Margin Trading and Securities Lending and Borrowing - Clarification - SEBI - SEBI/MRD/SE/SU/Cir-16/04

Deputy General Manager Market Regulation Department Email:[email protected] SEBI/MRD/SE/SU/Cir-16/04 March 31, 2004 The Managing Directors/ Executive Directors/Administrators of all the Stock Exchanges Dear Sir, Sub:- Margin Trading and Securities Lending and Borrowing - Clarification 1. Please refer to the SEBI Circular SEBI/MRD/SE/SU/Cir-15/04 dated March 19, 2004 on the captioned subject. 2. Since the notified date for obtaining the new Unique Identification Number (UIN) by the intermediaries registered with SEBI has been postponed to June 30, 2004 and some intermediaries have informed SEBI that as at present, they are not in a position to obtain UIN for all their clients availing of margin trading facility in a short period of time on account of logistic difficulties, it has been decided to allow a further period of 3 months, i.e. up to June 30, 2004, to the clients who want to avail margin trading facility to obtain an UIN. Till such time the clients obtain the UIN, the broker shall obtain suitable undertaking from the clients and do due diligence to ensure that the client is not availing the margin trading facility from more than one broker at any point of time. 3. The exchanges have submitted that they are in the process of getting their clearing corporation/house registered as an intermediary under the SEBI securities lending and borrowing scheme (SLS), for handling settlement shortages. Therefore, pending registration under SLS, the stock exchanges are advised to continue with the existing system for handling settlement shortages. The exact date of implementation of the close-out procedure as per the circular No.15/2004 dated 19th March, 2004 would be decided by NSE in consultation with BSE. 4. The provisions stated under the head Section XI. Arbitration of the Model Margin Trading Agreement enclosed as annexure 1 to the aforesaid circular, stands deleted, on account of the provisions of clause 1.10 of the circular. 5. In addition to the above, clauses 1.5.4 and 1.5.5 of the said circular may be read as follows : 1.5.4 The maximum allowable exposure of the broker towards the margin trading facility shall be within the self imposed prudential limits and shall not, in any case, exceed the borrowed funds and 50% of his net worth . The term exposure will mean the aggregate outstanding margin trading amount in the books of the broker for all his clients. 1.5.5 While providing the margin trading facility, the broker shall be prudent and also ensure that there is no concentration on any single client. In any case, the exposure to any single client at any point of time shall not exceed 10% of the broker s lendable resource (i.e. borrowed funds for the purpose of margin trading + 50% of net-worth) 6. The other contents of the circular would remain unchanged. Yours faithfully, V S SUNDARESAN