Sebi puts off upfront margins plan for institutional investors

23 May 2008

Mumbai: The Securities and Exchange Board of India (SEBI) has decided to keep in abeyance the requirement of upfront margining for institutional trades, which was supposed to commence on June 16 this year.

The upfront margining plan, which was expected to create a level playing field among various classes of investors, was halted halfway, as the stock markets regulator said there are practical difficulties in implementing it.

Under the upfront margining plan, margins will be payable by the institutional investor prior to execution of the trade. This margin will be collected by the clearing corporation exchange through the broker who executes the trade for the institutional investor.

On confirmation of the trade, the margin liability will move to the custodian of the institutional investor.

As most FIIs operate on the payment on delivery mode, the custodians and brokers would have to bear the margin between themselves till such time the FII makes payment on T+2. 

''In the light of difficulties expressed by market participants regarding implementation of upfront margining of institutional trades in the cash market, it has been decided to keep the same in abeyance. Accordingly, institutional trades in the cash market would continue to be margined on T+1 basis till further directions,'' the SEBI said in a circular.