Jun 18, 2004
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Informal Guidance
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An application made under SEBI (Informal Guidance) Scheme, 2003 by Refco Sify Securities India (Pvt.) Ltd.
COM/AG/SEBI/MTF/039/2004
April 20, 2004
Mr. V. S. Sundaresan
Deputy General Manager
Market Regulation Department
Securities and Exchange Board of India
Mittal Court, B Wing, First floor,
224, Nariman Point,
Mumbai 400 021
Dear Sir,
Sub: Clarification on Margin Trading Facility under SEBI’s Informal Guidance Scheme’ 2003.
Refco-Sify Securities India Pvt. Ltd. (RSSIPL) is a Trading cum Clearing Member of the Stock Exchange, Mumbai (BSE) and National Stock Exchange of India Limited (NSE) on the Cash and Derivatives Segments.
RSSIPL received approval from both the Exchanges to provide Margin Trading facility to its clients.
We seek the clarifications on the provision in the SEBI circulars relating to Margin Trading Facility –
Margin requirements –
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- Can a Broker collect additional margin (in excess of 50% in cash) in the form of FDR, Bank Guarantee and or Securities.
- A client purchase securities worth of Rs. 5 lakhs for which he has paid Rs. 2.5 lakhs in cash on day T. The member financed the remaining amount. Say on T+10th day the client paid additional Rs. 2.5 lakhs. On T+12th day, client purchase additional securities of Rs. 1 lakh in the same scrip. However, the member continues to report the old transaction under the disclosure of Margin Trading facility. In such case is the member required to collect Rs. 50,000/- on the said purchase, inspite of the fact that out of the purchase value of Rs. 6 lakhs, the client has already paid Rs. 5 lakhs, which is approx. 80% of the purchase value.
- If a client pays the margin money of 50%, financed by any other lender (Bank / NBFC etc.) to him. Can a client avail financing facility (with or without security) from a Non-broking entity to pay his share of 50% margin.
- And if such finance is available or availed by the clients then, can a broker execute a formal agreement with such a lender agreeing to liquidate the securities in case the value of securities decrease or the client fails to meet the margin call. Further, can a broker offer guarantee to the lender for any indebtness on behalf of its clients on such finances.
- Is it prudent if such a lender is an associate of the member – broker.
- We understand that certain member - brokers are offering similar arrangements to their clients to reduce the higher margin requirements required under the SEBI’s said circular.
Disclosure of exposure to the Exchanges –
A client takes an exposure by providing upfront margin. On the Pay-in day if the client request to transfer trades for Margin Trading due to non-availability of balance funds or broker wish to transfer these trades for Margin Trading facility in the absence of forthcoming pay-in obligation. Can the broker report such trades as Margin Trading on such date instead of next day of execution of these trades?
Thanking You.
Yours faithfully,
for Refco-Sify Securities India Pvt. Ltd.
Amit Garg
Compliance Officer
Encl: Demand draft of Rs. 25,000/- favouring Securities & Exchange Board of India, Mumbai.
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Reply of Division of Policy, Market Regulation Department, SEBI
General Manager
Market Regulation Department
Email:-ravik@sebi.gov.in
MRD/Policy/MT/AT/12975/2004
June 18, 2004
Shri Amit Garg
Compliance Officer
Refco-Sify Securities India Pvt. Ltd.
No.1, 2nd floor, C Block
Modern Mills Compound
101, K K Marg
Jacob Circle
Mahalaxmi
Mumbai – 400 011
Dear Sir,
Sub: Clarification sought on Margin Trading Facility
Ref : Request for guidance from Refco-Sify Securities India (Pvt.) ltd. (Refco) vide letter No. COM/AG/SEBI/MTF/039/2004 dated April 20, 2004 under SEBI (Informal Guidance) Scheme, 2003
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- A client purchases securities worth of Rs. 5 lakhs for which he has paid Rs. 2.5 lakhs in cash on day T. The member financed the remaining amount. Say on T+10th day, the client paid additional Rs. 2.5 lakhs. On T+12th day, client purchases additional securities of Rs. 1 lakh in the same scrip. However, the member continues to report the old transaction under the disclosure of Margin Trading Facility. In such case is the member required to collect Rs. 50,000/- on the said purchase, in spite of the fact that out of the purchase value of Rs. 6 lakhs, the client has already paid Rs. 5 lakhs, which is approx. 80% of the purchase value.
- Can a client avail financing facility (with or without security) from a Non-broking entity to pay his share of 50% margin? And if such finance is available or availed by the clients then, can a broker execute a formal agreement with such a lender agreeing to liquidate the securities in case the value of securities decrease or the client fails to meet the margin call. Further, can a broker offer guarantee to the lender for any in debtness on behalf of its clients on such finances. Is it prudent if such a lender is an associate of the member – broker.
- A client takes an exposure by providing upfront margin. On the Pay-in day, can the client request to transfer trades for Margin Trading due to non-availability of balance funds or can the broker transfer these trades for Margin Trading Facility in the absence of forthcoming pay-in obligation. Can the broker report such trades as Margin Trading on such date instead of next day of execution of these trades?
3. Without necessarily agreeing with your analysis, our interpretation on the aforesaid issues is as under –
- The above clarifications are based on the representation made to the Department in your aforesaid letter. Different facts or conditions might require a different result. This letter does not express decision of the Board on the questions referred.
- You may note that the above views are expressed only with respect to the clarification sought on Margin Trading Facility in light of SEBI Circulars dated March 19, 2004 & March 31, 2004 and do not affect the applicability of any other law.
Yours faithfully,
D Ravikumar
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