CIRCULAR
SEBI/HO/MRD/MRD-PoD-3/P/CIR/2022/166 November 30, 2022
To,
All Recognized Stock Exchanges
All Recognized Clearing Corporations
All Registered Stock Brokers
Madam/Sir,
Subject: Inclusion of Equity Exchange Traded Funds as list of eligible securities
under Margin Trading Facility
1. SEBI vide Circular No. CIR/MRD/DP/54/2017 dated June 13, 2017 issued a
comprehensive framework for Margin Trading Facility (MTF) and subsequently
provided clarification on source of funds vide SEBI Circular No.
CIR/MRD/DP/86/2017 dated August 01, 2017.
2. Based on the feedback received from market participants, recommendation of
Secondary Market Advisory Committee (SMAC) of SEBI and taking into account the
emergence of Exchange Traded Funds (ETFs) as an investment product with
various advantages such as transparency, diversification, lower cost, etc., it has
been decided to allow units of Equity Exchange Traded Funds (Equity ETFs)
categorized as Group-I security as per provisions of SEBI Circular
No.MRD/DoP/SE/Cir-07/2005 dated February 23, 2005 as an eligible security for
MTF as well as an eligible collateral under MTF.
3. Accordingly, provisions under paragraphs 3, 4, 5, 6, 14 and 18 of SEBI Circular No.
CIR/MRD/DP/54/2017 dated June 13, 2017 have been modified as under:
3.1. Securities Eligible for Margin Trading
Paragraph-3 of the aforesaid circular has been modified as under:
“Equity shares and units of Equity ETFs that are classified as 'Group I security'
as per SEBI circular MRD/DoP/SE/Cir-07/2005 dated February 23, 2005 shall
be eligible for MTF.”
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3.2. Margin Requirement
i. Paragraph-4 of the aforesaid circular has been modified as under:
“In order to avail MTF, initial margin required shall be as under:
Category of Stock Applicable Margin
Group I stocks available for trading VaR + 3 times of applicable ELM*
in the F&O Segment
Group I stocks other than F & O VaR + 5 times of applicable ELM*
stocks and units of Equity ETFs
*For aforesaid purpose, the applicable VaR and ELM shall be as in the cash
segment for a particular stock.”
ii. Paragraph-5 of the aforesaid circular has been modified as under:
“The initial margin payable by the client to the stock broker shall be in the
form of cash, cash equivalent, or Group I equity shares or units of Group I
Equity ETFs, with appropriate haircut as specified in SEBI Circular
No.MRD/DoP/SE/Cir-07/2005 dated February 23, 2005.”
iii. Paragraph-6(i) of the aforesaid circular has been modified as under:
“The stock brokers shall be required to comply with the following conditions:
(i) The stocks or units of Equity ETFs deposited as collateral with the stock
broker for availing MTF (‘Collaterals’) and the stocks or units of Equity ETFs
purchased under the MTF (‘Funded stocks’) shall be identifiable separately
and no comingling shall be permitted for the purpose of computation of
funding amount.”
3.3. Leverage and Exposure Limits
Paragraph-18(b) of the aforesaid circular has been modified as under:
“While providing the MTF, the stock broker shall ensure that:
b). exposure towards stocks and/or units of Equity ETFs purchased under
MTF and collateral kept in the form of stocks and/or units of Equity ETFs are
well diversified. Stock brokers shall have appropriate Board approved policy
in this regard.”
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3.4. For the purpose of applicable haircuts for units of Equity ETFs as collateral for
MTF, it is clarified that the haircuts applicable to Liquid (Group I) Equity Shares
(under “Other Liquid Assets” category) as per SEBI circular MRD/DoP/SE/Cir-
07/2005 dated February 23, 2005 shall be applicable to units of Equity ETFs.
3.5. Disclosure Requirement
The format for disclosure by the stock broker to the stock exchange on gross
exposure towards MTF as prescribed under paragraph-19 of the aforesaid
circular has been modified to include information with regard to MTF for units
of Equity ETFs and enclosed at Annexure 1 and Annexure 2.
3.6. Source of Funds
Paragraphs-3 and 4 of SEBI Circular No. CIR/MRD/DP/86/2017 dated August
01, 2017 read with paragraph-14 of SEBI Circular No. CIR/MRD/DP/54/2017
dated June 13, 2017 has been modified as under:
“For the purpose of providing the MTF, a stock broker may use own funds,
borrow funds from scheduled commercial banks and/ or NBFCs regulated by
RBI, borrow funds by way of issuance of Commercial Papers (CPs) and by
way of unsecured long term loans from their promoters and directors. The
borrowing by way of issuance of CPs shall be subject to compliance with
relevant RBI Guidelines. The borrowing by way of unsecured long term loans
from the promoters and directors shall be subject to the compliance with
appropriate provisions of Companies Act, 2013.
A stock broker shall not be permitted to borrow funds from any other source,
other than the sources stated above.”
4. The Stock Exchanges are advised to:-
4.1. take necessary steps and put in place necessary systems for implementation
of this circular;
4.2. make necessary amendments to the relevant bye-laws, rules and regulations
for the implementation of the above decision; and
4.3. bring the provisions of this circular to the notice of the member brokers of the
stock exchange and also disseminate the circular on the website.
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5. Applicability
The provisions of this circular shall come into force with effect from 30th day of
issuance of this circular.
6. This circular is being issued in exercise of powers conferred under Section 11(1) of
the Securities and Exchange Board of India Act, 1992, to protect the interests of
investors in securities and to promote the development of, and to regulate, the
securities market.
7. This circular is available on SEBI website at www.sebi.gov.in under the category
‘Circulars’.
Yours faithfully,
Hruda Ranjan Sahoo
Deputy General Manager
Tel No.: 022-26449586
E-mail: hrsahoo@sebi.gov.in
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Annexure 1
Format of the Daily Reporting by the members to the Stock Exchange on the
amount financed by them under the Margin Trading Facility
Name of the member
Clearing No.
Name of Category PAN Name of Stock Quantity Amount
Client of Holding Stock or Exchange Financed Financed
(Promoter/ Equity (Number (INR in
Promoter ETF of lakhs)
Group or (Collateral Shares or
Non or Funded Units of
Promoter) Stock) Equity
ETFs)
Sr. No Particulars (INR in lakh)
1 Total outstanding on the beginning of the day
2 Add: Fresh exposure taken during the day
3 Less: Exposure liquidated during the day
4 Net outstanding at the end of the day
Source of Funds
1 Out of net worth
2 Out of borrowed funds
3 If borrowed, name of lenders and amount borrowed to be
specified separately
Note: Disclosure is required to be made on or before 12 noon on the following
trading day.
Annexure 2
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Format for dissemination of information by the Stock Exchange
Quantity Financed by all the Amount financed by all
Name of the Stock/
members (Number of shares the members (INR in
Equity ETF
or units of Equity ETFs) lakh)
Sr.
Particulars (INR in lakh)
No.
Scrip-wise total outstanding on the
1
beginning of the day
Add: Fresh exposure taken during
2
the day
Less: Exposure liquidated during the
3
day
Net scrip-wise outstanding at the
4
end of the day
Note: Disclosure is required to be made immediately before end of the following
trading day in respect of previous day’s margin trading facility.
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