New margin pledge system: Sebi to meet brokers, depositories on Monday

Markets regulator Securities and Exchange Board of India (Sebi) will again meet stock brokers’ association, depositories and clearing corporations on Monday to analyse the readiness to implement new rules on margin pledge from September 1, sources in the know said.

They also said brokers are not technically prepared to roll out the proposed framework and are seeking a month’s extension to implement the same.

This would be their third meeting with Sebi. The regulator has already met twice this month and discussed the preparedness with the depositories (CDSL and NSDL), stock brokers association and clearing corporations.

A member of Association of National Exchanges Members of India (Anmi) said it would be complete disaster if the new system on pledge or repledge comes into effect from September 1.

Anmi comprises around 900 stock brokers from across the country.

“There would be a total chaos in the market as a survey conducted by Anmi found that 90 per cent of brokers are not ready to start the new mechanism on pledge or repledge because of the pandemic,” an Anmi member said.

Further, back-office vendors have clearly expressed their inability to develop the new module and carry out changes in their core application which affects pay in, payout, collateral management and margin obligations.

The member further said brokers would be able to manage it in case a month's extension is granted by the capital markets watchdog.

Brokers said their working capital management will go haywire while implementing and complying with the new  measures due to the time gap between release and repledge.

Stock brokers are requesting for the simultaneous co-existence of the current systems of title transfer, and the proposed pledge system till September 30.

However, Sebi in July had said that trading members (TMs) or clearing members (CMs) should accept client securities as collateral by way of title transfer into the client collateral account as per the present system by August-end.

The regulator had allowed co-existence of the current title transfer collateral mechanism and the new pledge and repledge process till August 31 and had said no further extension will be granted.

Sebi had come out with the norms way back in February, which was scheduled to come into effect from June 1. It was extended to August 1 and thereafter to September 1 after receiving representations from brokers regarding changes to the systems and software development.

The new framework is aimed at ensuring safety of investors' securities.

Under the framework, trading members or clearing members will require to align their systems and accept client collateral and margin-funded stocks by way of creation of pledge and repledge in the depository system.

Depositories should provide "margin pledge" for pledging clients' securities as margin to the TM or CM. The latter should open a separate demat account for accepting such margin pledge, which should be tagged as "client securities margin pledge account".

To provide collateral in the form of securities as margin, a client will be required to pledge securities with TM, and TM will repledge the same to CM, and CM in turn will repledge the same to clearing corporation.

The complete trail of such repledge will be reflected in the demat account of the pledgor.