The new Securities and Exchange Board of India (Sebi) standards on the margin framework could get off to a good start on September 1, because at least 90% of members as of August 26 were not ready, did not test the whole system and are not convinced it can be commissioned, according to a survey by the National Stock Exchange Members Association of India (ANMI).
ANMI conducted a survey of more than 160 ESB members and 280 ESN members.
Brokerage bodies and large individual brokers are expected to have a meeting with Sebi officials on Monday to convince the regulator to push the implementation of the new framework one more month.
Under the new system, securities in clients’ demat account cannot be used for margin payment, but must be pledged with the broker after client authorization and replenished by clearing companies and stock exchanges. Client authorization is obtained via OTP and emails. Any shortfall in collecting margins will also result in a penalty for customers and business members.
This system is put in place to prevent any misuse of customer titles as Sebi observed in the episode of Karvy.
The level of unpreparedness for this big change is seen in brokers, including the best brokers as well as the smaller ones. However, discount brokerage firms appear to be better prepared.
“The change in the margin system and the reclassification of securities as pledges will undoubtedly lead to disruptions in daily trading volumes if it is deployed at this stage where there is insufficient preparation and validation by participants in this system – to namely exchanges, custodians, custodians, clearing corp, brokers and clients, ”said Deepak Jasani, head of retail research at HDFC Securities.
According to brokerage firms, deploying an unprepared system would not only affect brokers and investors, but wider markets.
“If there is no extension of this launch, we could see more polarization of stocks in the markets for a while, with the top 200 to 300 stocks being the richest and most liquid. Securities currently pledged to brokers must go through the new process, which so far has not gone smoothly compared to the cycles conducted so far. Therefore, large traders are not sure whether they will have any limits to trade on September 1, which could lead to a drop in volume in the cash and F&O segments which could last a few days / weeks, ”said Jasani.
About ₹According to an ANMI member, 15,000 crore of client securities are still held by brokerage firms, which must first be transferred to clients’ accounts for the whole pledging process to begin.
Pledges of shares must be created through depositaries and NSDL and CDSL are not prepared.
“CDSL Systems does not allow a pledge to be created a second time for another segment if the pledge was created for a segment earlier,” ANMI said in a representation to Sebi on Friday evening.
The NSDL is also filled with questions and emails from brokers and struggling to address all of their concerns, said a broker who has been attending daily meetings with custodians since August 23.
The technology of creating OTPs and emails for authorizing customers to create pledges is outdated. Investors who spoke to Mint say that if they get OTP, they don’t get the emails or the link for authorization doesn’t work in some cases.
Pressed to meet the deadline, some brokerage firms are using shortcuts. An investor who spoke to Mint on condition of anonymity said his broker asked him to authorize the pledge on all securities in his demat account.
“Otherwise, for each trade, I would have to pay an initial margin,” said this investor.
Most traditional brokers work with legacy technology systems, risk management and operating systems that require significant changes.
According to Prakash Gagdani, CEO of 5Paisa, a discount brokerage firm, the Buy Today and Sell Tomorrow (BTST) segment will be impacted by the new process.
“The new regulations require at least 20% initial margin before initiating a sales transaction. So, you can only initiate a BTST trade if the available net margin displayed in the Funds section of the mobile app’s web connection is 20% or more. If the Net Available Margin is less than 20% of the sales value, your order will be rejected in accordance with the policy, ”he said. BTST means that a stock can be sold the day after purchase.
Since the process is completely new, brokerage firms are concerned that retail investors, especially those who are just starting to trade, will take some time to understand the mechanism, Gagdani added.