The Securities and Exchange Board of India (Sebi) yesterday decided to bring institutional investors _ foreign institutional investors, domestic financial institutions, mutual funds and banks _- within the ambit of margins.
The regulator will work out the quantum and modalities after a meeting with the institutions, to be convened within a week.
Sebi also said that 50 per cent of all additional capital and margins furnished by brokers to an exchange would have to be in cash by March-end.
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In the meantime, it decided to slap a daily margin of five per cent on net outstanding positions of brokers till the end of the settlement, in 10 scrips identified as having huge outstandings, volumes and volatility.
The regulator will also work out a new model for calculating volatility (and the subsequent additional volatility margin). It will measure short-term volatility in addition to the current system that measures volatility over a six-week period.
Brokers have also been directed to collect margins from all clients where the margins are in excess of Rs 1 lakh, a move never enforced strictly in the past.
The 10 scrips on which the five per cent margin will be applicable are: Infosys Technologies, Satyam Computers, Himachal Futuristic Communications, Silverline Technologies, NIIT, Zee Telefilms, Global Telesystems, Pentamedia Graphic, Digital Equipment and DSQ Software. This list will be modified from time to time.
The list comes in the wake of 11 scrips described by the National Stock Exchange last week as being highly risk-prone owing to high volatility and outstanding positions.
Sebi chairman D R Mehta yesterday held discussions with representatives of the National, Bombay, Calcutta, Delhi, Ahmedabad and Uttar Pradesh stock exchanges. He said it was felt that a sizeable segment of the market (institutions) had till now been kept away from the ambit of the margin framework.
"A flat margin could be imposed. We want to discuss the issue with institutions before we announce the modalities. There could be an issue pertaining to FIIs not being able to bring in advance funds to pay margins. Issues like this, if found relevant, would be discussed and efforts made to iron out these difficulties. But in principle, we have decided to impose margins on institutions," Mehta said.
This issue has been hanging fire for over three years. But recently, exchanges had told Sebi that it was high time these investors were brought within the ambit of margins as they were trading actively these days and thus posed as much of a threat to the markets as any other investor.
"It was considered that it would be appropriate to bring the institutional trades also under the purview of margins. The group recommended that, to begin with, a flat margin should be imposed. The modalities would be worked out after a meeting with the institutions within a week," said a Sebi statement. Stock exchanges have been asked to bring the cash component in additional capital and margins, up to 50 per cent by March-end in a phased manner. Currently, only 25 per cent of the margins and additional capital are payable in the form of cash. Recently, Sebi had said that top 25 brokers at every exchange would have to bring all additional capital and margins only in cash or FDRs. This decision would remain.