The Securities and Exchange Board of India (SEBI) has extended the cross margining facility across cash and derivatives segments to all categories of market participants.

Earlier, the cross margining facility was available for institutional trades only.
 
''In order to improve the efficiency of the use of the margin capital by market participants, it has now been decided to revise the existing facility of cross margining and to extend it across cash and derivatives segments to all categories of market participants.'' SEBI said in a release.

The features of the revised cross margining facility are:

Positions of clients in both cash and derivatives segments to the extent they offset each other shall be considered for cross margining. These will include index futures position and constituent stock futures position in the derivatives segment and stock futures position and the position in the corresponding underlying cash segment

A basket of positions in index constituent stock/stock futures, which is a complete replica of the index in the ratio specified by the exchange/clearing corporation shall be eligible for cross margining benefit.

The positions in the derivatives segment for the stock futures and index futures shall be in the same expiry month to be eligible for cross margining benefit.
 
To begin with, the computation of cross margin would have a spread margin of 25 per cent of the total applicable margin on the eligible off-setting positions and shall be levied in the respective cash and derivative segments.

Cross margining benefit shall be computed at client level on an online real time basis and provided to the trading member / clearing member / custodian, as the case may be, who, in turn, shall pass on the benefit to the client.

For institutional investors, however, the cross margining benefit shall be provided after confirmation of trades.

To avail the facility of cross margining, a client may maintain two accounts with the trading member / clearing member, namely arbitrage account and a non-arbitrage account, to allow converting partially replicated portfolio into a fully replicated portfolio by taking opposite positions in two accounts. However, for the purpose of compliance and reporting requirements, the positions across both accounts shall be taken together and the client shall continue to have unique client code.

A client may settle through a trading member / clearing member / custodian, as the case may be, who is clearing in both the segments or through two trading members / clearing members / custodians, one of whom is a trading member / custodian in the cash segment and the other is a clearing member in the derivatives segment. However, in course of time, a client will settle through only one clearing member who is a member in both the segments.

In the event of default by a trading member / clearing member / custodian, as the case may be, whose clients have availed cross margining benefit, the stock exchange / clearing corporation shall have the option to hold the positions in the cross margin account till expiry in its own name and liquidate the positions / collateral in either segment and use the proceeds to meet the default obligation in the other segment.

The exchange / clearing corporation shall enter into agreement with client / clearing member / trading member / custodian, as the case may be, clearly laying down the inter-se distribution of liability / responsibility in the event of default.

SEBI has advised the stock exchanges to put in place adequate systems and issue the necessary guidelines for implementing the decision as also make necessary amendments to the relevant bye-laws, rules and regulations for its implementation as also to disseminate the same on the website.