Brokers still lobbying with Sebi to kill margin rules

Mumbai: The Association of National Exchanges Members of India (ANMI) has urged the market regulator Securities and Exchange Board of India (Sebi) to get rid of the concept of peak margins and tighter initial margin norms for intra-day trading in shares which will be applicable from December 1.In a letter to Sebi, ANMI said the very concept of peak margin will have a domino effect on the business models of the brokers and the exchanges. “The ultimate casualty will be the absence of leverage and killing liquidity which has its side effects on the smooth functioning of markets and attracting foreign institutional investors who currently are the mainstay in our markets.”ANMI believes that such steps will have severe unintended consequences to the smooth functioning of Indian markets thriving on leverage, liquidity and offshore participations.Sebi introduced several rules over the last two years to safeguard retail investors from any potential financial fraud at a brokerage firm. The regulator introduced the concept of peak margin reporting from December 1, which requires the clearing corporation to inform traders and investors at least four times a day about their margin requirements, which is not currently done. If brokers do not collect the margins upfront, they will have to pay a penalty to the exchanges.While ANMI acknowledges there have been several broker defaults in the past, at least there is nothing in the public domain to demonstrate that these defaults have been attributed to the leverage offered by brokers to their clients or default in collection of margins, it added.Under the new norms, brokers won’t be able to offer intra-day margins beyond VAR+ELM (Value at risk and extreme loss margin). Almost 30-35% of the intra-day turnover is based on additional leverage provided by brokers. The new norms may spell the death knell for intra-day trading, that constitute about 90% of the volumes in the market, say brokers.

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