Coin Fixed deposit

General
1

Hi team,

I have doubt, for example i will invest 5 lakh in FD, this can able to pledge and use as option for cash component. Please help me out

2

I don’t think this is allowed, but you can use alternatives like government bonds or Liquidcase to pledge and get margin.

3

Thank you

4

Also, I remember reading somewhere that Fixed Deposits are no longer accepted by the Clearing House for allotting Margins , can anybody confirm this ?

1 Like
5

As per SEBI’s circular on upstreaming of funds to Clearing Corporation, the regulators have notified that Fixed Deposits are included as part of funds. Hence brokers cannot use FD pledge and provide margin to customers.

6

I don’t think the circular you linked says that. It says that about funds lying in account. If you had unused 1L in your account, it maybe used by brokers to create FDs and get interest for themselves.

7

Check this article from kotak- Discontinuation of FD as Margin from 15th Dec 2023

8

@niftymonk I did some extensive research here and the only conclusion I can come to is that they’re probably lying through their teeth. They probably don’t want the operational complexities or they are subject to extra rules because they’re a bank and broker in 1.

43.7 While depositing other forms of collateral i.e. Cash, Fixed Deposits (FDs), Bank Guarantees (BGs) or Government Securities provided through the SGL/CSGL route, etc, the CM shall allocate these collaterals into proprietary account of CM, and/or proprietary m account of any TM clearing through the CM, and/or account of any of the clients (including Custodial Participants (CPs)) clearing through the CM, and/or of any of the clients trading through the TM who in turn is clearing through the CM, segment-wise

See Question 1 and 2:

See Annexure 7 and attached PDF

Iccl still showing FDR

@RupeeRiser

9

The NSE clearing framework clearly states that client collateral is only via demat securities through pledge/re-pledge , while FDRs/BGs appear in the context of clearing member / broker-level collateral arrangements, not client margin. Also, SEBI’s Dec 2023 circular explicitly allows FDs only for upstreaming client funds to clearing corporations, not for client-level margin usage.

10

You’re right. But you and Kotak didn’t cite the Dec 2023 circular, but cited the Jun 2023 circular, which said nothing about client fd prohibition and along with your wording

threw me off.

The actual circular prohibiting client FDs:

https://www.sebi.gov.in/legal/circulars/dec-2023/upstreaming-of-clients-funds-by-stock-brokers-sbs-clearing-members-cms-to-clearing-corporations-ccs-_79788.html

https://nsearchives.nseindia.com/content/circulars/INSP60369.pdf

Eligibility of bank instruments as collateral:
7.The bank instruments provided by clients as collateral (i.e. client FDRs and BGs) cannot be upstreamed to CCs, and they shall be ineligible to be accepted as collateral in any segment of securities market.
8.However, in the interest of encouraging and development of hedging in the commodity derivatives market, it has been decided to allow Bank guarantees provided only by non-individual clients, based on certain terms and conditions.

Interestingly, it also says,

  1. The provisions of this framework shall not be applicable to bank-CMs (including
    Custodians that are banks), and for proprietary funds of SBs/CMs in any segment and SB’s proprietary funds deposited with CM in the capacity of a client

Isn’t Kotak a bank-cm?