Sebi set to allow cross-margining

The Securities and Exchange Board of India (Sebi) would be introducing cross-margining soon, once appropriate risk management systems were in place, said Sebi chairman G N Bajpai.

With cross-margining in place, the kind of market crash seen on Monday is unlikely to recur, if margins alone are the problem in the market.

Cross-margining is a term that refers to using the unutilised portion of brokers' margin requirements in the cash segment to cover the margin in the derivatives segment or vice versa.

Cross-margining will take the pressure off brokers to a great extent, especially when margin pressures become too great.

This is all the more in the case of futures and options, where the margining requirements are higher than for the cash segment.

Bajpai said cross-margining was important because it led to efficient utilisation of brokers' resources. "But we have to ensure that the proper risk management systems are in place," he added.

Some marketmen say that cross-margining is sorely required, especially since the volumes in the derivatives segment have been steadily increasing and outstripping volumes in the cash segment.

Asked about Sebi's inquiry into the market crash last Friday and Monday, Bajpai said data Sebi sought from the exchanges for Monday, Tuesday and Wednesday were all "being analysed".

On being pressed if Sebi was specifically looking at whether a "bear cartel" had been in operation, he replied that so far there had been nothing unusual in the data, and if they found any indications of manipulation, the guilty would be punished.