OUTSTANDING
MTM MARGINS TO ATTRACT 0.07% PENALTY
Sebi has introduced stringent penalties at the rate of 0.07%
for delays in mark-to-market (MTM) margin payments by traders.
MTM margins are
paid by traders who do not square off their open positions
on the day of the trade and instead carry them forward. MTM
margins - the difference between market prices and value of
positions being carried forward - are paid to stock exchanges
on a daily basis.
The new regulation
on the fixed penalty rate has come as a big blow to traders
as NSE's current fine structure for such defaults is lenient.
It has now been imposed at a fixed rate of 7 bps. Penalties
imposed by NSE for delays in MTM margin payments vary from
Rs 500 to Rs 5,000, at present, said a broker. MTM margins
are paid in cash.
Sebi has also disallowed
funding of MTM margin payments for clients by brokers. Brokers
find this stiff as clients cannot always manage margin payments
in time and brokers regularly pay up on their behalf. This
is limited to making up for shortfalls faced by clients who
are generally not as liquid as brokers, said a source.
Sebi has issued
a circular spelling out new norms for the collection of MTM
margins. The circular also says that traders have been given
the option of paying MTM margins on the trading day (T+0 basis).
At present, market
players pay these margins one day after trades are undertaken
(T+1 basis). Brokers opting to pay the margins on a T+0 basis
on behalf of their clients will have to pay them before the
end of banking hours on the same day.
Once they opt for
T+0, they will have to stick to the option for three months.
The choice will be available for review only at the end of
every quarter. Also, traders opting for T+0 will be allowed
to benefit from lower prices on T+1. Scaling down of margins
will not be available in case of non-payment of MTM settlement
on a T+0 basis.
