"In light of difficulties expressed by market participants regarding implementation of upfront margin of institutional trades in the cash market, it has been decided to keep the same in abeyance. Accordingly, institutional trades in the cash market would continue to attract margins on a T+1 basis till further directions," said a Sebi circular issued on Thursday.
In a circular issued by Sebi on April 19, all institutions were asked to deposit margin before purchase of stocks.
The move was aimed at bringing institutional investors on a par with retail investors. In the past, there was no margin system for institutional trades in the cash market, while brokers charge margins from retail customers for their trades.
"In order to provide a level playing field to all investors in the cash market as in the case of derivatives market, all institutional trades in the cash market would be subject to payment of margins as applicable to transactions of other investors," said the earlier circular.
In the futures and options segment, there is a margin system for both retail and institutional trades.
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Primary problems in implementing this move is the inefficiency of the banking system.The upfront margin would require the real time gross settlement (RTGS) system. RTGS is open only between 10 am and 2:30 pm, which is too short a time.
Besides, foreign institutional investors (FII) are not allowed to deposit securities as margins, which also causes inefficiency, say market players.