Brokers protest sanctions against new client margin standards

The Indian stockbroking community is angered over new regulations that mandate the declaration of collateral, against which trading limits are given, at the level of each client.

Since the beginning of August, stockbrokers have faced huge penalties from exchange clearing houses (CCs) for reporting a shortfall in collecting client collateral. Brokers, for their part, said Activity area that the sanctions regime began on a turbulent note as CC systems did not work properly and procedures were marred by problems and repetitions. It also weighs on trading volumes in the market as clients are asked to contribute additional margin beyond the regulatory requirement to save the potential slump that is happening daily in real time, according to brokers.

“Eliminate brokers”

On August 5, the Association of National Exchange Members of India (ANMI) wrote to market regulator SEBI, the National Stock Exchange (NSE) and its CC, explaining the hiccups, infrastructure bottlenecks at of the CC and also requested an exemption from penalties imposed on brokers. ANMI has again sent out forms to brokers for a list of problems they face when reporting separate guarantees at client level and difficulties in uploading files at least four times a day due to technical issues and infra linked to the CC end. ANMI has informed brokers that it will send further letters to SEBI and NSE with any complaints from brokers, sources said.

“The new regime will wipe out the broker community and lead to monopoly in the hands of a few big brokers, who are all playing the discount game for now,” said a New Delhi-based broker who filled out ANMI forms.

Trillions of dollars of collateral management take place daily in the stock exchanges as an initial margin requirement is now required for every client. Failure to report this in near real time during market hours carries penalties, the brokers said. Earlier retail players could trade and invest in cash and derivatives first and pay later, when the margin or full amount was due, since their brokers took care of the initial collateral required for the settlement of the transaction.

Problems and confusion

Brokers must also report disaggregated information (disaggregation by segment and asset type) of each client’s collateral files that are sent by CCs, indicating the collateral required. But the brokers say that in some cases the files sent during the day by the CC have different numbers mentioned. For example, the case that arrived in the morning might have a collateral requirement of ₹1 lakh from the client, which might suddenly become ₹3 lakh within hours. From now on, brokers must ask their clients to continue to provide additional guarantees, and in the event of a shortfall, brokers are penalized.

In early August, N-MASS, the portal provided by NSE for brokers to upload files, and MG13 (the margin file) showed confusingly different numbers.

Margin requirements for trading in India are among the strictest in the world and touch the six sigma level, according to brokers. Brokers and clearing members, who settle trades, are required to keep at least 50% of the total collateral in the form of cash or cash equivalents at the level of each client, the remainder may be in other securities.

Some of the issues that brokers encounter in margin reporting include technical issues when uploading files to the system; no such facilities offered by commodity exchanges; not receiving margin files from the CC in time; not receive a response allocated to the file immediately; application rejected due to higher margin utilization and insufficient allocation amount; technical errors due to the balance credited by the customer are not taken into account; and delays in file response and data inadequacy in N-MASS. No live physical seminars were also held by the CC NSE on the new regime, they added.

Published on

August 18, 2022