Latest News | Anmi Urges to Extend Implementation of Pledge/repledge Process

New Delhi, Jul 29 (PTI) Flagging concerns relating to carrying out of pledge/repledge process from August 1, stock brokers association Anmi on Wednesday urged the government and markets regulator Sebi to extend the implementation of new rules by two months.

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The association also requested to "allow the existing system of crediting the funded stock to earmarked funded stock DP (depository participant) account".

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In its letter to the Finance Ministry and Sebi, the Association of National Exchanges Members of India (Anmi), which represents 900 stock brokers, said it has received numerous concerns from members with respect to pledge mechanism for funded stocks.

The new pledge guidelines require that margin funded stock first be delivered to the client's DP account after which the client will pledge the same through explicit instruction through one-time password (OTP).

Stocks that are funded under the margin funding system are funded by brokers, under Sebi licence and permission.

"When a broker has partly provided fund to the stock with his own capital, the requirement that the broker deliver this stock to client DP and expect client to explicitly mark pledge for funded stocks is fraught with considerable risk that brokers can ill afford to take," Anmi said.

Under the guideline, an explicit client consent is required for moving the earmarked trades to MTF (margin trading facility).

"When the client has already given his consent for the trade, there should have to be no requirement once again for clients to explicitly mark the pledge through OTP. This is akin to asking confirmation from client two times for the same," it added.

Where a broker is processing thousands of MTF transactions for hundreds of clients daily, Anmi said it is absolutely impossible to expect every client to check his mobile phone and carry out the pledge request with the OTP in a time bound within 1 hour.

MTF's trades have to be uploaded and allocated and accordingly the MTF funded stock and margin statement must be sent same day before markets opens, it said.

"Now what happens if the client delays / refuses to mark the pledge for the funded stocks," it added.

Under the Sebi framework, there is daily reporting of client funded stocks to the exchange to protect the interest of clients. Besides, brokers also reports daily fund balance of the client on a weekly basis.

With all this data regulators can ensure that one client's credit is not used for another client, the brokers association said.

In view of the concerns of the broking industry, Anmi has requested "to consider granting extension of implementation of Sebi circular for next two months and allow the existing system of crediting the funded stock to earmarked funded stock DP account".

In February, Sebi came out with a pledge/repledged mechanism to prevent misuse of clients' securities that are available with trading and clearing members and depository participants.

It banned the transfer of clients' securities to demat accounts of trading and clearing members.

From August 1, trading or clearing members will accept collateral from clients in the form of securities, only by way of 'margin pledge', created in the depository system.

(The above story is verified and authored by Press Trust of India (PTI) staff. PTI, India’s premier news agency, employs more than 400 journalists and 500 stringers to cover almost every district and small town in India.. The views appearing in the above post do not reflect the opinions of LatestLY)