Mumbai: The Securities and Exchange Board of India (Sebi) has waived margin requirements for trades using proceeds from sales under the early pay-in (EPI) mechanism, a move aimed at easing margin-funding requirements.
In a circular issued on Thursday, the capital markets regulator said clearing corporations must, in real time, refrain from collecting margin from trading members and clearing members on subsequent positions taken by clients, up to the value of EPI accepted by the clearing corporation.
The framework applies where a client has a net sell obligation in a settlement, and the clearing corporation has successfully accepted the EPI request for the securities sold.
Mint was the first to report in July that Sebi’s risk management review committee (RMRC) was discussing a waiver of margin for trades made from proceeds from the same-day stock sale under EPI.
EPI refers to delivering the shares you have sold to the stock market’s clearing corporation before the normal settlement deadline. For example, if you sell shares worth ₹1 lakh and deliver them early through EPI, the accepted value of those shares can be used to meet margin requirements for other trades.
New framework
Under Sebi’s new circular, the clearing corporation will not collect margin from your broker on eligible subsequent buy or sell positions up to the accepted EPI value. This reduces the need for brokers to use their own funds to provide that margin, while normal margin requirements and risk controls continue to apply wherever the relief does not cover them.
Under the current framework, when an investor sells shares already held in the demat account through the EPI mechanism, the trade is cleared by the clearing corporation on the trade day itself, eliminating settlement risk. Consequently, the sell-side margin is released.
However, if the investor immediately uses those sale proceeds to buy another stock on the same day, brokers are still required to fund the applicable upfront margin on the purchase, typically around 20%, depending on the stock. This means that even though an investor may have ₹100 in sale proceeds available, ₹20 must be blocked by the broker, using his own trading limits, with the clearing corporation.
The latest circular sets out how clearing corporations must account for this value when clients take subsequent positions in the cash segment on the same trading day. After accepting the EPI request, the clearing corporation will calculate the available EPI value as the lower of the completed EPI value or the value of securities sold.
When a client takes a position using the EPI benefit on the same trading day, the clearing corporation will assess the client’s available margin after deducting the available EPI value.
The circular also specifies safeguards if a client reverses the sale of securities for which the EPI benefit was used. In such cases, the EPI value will be removed, and any resulting margin shortfall at the client level will be blocked from the trading member’s or clearing member’s proprietary collateral. This condition will not apply to trade-for-trade securities, which are settled on a gross basis.
The provisions will come into force four months from the date of issuance, making the scheduled implementation date 22 February 2027.
