Stockbrokers: Reimbursement Penalty Imposed On Clients For Lack Of Margin, Brokers Said

Mumbai: Indian stock exchanges have asked stock brokers to refund the penalty collected from their clients since October 2021 for the margin shortfall. In addition, starting in August, securities brokers must pay penalties for reporting a shortfall in collecting client collateral.

According to market participants, many brokers have received letters from exchanges stating that the penalty levied for various breaches of margin requirements should be borne by brokers, not clients. “Yes, many brokers, including us, have received letters from the exchange clearing company to refund the penalty collected from customers,” said a broker. “It is difficult for brokers to ensure that their clients maintain maximum margins when trading intraday. Various market participants have made representations to the financial market regulator to highlight the challenges,” he added.

E-mail queries sent to Sebi, NSE and BSE elicited no response. In accordance with Sebi regulations, a penalty for lack of margin is levied on trades made without sufficient margin, on premium net purchases, on physical delivery margins and on mark-to-market losses (if any) as prescribed by the stock exchange. The penalty ranges from 0.5 to 1% of the margin shortfall. If the short collection continues for more than three consecutive days, a 5% penalty is applied to the shortfall for each subsequent instance of the short collection. If there are more than five instances of under-recovery in a calendar month, a 5% penalty is charged for each additional instance of under-recovery.

Sebi introduced the concept of Peak Margin Report, where brokers will calculate margins based on end of day and intraday peak positions. The new system was adopted in four phases. In the first phase, from December 1, 2020, investors were asked to keep 25% of the maximum margin available from the broker; effective March 1, 2021, the margin requirement increased to 50%. Similarly, from June 1, the margin requirement was increased to 75% of the maximum margin, and from September 1, 2021, it was 100%. Securities brokers must now pay penalties for reporting a shortfall in collecting customer collateral.

Dolores W. Simon