From 1st Sep, 2020, Securities
Exchange Board of India (SEBI) had implemented reforms in margin pledge rules. These
are aimed at bringing transparency and preventing misuse of clients shares by
brokers. The changes were announced in February after Karvy Stock Broking Ltd.
allegedly pledged client shares to raise funds from the lenders for its own use
and were initially scheduled to come into effect from June 1. The date was then
extended to August 1 and thereafter to September 1. While the brokers and other
participants requested more time to make their systems ready, SEBI refused to
extend by saying there was enough time to do the changes.
Here are the changes:
1. The stock will continue to
remain in investor's demat account and can be directly pledged to the clearing
corporation. As the securities remain in investors’ own demat account, they
will enjoy all corporate benefits on their shares.
2. It is mandatory for brokers to
collect margins from investors upfront for any purchase of sale of shares.
Failing to do so will attract a penalty.
3. Under the old system, cash
margins were taken care of by the broker. investors either had to transfer
their shares to the brokers’ account or give power of attorney (POA) to the
broker. Some brokers went on to misuse the POA assigned to them.
4. No Power of Attorney (POA) to
be assigned to brokers. The investors used to give authority to the brokers by
way of POA to execute transaction on their behalf. The POA cannot be used for
pledging anymore.
5. Investors who want to avail
margin now have to create margin pledge separately.
6. Earlier collecting upfront
margin wasn’t mandatory, but under the new system, investors will have to pay
at least 30% margin upfront to avail a margin loan
7. Shares bought today cannot be
sold tomorrow. Currently, an investor can use intraday realised profits for
taking new positions on the same trading day. According to the new norms, you
will be able to use it only after T+2 days in case of equity/stocks once you
receive the delivery of shares in your account.
Feel free to contact in case of any query or consultation.
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