Sebi allows early pay-in margin relief for subsequent trades

The Securities and Exchange Board of India (Sebi) on Thursday, October 22, announced margin relief for subsequent cash-market trades by clients whose early delivery of sold securities has been accepted by a clearing corporation, Economic Times Markets reported, citing the regulator’s circular.

For a client with a net sell obligation in a settlement, the clearing corporation will stop collecting margins from the trading or clearing member on subsequent buy or sell positions, in real time, up to the eligible value of the accepted early pay-in (EPI). The relief is conditional on successful acceptance of the EPI request, rather than its submission alone.

How the eligible value is calculated

The clearing corporation will calculate the available EPI value on the trade date. It will use the lower of two amounts: the value of securities delivered through early pay-in and the value of securities sold.

When the client uses that benefit to take another cash-segment position on the same day, the clearing corporation will assess the available margin after deducting the eligible EPI value. The framework therefore links the relief to the accepted delivery and the underlying sale, rather than offering an unrestricted margin waiver.

Safeguards when the original sale is squared off

If the client squares off the sale position in the securities against which the benefit was used, the EPI value will be removed. Any resulting client margin shortfall will be blocked against the trading member’s or clearing member’s proprietary collateral.

Sebi said this condition would not apply to trade-for-trade securities because those transactions are settled on a gross basis.

Trading members must also configure their risk-management systems to permit clients to square off positions carrying EPI benefits, or take fresh positions, only when the required client margins are available. This places a margin-availability check alongside the relief.

Inputs behind the decision

The regulator said the changes followed proposals from the Broker ISF, recommendations from Sebi’s Risk Management Review Committee and internal deliberations.