Securities and Exchange Board of India proposes to examine the entire margining system of stock exchanges, which includes brokers and their clients, clearing members and trading members on bourses.
Sources said that while the current system is based on the efficient value-at-risk method, what needs to be reviewed is the timing for calling margins, issues related to under margining or over margining of trades and fixing of margins vis-a-vis market volatility by the exchanges to their members.
The review is aimed at making the system easier for retail investors, while adhering to the risk management practices. The current market volatility has thrown up issues that have led the market regulator to call for data from banks on margin payments by brokers.
According to market sources, the move follows the observation that some banks have issued overdrafts to the brokers for their margin payments when the actual margins have been already exhausted.
"Thereby, even if brokers exhaust the margin limits, they could get an extension on trading limits from exchanges on the back of the assurance provided by banks to exchanges," explained market sources. The broker would then make good for the margin in one or two days.
A margin is a sort of deposit maintained either in cash or shares with exchanges by brokerage companies on their own behalf as well as that of their members. Hence, a margin acts as collateral for the trades undertaken by the brokers and is used when the value of the deal falls.
Even though the Reserve Bank of India regulates banks, Sebi has the authority to call for data from banks, which are registered with it to act as bankers to issues or stock exchanges etc.
Sources explained that the issues relating to margining will be evaluated by Sebi, which is expected to meet next week, along with general market movement.
Besides this, Sebi is likely to discuss various issues in the primary market that might require amendments to be made operational. This includes norms for asset securitisation and simplification of disclosure norms for primary issuance of corporate bonds by companies which are already listed.
Sebi has already recommended the finance ministry to address the issue of rationalisation of stamp duty on corporate bonds across states, so as to make the issuance less cumbersome in the Union budget.