SEBI notifies Framework on segregation, monitoring of collateral at client level.

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The Securities and Exchange Board of India on 20th July 2021 has notified the framework for segregation and monitoring of collateral at client level to strengthen the mechanism of protection of client collateral from, misappropriation/ misuse by Trading member (TM)/ Clearing Member (CM) and default of TM/CM and/or other clients.

In order to provide visibility of client-wise collateral (for each client) at all levels, viz., TM, CM and Clearing Corporation (CC), a reporting mechanism, covering both cash and non-cash collateral, shall be specified by the CCs.

A web portal facility shall be provided by the CCs/ SEs to allow clients to view aforesaid disaggregated collateral reporting by TM/CM.

The TM/CM shall ensure that sufficient collateral is allocated to clients to cover their margin requirements. However, if the client margin applicable at the CC for a client in  a  segment exceeds the collateral allocated to the client plus the securities collateral re-pledged to CC (from that client’s account)in the respective segment, then  the  proprietary collateral of the TM/CM  shall be blocked  (including re-pledged/pledged securities and allocated collateral).

Further the clearing members are required to maintain at least 50% of the total collateral in the form of cash or cash equivalents. At individual client level, a client may have allocation of cash equivalent, less than the value of non-cash collateral provided by the client.

CMs shall 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 (excluding the securities collateral re-pledged to CC through margin pledge mechanism). However, such change of allocation shall be permitted subject to adequacy of available collateral with the CC after the change vis-à-vis the margin obligation.

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