SEBI circular - Changes in Pledging and MTF

SEBI’s drive to clean up the capital market continues

Here is the latest circular in which SEBI proposes to the mechanism stockbrokers use to offer margins to clients against pledged demat holdings.

What changes from July 1st?

Pledging of securities

Currently, when a customer pledges security as margin for F&O, the securities move to the broker and through the broker to the clearing corporation (SEBI had, a few months back, disallowed these securities from being pledged with NBFCs). Once with clearing corporation, the margins after haircut are provided to the customer.

In the new structure, the securities remain in the client demat, but a pledge is marked in favour of the broker (Trading Member ™) who in turn pledges to the Clearing Member (CM) and in turn with Clearing Corporation(CC). For this pledge to be marked, the customer will need to authenticate the transaction using an OTP.

If you are trading at Zerodha and are currently pledging securities as margins to trade F&O, you will soon need to authenticate that pledge using an OTP. Life doesn’t change for us or our customers apart from this.

MTF or Margin funding

Today, brokers allow you to buy securities worth more than the money in your trading account under margin funding. For example, if you had Rs 1lk in your account, a broker might allow you to buy say Rs 4lks of Reliance shares. These shares will not be credited to your demat account until the full amount is paid. The broker would charge interest on the Rs 3lks lent for this transaction. The shares would remain in the broker’s client pool account until they are fully paid for. But with this new circular, it seems to say that the securities will have to go back to the client account and then be pledged as margin.

The issue with this is that there is no guarantee that the client will go through the OTP authentication to pledge after the shares are credited to the client demat. And the client thus assumes ownership of all shares while they are still not fully paid for. We will have to wait for some clarity on this.

Update 26th Feb: If securities are not fully paid, the broker will be able to hold back the security in a dedicated pool account. So MTF will continue the way it works currently.

At Zerodha, we haven’t enabled margin funding yet, so nothing affects us. We will try to launch this in the next couple of months.

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Does it say anything about intraday margin?
@nithin

No :slight_smile: that is still pending.

with new system ,
should we pledge again?
will it take t+1 days ?
we will be again charged again for pledging ?

Currently upstox offering 50% of margin funding till max 5lk with maximum of 30 days holding time.

Please launch margin funding feature in zerodha it is very good for swing trading, and compare to futures, we dont have to worry about MTM pnl etc in Equity cash.

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Hi Nithin,

In the above post you have written cash segment remains the same. Doesn’t cash segment mean normal stocks?

Thanks
Gowri Shankar

Yes, also can you post margin related in that specific thread as this thread is related to pledging and mtf.

@nithin…its applicable from 1 June and not 1 July…

and no clarity on intraday…by various circulars in last one year…Futures and Equity Delivery Margin guidelines have become clear…but not intraday…

Also, sir, can u confirm that UCC Mapping with Demat account as per SEBI Circular dated 15.11.2019 has been implemented or not…

In addition, as per which SEBI Guideline or Depositary Circular …is Zerodha providing online DIS Facility…which means…what is the legal backing your procedure of online DIS for delivery trade without POA

Bumping this thread,
@nithin Please clarify the queries by @vishnux

Recommend to wait for few more days to get more clarification,considering the time this may be extended further.

Any clarity on the new system as yet? How will existing pledges transition to the new system. How will it affect F&O positions that are open with the collateral margin at the time of transition?

Further , with the new system, will there be an increase in the number of liquid / overnight funds permitted for margin pledging?

Wait for few more weeks, will let you know if any new details are announced, also considering the current scenario it may be postponed.

Any update on when new pledging system will be implemented? 1st June???

@siva hai i have some doubt , can i pledge debt fund , some where here i read this will allow from aug 1 , zerodha will allow on aug 1 , can you please clarify me

Yeah.

@nithin @siva hai one doubt , on Aug 1 the pledging system worked in different way agreed , before when we pledged stock, the dividend from stock are went to broker pool account , in the new mechanism how its will work , dividend will credit in our account or like before itself it will credit in broker account , please clarify sir

@siva can i expect any reply on above post???

If shares are in your demat then obviously dividends will come to your bank account only directly.

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@siva on AUG 1 please allow Mutual fund to be pledged , on that time dont tell as we are working pleaseeee , prepare now itself tell to @nithin , i am waiting for long month ,

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