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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.

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