Margins on Institutional Trades
SEBI had called a meeting of Institutional Investors namely, Foreign Institutional Investors, Mutual Funds, Banks, Financial Institutions, domestic and foreign brokers, custodians, Stock Exchange Mumbai and the National Stock Exchange, to discuss the issue of margins on institutional trades. Currently, institutional trades are exempted from margin requirements. Although this has been the practice for some time, it was felt that in view of the institutional investors having a growing influence on market movements, the question of levying of margins on their trades would need to be examined.
The issue of levying of margin for institutional trades was considered from the aspect of having a level playing field for all investors in the market, from the aspect of market risk and reducing volatility in the market. There were certain operational issues discussed at the meeting such as modalities of payment of margins, point and timing of collectionof margin, whether any permission from RBI would be required for inward remittance of foreign exchange for payment of margin, the increase in the transaction cost for all mutual funds impacting small investors, and the manner it will effect the expenses for which ceiling has been stipulated by the SEBI Regulations for Mutual Funds, etc. There were also one suggestion in the meeting that margins could be paid by the institutional investors on specific scrips which are volatile in nature, or alternatively, institutional investors which would want to deal in such scrips could trade in the rolling settlement. There was also a view for accelerating rolling settlement. In view of the complexities of the subject, and the need to work out the modalities before a final view on the subject was taken, it was felt that a small group could be appointed to examine the above issues.
The group will consist of the representatives of FIIs, Mutual Funds, AMFI, custodians, brokers, BSE, NSE and SEBI.