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New margin norm: Will help strengthen the capital markets

by Naranayn Gangadhar (CEO, Angel One)
May 17, 2022
New margin norm: Will help strengthen the capital markets, Market, KonexioNetwork.com

Effective May 02, 2022, SEBI’s circular on segregation and monitoring of collateral at the client level has been implemented. This regulation is another important step to fortify the interests of investors, especially the retail participants, thereby helping strengthen the capital markets. Earlier, brokers were required to collect margins from clients and deposit the collateral with exchanges on an aggregate basis, i.e. at trading member / broker level, without segregation at client level, wherein at least 50% of the total collateral was required to be in the form of cash or cash equivalents. From May 02, 2022, under the new regulation on segregation of clients’ funds, brokers are now required to segregate cash & non cash margins at client level and report to the same to exchanges.

Under the extant regulation if a client provides margins in the form of securities, which is in excess of the maximum allowed proportion of 50% of the total margins, then the differential cash component to the extent of 50% can be funded by the broker from its own funds. This means that clients can still trade in the markers with moreof proportionate share of securities as margin collateral, however, the cash component of atleast up to 50% has then to be funded by the broker.

If the stock brokers allow the differential funding of cash to their clients in lieu of securities as margin collaterals, there will  an increase in  working capital requirements for such brokers, with only those well capitalized and better rated brokers having access for such incremental capital.

However, at Angel One, nothing changes, as not only are we  well capitalised but also have a good rating for our funding requirements. Therefore, we will continue to allow our clients to trade even if they do not have the mandatory 50% cash margins. Our robust risk management systems and adequate internal accruals / working capital facilities, will enable us to fund the extra non cash margin collateral provided by clients through our own / borrowed funds. Whilst this ensures seamless trading for our clients without an immediate requirement for them to bridge the cash collateral shortfall, it also is a USP amongst our peer group.