SEBI Considers Waiving Broker Margins On EPI-Backed Buy Trades To Ease Capital Pressure

The Securities and Exchange Board of India (SEBI) is examining a proposal that could lower collateral requirements for brokers by allowing clearing corporations to waive margin collection on certain cash market buy transactions backed by Early Pay-In (EPI) of securities, according to a report by Moneycontrol.

The proposal aims to ease capital requirements for brokers while ensuring settlement risks remain controlled.

Early Pay-In is a mechanism through which investors transfer securities or funds to clearing corporations before settlement.

This allows the value of such securities or funds to be considered for margin purposes and reduces settlement-related risks.

According to sources, SEBI recently discussed the proposal with brokers, clearing corporations and other market participants.

Under the suggested framework, if a client has a net sell obligation during a settlement cycle and the EPI request has been accepted by the clearing corporation, no additional margin would be required from brokers for the client’s buy-side transactions up to the value of the accepted sale credit.

The exemption would be applied on a real-time basis.

The proposal builds on earlier regulatory relaxations. In 2022, stock exchanges allowed securities delivered through the EPI block mechanism to be considered as margin collected against the corresponding sale transaction.

Later, in October 2024, exchanges clarified that the entire value of EPI-backed securities could be considered as margin across market segments without reducing the upfront margin requirement.

However, brokers argued that clearing corporations continue to collect upfront margins on fresh buy transactions despite sale proceeds already being secured through EPI. They said this leads to unnecessary blocking of capital.

The proposal, initiated by the Broker’s Industry Standards Forum (ISF), suggests that once EPI is accepted, the client’s sale obligation is effectively secured and equivalent-value purchases should not require additional collateral.

Sources said clearing corporations have broadly supported the proposal, though they highlighted possible risks if clients reverse EPI-backed sale transactions after using the credited value for new positions.

To address such concerns, a virtual ledger system has been proposed for each client.

Under this system, once EPI is accepted on the trade date, the clearing corporation would credit the corresponding amount and continuously monitor positions.

If a client later closes the EPI-backed transaction or enters fresh trades resulting in insufficient margins, the required collateral would immediately be blocked from the broker’s or clearing member’s resources.

The proposal would also increase responsibility on brokers, requiring them to strengthen internal risk management systems and ensure clients maintain sufficient margins before taking additional positions.