While in the case of badla, financiers have to deposit the shares with the clearing house and no margins are charged on their positions, under ALBM the financiers have the option to withdraw the shares provided the normal margins are paid. And if the financiers deposit their shares with the clearing corporation no margins are necessary. It was decided at today’s meeting that in addition, positions of ALBM financiers who would be withdrawing the shares "should be included in the overall limit of Rs 40 crore and scrip-wise limit of Rs 5 crore."

Further, margins for both type of transactions would be payable 100 per cent in cash or fixed deposits or government securities or combination of these. While some exchanges have already moved towards 30 per cent margin payment in cash, other exchanges would soon fulfill this requirement and margins for both segments would be collected accordingly.

Sebi noted that the higher mark to market and daily exposure margins levied by some of the stock exchanges would apply equally to both ALBM and badla – "the purpose of these margins is different and therefore they should be paid separately as per the Sebi circular."

Stock exchanges will also be required to disclose daily net open position of the top 500 scrips – this list will be released soon in consultation with the exchanges.

Meanwhile in line with Sebi’s intention of moving towards margining on gross positions, the regulator has told the exchanges to modify their software within three months time, so that client code would become mandatory at the broker level.

Taking congnisance of the influence of day traders in the market, Sebi has decided that all investors, excluding institutions, would be required to maintain margin deposits not less than 10 per cent of the net open position of a client at any point of time. However, actual delivery of shares sold or actual payment made would be excluded from the net position.

The risk management committee is now examining further simplification of margins applying Value at Risk model and taking into account the beta values of stocks. This model will be discussed at the next meeting of the group.