Sebi makes it mandatory for
brokers to report client-level collateral
regulator Sebi on Tuesday came out with a framework for segregation and
monitoring of collateral at client level amid instances of misuse of client
collateral by trading members.
it has put in place a reporting mechanism that will entail disaggregated
information -- segment-wise and asset type wise break-up -- of each client
collateral, according to a circular.
measures will help in further strengthening the mechanism of protection of
client collateral from misuse by trading member (TM) or clearing member (CM)
and default of such members and other clients.
move comes in the wake of the Karvy Stock Broking crisis where clients' shares
had been pledged illegally as collateral against loan.
of client collateral refers to the procedures that enable identification and
protection of client collateral from misuse by trading or clearing member and
protection from default of such member or other clients.
view to providing visibility of client-wise collateral (for each client) at all
levels-- trading member, clearing member, and clearing corporation (CC), Sebi
said a reporting mechanism covering both cash and non-cash collateral will be
specified by the CCs.
this, TM would report disaggregated information on collaterals up to the level
of its clients to the CM.
clearing member would report disaggregated information on collaterals up to the
level of clients of TM and proprietary collaterals of the TMs to the exchanges
and clearing corporations. This information would be required to be reported on
a daily basis.
a web portal facility would be provided by the clearing corporations/ exchanges
to allow clients to view disaggregated collateral reporting by TM/CM.
of securities collateral provided to CC through margin pledge or re-pledge in
the depository system, Sebi said CC has visibility of the client to whom such
securities belong to, and accordingly is able to assign the value of the
securities collateral, based on applicable haircut, to that client's account.
for other forms of collateral placed with the CC, the CCs will provide a
facility to CMs for upfront segment-wise allocation of collateral to a TM/
client or CM's own account.
will use such collateral allocation information to ensure that the collateral
allocated to a client is used towards the margin obligation of that client
further said there will be no change in the procedures pertaining to placing of
securities as collateral through the margin pledge or re-pledge mechanism in
the depository system, and this collateral will be identified as belonging to a
client or as being proprietary securities of the TM or CM, as per the existing
to Sebi, allocation provided by the CM to CC and by TM to CM will be considered
as final by the CC and CM respectively for the purpose of granting exposure and
utilisation during default.
false allocation by members shall be treated as a violation and disciplinary
action shall be taken against the members," the Securities and Exchange
Board of India (Sebi) noted.
TM/CM will have to ensure that sufficient collateral is allocated to clients to
cover their margin requirements.
if the client margin applicable at the CC for a client in a segment exceeds the
collateral allocated to the client plus the securities collateral re-pledged to
CC (from that client's account) in the respective segment, then the proprietary
collateral of the TM/CM will be blocked.
Sebi has laid down guidelines on collateral deposit and allocation, collateral
valuation, blocking of margin, withdrawal of collateral and default and default
regulator said the framework pertaining to reporting mechanism and collateral
deposit as well as allocation will come into effect from October 1, while other
provisions will become effective from December 1.