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Securities and Exchange Board of India

CIRCULAR

CIR/MRD/DP/54/2017 June 13, 2017

To,
All Stock Exchanges

Dear Sir/Madam,

Sub: Comprehensive Review of Margin Trading Facility

1. SEBI vide circular SEBI/MRD/SE/SU/Cir-15/04 dated March 19, 2004 had

prescribed framework for permitting stock brokers to provide margin trading
facility to their clients. The said framework was revised vide circular
SEBI/MRD/SE/SU/Cir-16/04 dated March 31, 2004 and circular MRD/DoP/SE/Cir-
08/2005 dated March 04, 2005.

2. Representations have been received from market participants requesting review of

margin trading framework to enable greater participation. The suggestions received
from market participants were examined and deliberated in the Secondary Market
Advisory Committee ("SMAC"). Based on the deliberations, the revised framework
for Margin Trading Facility are stated as under:

Securities Eligible for Margin Trading

3. Equity Shares that are classified as 'Group I security' as per SEBI Master circular No.
SEBI/HO/MRD/DP/CIR/P/2016/135 dated December 16, 2016, shall be eligible for
margin trading facility.

Margin Requirement

4. In order to avail margin trading facility, initial margin required shall be as under;

Category of Stock Applicable margin

Group I stocks available for trading VaR + 3 times of applicable ELM*
in the F & O Segment
Group I stocks other than F&O stocks VaR + 5 times of applicable ELM*

*For aforesaid purpose the applicable VaR and ELM shall be as in the cash segment
for a particular stock.

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5. The initial margin payable by the client to the Stock Broker shall be in the form of
cash, cash equivalent or Group I equity shares, with appropriate hair cut as specified
in SEBI Master circular no. SEBI/HO/MRD/DP/CIR/P/2016/135 dated December
16, 2016.

6. The Stock brokers shall be required to comply with the following conditions:

i. The stocks deposited as collateral with the stock broker for availing margin
trading facility (Collaterals) and the stocks purchased under the margin
trading facility (Funded stocks) shall be identifiable separately and no
comingling shall be permitted for the purpose of computing funding
amount;
ii. Collateral and Funded stocks shall be marked to market on a daily basis;
iii. In case of increase in the value of Collaterals, stock brokers may have the
option of granting further exposure to their clients subject to applicable
haircuts;
iv. However, no such exposure shall be permitted on the increased value of
Funded stocks.

7. Stock brokers shall ensure maintenance of the aforesaid margin at all times during
the period that the margin trading facility is being availed by the client. In case of
short fall, stock broker shall make necessary margin calls.

8. The exchange/stock broker, based on the risk assessment, shall have the discretion
to impose/collect higher margin than the margin specified in para-4 above.

Liquidation of Securities by the Stock Broker in Case of Default by the Client

9. The stock broker shall list out situations/conditions in which the securities may be
liquidated and such situations/conditions shall be included in the “Rights and
Obligations Document”. The broker shall liquidate the securities, if the client fails to
meet the margin call to comply with the conditions as mentioned in this circular or
specified in the "Rights and Obligations Document" specified by exchange.

10. However, the broker shall not liquidate or use in any manner the securities of the
client in any situation other than the conditions stipulated at para-9 above.

Eligibility Requirements for Stock Brokers to Provide Margin Trading Facility to

Clients

11. Only corporate stock brokers with a net worth of at least Rs.3.00 crore shall be
eligible to offer margin trading facility to their clients.

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12. The “net worth” for the purpose of margin trading facility shall be as specified in SEBI
(Stock Brokers and Sub-Brokers) Regulations, 1992.

13. The stock brokers shall submit to the stock exchange a half-yearly certificate, as on
31st March and 30th September of each year, from an auditor confirming the net
worth. Such a certificate shall be submitted not later than 30th April and 31st
October of every year.

Source of Funds

14. For the purpose of providing the margin trading facility, a stock broker may use own
funds or borrow funds from scheduled commercial banks and/or NBFCs regulated
by RBI. A stock broker shall not be permitted to borrow funds from any other source.

15. The stock broker shall not use the funds of any client for providing the margin
trading facility to another client, even if the same is authorized by the first client.

Leverage and Exposure Limits

16. At any point of time, the total indebtedness of a stock broker for the purpose of
margin trading shall not exceed 5 times of its net worth, calculated as per para 12
above.

17. The maximum allowable exposure of the broker towards the margin trading facility
shall be within the self imposed prudential limits and shall not, in any case, exceed
the borrowed funds and 50% of his “net worth”.

18. While providing the margin trading facility, the broker shall ensure that:

a) exposure to any single client at any point of time shall not exceed 10% of the
broker’s maximum allowable exposure, as specified in para 17 above.

b) exposure towards stocks purchased under margin trading facility and

collateral kept in the form of stocks are well diversified. Stock brokers shall
have appropriate Board approved policy in this regard.

Disclosure Requirement

19. The stock broker shall disclose to the stock exchanges details on gross exposure
towards margin trading facility including name of the client, Category of holding
(Promoter/promoter group or Non-promoter), clients' Permanent Account Number
("PAN"), name of the scrips (Collateral stocks and Funded stocks) and if the stock
broker has borrowed funds for the purpose of providing margin trading facility,
name of the lender and amount borrowed, on or before 12 noon on the following
trading day. The format for this disclosure by the stock broker to the stock exchange
is enclosed at Annexure 1.
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20. The stock exchanges shall disclose on their websites the scrip wise gross outstanding
in margin accounts with all brokers to the market. Such disclosure regarding margin
trading done on any day shall be made available after the trading hours, on the
following day, through its website. The format for such disclosure by the stock
exchange is enclosed at Annexure 2.

21. The stock exchanges shall put in place a suitable mechanism to capture and maintain
all relevant details including member-wise, client-wise, scrip-wise information
regarding outstanding positions in margin trading facility and also source of funds
of the stock brokers, on the exchange both on daily as well as on cumulative basis.

Rights and Obligations for Margin Trading

22. The stock exchanges shall frame a Rights and Obligations document laying down the
rights and obligations of stock brokers and clients for the purpose of margin trading
facility. The Rights and Obligations document shall be mandatory and binding on the
Broker/Trading Member and the clients for executing trade in the Margin Trading
framework.

23. The broker/exchange may modify the Rights and Obligations document only for
stipulating any additional or more stringent conditions, provided that no such
modification shall have the effect of diluting any of the conditions laid down in the
circular or in the Rights and Obligations document.

Maintenance of Records

24. The stock broker shall maintain separate client-wise ledgers for funds and securities
of clients availing margin trading facility.

25. The stock broker shall maintain a separate record of details of the funds used and
sources of funds for the purpose of margin trading.

26. The books of accounts, maintained by the broker, with respect to the margin trading
facility offered by it, shall be audited on a half yearly basis. The stock broker shall
submit an auditor’s certificate to the exchange within one month from the date of the
half year ending 31st March and 30th September of a year certifying, inter alia, the
extent of compliance with the conditions of margin trading facility. This certificate is
in addition to the certificate on net worth specified in para 12 above.

Other Conditions

27. A broker shall take adequate care and exercise due diligence before providing
margin trading facility to any client.

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28. Any disputes arising between the client and the stock broker in connection with the
margin trading facility shall have the same treatment as normal trades and should
be covered under the investor grievance redressal mechanism, arbitration
mechanism of the stock exchange.

29. SGF and IPF shall be available for transactions done on the exchange, whether
through normal or margin trading facility. However, any losses suffered in
connection with the margin trading facility availed by the client from the stock
broker shall not be covered under IPF.

30. The stock brokers wishing to extend margin trading facility to their clients shall be
required to obtain prior permission from the exchange where the margin trading
facility is proposed to be offered. The exchange shall have right to withdraw this
permission at a later date, after giving reasons for the same.

31. This circular shall supersede earlier circulars no SEBI/MRD/SE/SU/Cir-15/04 dated

March19, 2004, SEBI/MRD/SE/SU/Cir-16/04 dated March 31, 2004 and
MRD/DoP/SE/Cir-08/2005 dated March 04, 2005 on Margin Trading Facility.

32. The Stock Exchanges are advised to:-

a. take necessary steps and put in place necessary systems for implementation of
this circular.
b. make necessary amendments to the relevant bye-laws, rules and regulations for
the implementation of the above decision.
c. bring the provisions of this circular to the notice of the member brokers of the
stock exchange and also disseminate the circular on the website.

33. This circular is being issued in exercise of the powers conferred by Section 11 (1) of
Securities and Exchange Board of India Act, 1992 to protect the interest of investors
in securities and to promote the development of, and to regulate the securities
market.

Yours faithfully

Susanta Kumar Das

Deputy General Manager
e-mail: [email protected]

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 Annexure 1

Format of the Daily Reporting by the members to the Exchange on the amount
financed by them under the Margin Trading Facility

Name of the member Clearing No.

Name of Category of Holding PAN Name of Stock Qty Amount

Client ( Promoter/Promoter Stock Exchange Financed Financed
Group or Non (Collatera ( Number ( In lakhs)
Promoter l or of
Funded shares)
Stock)

SI. Particulars (Rs. in lakhs)

NO. 1 Total outstanding on the beginning of the day
2 Add: Fresh exposure taken during the day
3 Less: Exposure liquidated during the day
4 Net outstanding at the end of the day

Source of Funds

1 Out of net worth

2 Out of borrowed funds
3 If borrowed, name of lenders and amount borrowed to be
specified separately

Note: Disclosure is required to be made on or before 12 noon on the following trading day.

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 Annexure 2

Format for the dissemination of information by the stock exchange

Name of the Stock Qty. financed by all the Amount financed by all
members the members (Rs. in
(Number of shares) lakhs)

SI. No. Particulars (Rs. in lakhs)

1 Scrip-wise total outstanding on the beginning of the day
2 Add: Fresh exposure taken during the day
3 Less: Exposure liquidated during the day
4 Net scrip-wise outstanding at the end of the day

Note : Disclosure is required to be made immediately before end of the following trading day
( in respect of previous day’s margin trading facility) .

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