SEBI circular on Segregation and Monitoring of Collateral at Client Level

20 Jan 2022|

1 min read |

by ICICI Securities Team

In order to further strengthen the mechanism of protection of client’s collateral from the twin problem of - misappropriation/misuse and default by the Brokers (also called Trading Members or TM) & Clearing Members (who settle all transactions- CM) - the Securities and Exchange Board of India (SEBI) had issued a circular on July 20^th, 2021 directing brokers to put systems and processes in place to mitigate the risk of misappropriation or misuse of client’s securities/funds available with the Trading Member (TM).

Some of the salient features of the SEBI circular were:

TM and CM would report disaggregated information (segment-wise and asset type wise break-up) of each client collateral.
CMs would be required to maintain at least 50% of the total collateral in the form of cash or cash equivalents with Clearing Corporation (CC). At individual client level, a client may have allocation of cash equivalent, less than the value of non-cash collateral provided by the client. In other words, the minimum 50% cash equivalent collateral requirement may not be applied at the client level.
CMs would be permitted to change the allocation of collateral deposited with the CC, subject to the value allocated to any client not exceeding the value of actual collateral received from that client

Why this requirement?

As an investor protection measure, it was thought that the broker reporting in a segment wise format to the exchanges will lead to higher transparency and clarity vis-à-vis viewing the funds and margins by the clearing members and exchanges. Such segment-wise collateral reporting system would prevent any misuse by any of the parties involved. It was done to ensure right use of funds, greater protection and security of customer assets and securities.

What’s the current status?

The implementation of the proposed SEBI circular has been postponed until the end of February 2022 as many market participants had pointed out that more time was needed to develop infrastructure and processes to implement the SEBI requirements.

How does it work at ICICIdirect?

ICICIdirect has always made use of a segregated method of collateral reporting for the ease of client experience. We have always had a segment-wise reporting of client’s collaterals. This has helped to achieve the twin goal of providing clients with clear and transparent information and also ease of reporting to the exchanges. Customer’s at ICICIdirect can allocate specific amount of funds to Equity and do not have to worry about these funds being pulled from their account in case there is excess margin requirement in their F&O trades. Clients can continue to trade without any additional bother.

Figure 1: Segment-wise fund allocation

Figure 2: Segregated Collateral Allocation

Disclaimer

ICICI Securities Limited has its registered office at ICICI Venture House, Appasaheb Marathe Marg, Prabhadevi, Mumbai - 400025, India, Tel No:- 022 - 2288 2460, 022 - 2288 2470. The non-broking products / services like iLearn and Financial Learning are not exchange traded products / services and ICICI Securities Ltd. is just acting as a distributor/ referral Agent of such products / services and all disputes with respect to the distribution activity would not have access to Exchange investor redressal or Arbitration mechanism. iLearn is not an exchange traded product/service of ICICI Securities Ltd. All disputes with respect to the activity on the platform would not have access to Exchange investor redressal or Arbitration mechanism.

ICICI Securities Ltd. is a Member of National Stock Exchange of India Ltd (Member Code :07730), BSE Ltd (Member Code :103) and Member of Multi Commodity Exchange of India Ltd. (Member Code: 56250) and having SEBI registration no. INZ000183631. ICICI Securities Ltd. is a SEBI registered with SEBI as a Research Analyst vide registration no. INH000000990. Name of the Compliance officer (broking): Mr. Atul Agrawal, Contact number: 022-69997051, E-mail address: complianceofficer@icicisecurities.com Investments in securities markets are subject to market risks, read all the related documents carefully before investing. The contents herein above shall not be considered as an invitation or persuasion to trade or invest. ICICI Securities Ltd. and affiliates accept no liabilities for any loss or damage of any kind arising out of any actions taken in reliance thereon. Such representations are not indicative of future results. The securities quoted are exemplary and are not recommendatory. AMFI Regn. No.: ARN-0845. PFRDA registration numbers: POP no -05092018. ICICI Securities Ltd. acts as a Composite Corporate agent having registration number -CA0113. Mutual Fund Investments are subject to market risks, read all scheme related documents carefully. Please note, Mutual Fund, Corporate Fixed Deposits, Bonds, Alternate investment funds, Tax planning, Succession planning, NPS, IPO, Investment Advisory and Loans related services are not Exchange traded products and ICICI Securities Ltd. is acting as a distributor to solicit these products. Please note, Insurance related services are not Exchange traded products and ICICI Securities Ltd. is acting as a corporate agent to solicit these products. All disputes with respect to the distribution activity, would not have access to Exchange investor redressal forum or Arbitration mechanism. The non-broking products / services like Research, etc. are not exchange traded products / services and all disputes with respect to such activities would not have access to Exchange investor redressal or Arbitration mechanism. The contents herein above are solely for informational purpose and may not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments or any other product. Investors should consult their financial advisers whether the product is suitable for them before taking any decision. The contents herein mentioned are solely for informational and educational purpose.

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