Sebi okays use of shares in depository account as margin until Aug 31

The markets regulator in February came out with framework on margin obligation to be given by way of pledged or repledged shares in the depository system

Markets regulator Sebi on Monday said shares in depository account, which may be pledged or repledged, can be used as margin for another three months till August 31 in the wake of coronavirus pandemic.

The markets regulator in February came out with framework on margin obligation to be given by way of pledged or repledged shares in the depository system.

Under the framework, trading or clearing member need to accept collateral from clients in the form of securities, only by way of ''margin pledge'', created in the depository system with effect from June 1.

Now, the regulator has extended the guidelines by three months for the implementation of the framework, Sebi said in a circular.

In view of the situation arising due to COVID-19 pandemic, lockdown imposed by the government, representations received from the depositories and the clearing corporations and that the changes to the systems and software development still under progress, it has been decided to extend the implementation of the framework to August, 2020, the regulator added.

"Accordingly... the trading member (TM) / clearing member (CM) shall be required to close all existing demat accounts tagged as 'Client Margin / Collateral' by August 31, 2020," the Securities and Exchange Board of India (Sebi) said.

However, the provision regarding holding of Power of Attorney by TM or CM not to be considered as equivalent to the collection of margin by such member in respect of securities held in the demat account of the client will be applicable from June 1.

Further, with regard to confirmation from the client or pledgor through one time password on mobile number or registered e-mail id or other verifiable mechanism, Sebi said that such confirmation need to be required only once from the client at the time of initial creation of pledge in favour of trading or clearing member and subsequent repledging by such member need not require any further confirmation from the client.

Arjun Mahajan head of Institutional Business at Reliance Securities said, "at the margin, this is positive step by the regulator. They have made it easy for investors in a way that share in DP account, which may be pledged / unpledged can be used as margin for another 3 month till 31 August 2020. So, this can and may address some near term selling pressure and we may not see that coming".