What happens, if the proposed new norms on margin trading pledge come into force? The market regulator Sebi has already issued a circular in this regard. The new norm on pledged shares was supposed to be effective from August 1, 2020, however, Sebi extended the timeline to September 1. So, the existing norms on pledged shares will continue till August 31, 2020. Now, investors are keeping their fingers crossed over the new norms on ‘Margin Pledge,’ and how it’s going impact the trading?
If a trader wants to provide securities as margin for trading, he has to create a ‘Margin Pledge.’ This stipulates that investors have to pledge shares for margin. In the same manner, if a trader buys shares under margin trading, these securities are required to be pledged in favour of I-Sec upon receipt of payout of funded securities on settlement date. Such pledge will be continued till the investor pays for the balance fund obligation for such securities. For confirmation in both the cases, investor has to enter the OTP as soon as he gets SMS and e-Mail sent by depositories. Trader has to complete the OTP verification to authenticate Margin Pledge instruction so that he gets trading limit on shares as margin. If the trader fails to confirm the margin pledge and pledge within the prescribed norm and time, this will result in non-credit of trading limit or the trading system software will square off the margin trading open positions. Hence, OTP confirmation should be done on or before T+3 day or such other time per risk management system.
Investors, who currently hold positions in margin trading, are required to pledge from August 1, 2020, onwards. Investors need to confirm the same pledge instruction given by I-Sec to depository. Upon such confirmation, shares will be credited to investor’s demat account and will be market as pledged in favour of I-Sec based on the pledge confirmation. If the investor has not confirmed the pledge instruction, then all such positions will be squared off by August 31, 2020.
Brokers’ body ANMI voiced concerns over the upfront margin in cash market, which is effective from August 1, 2020, onwards. Association of National Exchanges Members of India (ANMI) said that the new norm would be a major threat to liquidity and affect the long-term viability of capital markets. According to the new norm, investors/traders have to maintain 100 per cent upfront margin to buy or sell stocks. Otherwise, investors/traders will be charged with penalty owing to ‘NIL’ or short collection of margin. ANMI said that it’ll coincide with non-considering power of attorney (PoA) for collection of margin.
G-Secs in demat form for new retail investors
With an objective of bringing new retail investors into the capital market, the market regulator Sebi said G-Secs in demat form would facilitate such move, while calling the industry to come forward and make bold investments in the market.
Ajay Tyagi, chairman, Sebi, emphasized the need to increase the participation of new retail investors in the capital market. “We have seen a huge surge in participation of retail investors in the equity market in the last few months. The fact that there is also a surge in opening up of demat accounts suggests that many of these retail investors are perhaps first-time investors in the stock market,” he added.
Tyagi spoke at ‘CAPAM 2020,’ 17th annual capital market conference, on the theme of ‘Atmanirbhar Bharat: Role of Capital Market.’ “With a view to facilitating a smooth and welcome entry of these newcomers to the capital markets, it would be ideal that they begin their journey by first investing in risk free G-Secs. The issuance of G-Secs in demat form, apart from easing the process of making investments by non-institutional participants in these securities, may also facilitate easier raising of the borrowings.”
In order to further improve the corporate bond and G-Secs market, Tyagi said that there was an inter-linkage between the corporate bond market and G-Sec market. “The required reforms in the corporate bond market should be brought in without any further loss of time. Unification of financial markets is an idea whose time has come.” Sebi further called for the integration of the market infrastructure for corporate bond and G-Sec markets. Having two separate ecosystems results in artificial segmentation of investors and divergent governance and regulatory norms for institutions in the two markets performing similar functions, he said.
Highlighting the potential of Indian financial market, Tyagi said that we are passing through difficult, stressful and uncertain times. However, the challenges also bring along with them several opportunities.
“The revival of the stock market and an uptick in fund raising by the corporates is encouraging. I exhort the captains of the industry to come forward and make bold investment decisions, and contribute towards building an Atmanirbhar Bharat,” he said.
In a bid to provide relief to companies affected by Covid-19, Tyagi said that Sebi has issued a number of relaxations to facilitate fundraising by the corporates. “SEBI has come out with relaxed norms for preferential issue pricing and exemption from open offer for eligible stressed companies. These relaxed norms, finalized after wide public consultation, can be used for restructuring of stressed companies without going through the IBC process. Of course, the guidelines have due safeguards built-in to prevent misuse,” he added.
AshishKumar Chauhan, managing director & CEO, BSE, said: “Smooth functioning of Indian markets during this time has proved beyond doubt that India is among the highest technology using nations in the world. The ability of the Indian IT and BPO sector with voice banking system and Sebi have proved that India is a reliable country with tremendous skills.”
Dr Sangita Reddy, president, Ficci, congratulated the SEBI and the entire capital markets for buoyant uninterrupted performance, while urging the market regulator to hasten the regulation enabling international listing.
Rashesh Shah, past president, Ficci, and chairman & CEO, Edelweiss Group, insisted on the need to work more on the development of the bond market. “Credit is an important part of the economy and we can’t have only the banking system to provide credit,” he said.
Sunil Sanghai, chairman, Ficci National Committee on Capital Markets, and founder & CEO, NovaDhruva Capital, said that we need to improve the depth and efficiency of the market and bring innovation to it.
Himanshu Kaji, co-chair, Ficci Capital Markets Committee, and executive director and group COO, Edelweiss Financial Services, said that the increasing use of technology was one silver line in these times and will play a key role in future of capital markets.
The writer is a business journalist with 27 years of experience