SEBI Eases Margin Rules For Subsequent Cash Segment Trades Backed By Early Pay-In Securities

On 22 October, the Securities and Exchange Board of India (SEBI) issued a circular allowing margin waivers on subsequent buy and sell positions in the cash segment, up to the value of securities for which the clearing corporation has accepted an Early Pay-In (EPI) request.

Under the existing framework, once the clearing corporation accepts a client's EPI request through the block mechanism, it treats the EPI value as margin for the sale transaction. The client can also use this value to meet subsequent margin requirements for other positions across segments.

Per the revised framework, the clearing corporation will not collect margins on a client's subsequent buy or sell positions up to the value of securities for which it has accepted an EPI request, provided the client has a net sell obligation.

The clearing corporation will calculate the available EPI value on the trading day based on the lower of the EPI value and the value of securities sold. If the client takes a position on the same day using the EPI benefit, the clearing corporation will assess margin availability after deducting the available EPI value.

If the client squares off the sale position against which it availed the EPI benefit, the clearing corporation will remove the EPI value. It will block any resulting client-level margin shortfall from the proprietary collateral of the Trading Member or Clearing Member. This provision will not apply to trade-for-trade securities settled on a gross basis.

SEBI has directed Trading Members to ensure that clients square off positions covered by EPI benefits or take new positions only when the required client margins are available with the Trading Member.

The circular will take effect within four months of its issuance.