Sebi pushes back deadlines to segregate and monitor customer-level warranties

The Securities and Exchange Board of India (Sebi) has extended the deadline for implementing the framework on customer segregation and supervision by about two months.

The new system, under which a broker will have to segregate collateral at the client level, will come into effect on May 2.

“Sebi has received requests from various stakeholders to further extend the aforementioned deadline. It has been decided that the provisions of the said circular will come into effect from 02 May 2022,” said a note from the regulator on Thursday.

The regulator had developed a framework for client-level collateral segregation and oversight amid cases of misuse of client collateral by trading members and following the Karvy Stock brokerage scam where the clients’ shares had been illegally pledged as collateral against the loan.

Segregating client collateral will help protect client collateral from misuse by trading or clearing members.

Currently, brokers give limits on a combined basis across segments. However, the circular talks about the allocation of collateral against each segment – and therefore this system will require changes to the way traders and brokers operate and clients will need to indicate in advance where (cash, derivatives , etc.) they wish to negotiate.

Clients currently provide in many cases all of the equity collateral as a deposit and no cash or cash equivalent. However, the Clearing Member must maintain a 50/50 ratio (minimum 50% in cash) within the Clearinghouse.

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The Anmi brokerage body had made a representation to Sebi stating that the industry was not yet ready to migrate to the new system,

“Marketplace intermediaries are not fully ready with tested APIs between exchanges, clearing houses and trading members. Vendor front-end systems are also not ready for segmental limits. There are also practical areas such than the processing of remittances through payment aggregators, which is unclear,” said Sandip Raichura, CEO – Retail Brokerage and Distribution, Prabhudas Lilladher.

It is unclear whether the regulator would prefer a tiered approach in key areas such as defining 90% risk reduction at client level, which not only is costly for brokers but can also may not be necessary as the maximum margin and separate reporting standards are already in place. , he added.

“The intention is good as all this tightening is necessary from a safety perspective, but we sincerely hope the regulator will take a more measured stance on the phased implementation as this will lead to unnecessary business disruption,” he said. said Raichura.

“Some brokers provide a consolidated segment balance to clients on equities, equity derivatives, currencies and commodities. However, the broker will self-clear in the spot market segment and clear the derivative trades by through different Professional Clearing Members (PCMs), sometimes even one PCM for Equity Derivatives and another for Commodity Derivatives In such a scenario, how reporting and forking of client funds will occur they between segments,” Anmi had written in one of his submissions to Sebi.

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