This is the insurance world’s best-kept secret. For the first time ever, Raj Pradhan reveals...
SEBI has directed stock exchanges to levy a penalty on trading members for short or non collection of margins from clients in equity and currency derivatives segments. While the minimum penalty is 0.5% of the shortfall of margin money, the penalty could be as high as 100%
Mumbai: Market regulator Securities and Exchange Board of India (SEBI) on Wednesday asked stock exchanges to impose heavy penalty on brokers allowing their clients to trade in derivative market without sufficient margin money and said that fines could be as high as the shortfall of funds, reports PTI.
While the minimum penalty is 0.5% of the shortfall of margin money, the penalty could be as high as 100%, SEBI said in a circular.
The stock exchanges will have to impose the penalties from 1st September, the SEBI circular said. The move is to protect investor interest and promote development of securities markets, it added.
“In consultation with the BSE, MCX-SX, NSE and USE, it has been decided that stock exchanges shall levy penalty on trading members for short or non collection of margins from clients in equity and currency derivatives segments,” it said.
The higher limit of exposure allowed by a broker to its client in the derivate market is the margin money.
According to the SEBI norms, clearing members and trading members are required to collect initial margins from all their clients and required to report on a daily basis details in respect of such margin amounts due and collected.
In derivative market if the price of a product declines, then the client comes under margin pressure.
“SEBI is ensuring that collection of margin money is synchronised with the trade and done without any time lag to avoid any systemic default,” SMC Global head research Jagannadham Thunuguntla said.
The regulator said that if short/non-collection of margins for a client continues for more than three consecutive days, then penalty of 5% of the shortfall amount shall be levied for each day.
If it takes place for more than five days in a month, then penalty of 5% of the shortfall amount shall be levied for each day, during the month, it added.
Additional solicitor general Darius Khambata, who appeared on behalf of SEBI brought on record that MCX-SX promoter Jignesh Shah and his wife were controlling a company called ‘Lafin’, which in turn holds 26% stake in Financial Technologies, also promoted by Mr Shah
Mumbai: The Securities and Exchange Board of India (SEBI) on Wednesday alleged in the Bombay High Court that MCX Stock Exchange (MCX-SX) had concealed some facts while diluting its equity stake under the ‘capital reduction-cum-arrangement’, reports PTI.
SEBI counsel, additional solicitor general Darius Khambata, argued that MCX-SX had also not informed it about modalities and nitty-gritties of this scheme.
Justices DY Chandrachud and Anoop Mohata were hearing a petition by MCX-SX against the market regulator for not allowing it to start equity trading despite complying with all regulations.
The court observed that it was obligatory on the part of MCX-SX to disclose the buy-back to SEBI and that such negligence could not be tolerated.
The SEBI counsel brought on record that MCX-SX promoter Jignesh Shah and his wife were controlling a company called ‘Lafin’, which in turn holds 26% stake in Financial Technologies (FTIL), also promoted by Mr Shah.
MCX-SX submitted that during discussions, SEBI executive director JN Gupta had himself mooted the idea of warrant model for diluting equity stake of the stock exchange to 5%. It was only then MCX issued warrants to 18 public sector banks with an assurance that this would not be converted into equity.
As per the SEBI guidelines, no promoter of a stock exchange can hold more than 5% equity stake.
The HC had yesterday asked SEBI whether it would accept an undertaking from the promoters of MCX-SX that they would maintain their equity holding at 5% and not exercise the option of converting warrants into equity. The regulator responded by saying it would seek instructions from the SEBI board in this regard.
FTIL and MCX concluded their arguments yesterday, while SEBI will give its submissions on Thursday.
In a petition filed on 19th July last year, MCX-SX had urged the high court to direct the SEBI to grant clearance for commencing operations in the equity segment as it had complied with the guidelines issued by the regulator.
Three days prior to filing the petition, MCX-SX came out with a public notice expressing anguish at the delay in getting licence and also at the ‘misinformation’ campaign launched by rivals.
MCX-SX pleaded that although it had complied with all SEBI norms, it was not given the permission to commence equity trading. It also alleged that the capital market watchdog was favouring a rival stock exchange.