The chairman of the Securities and Exchange Board of India (Sebi), Ajay Tyagi, on Thursday defended recent reforms announced by the regulator, such as maximum margin standards and shortening the settlement cycle of transactions, saying they were in the interest of investors.

These measures have been criticized by the brokerage community and foreign portfolio investors (REITs).



Speaking to the media after his inaugural address at the CII Financial Markets Summit, Tyagi said, “The new maximum margin standards are in everyone’s interest. An investor’s margins must not be used for third parties or for own account transactions by brokers. With increased retailer participation, higher margin standards will give us peace of mind and confidence that nothing will go wrong. “

As of September 1, Sebi banned brokers from giving additional intraday leverage for trading stocks and derivatives. This means that investors are required to provide minimum margins – VAR + ELM for equities and SPAN + Exposure for derivatives, even for intraday transactions.

On the issue of a bubble in the stock market, the Sebi chief said there were possible headwinds. “How the excess liquidity in the system would be managed by central banks, including the timing and pace of unwinding.” Another factor to watch is the level of inflation. Given the uncertainty, it is difficult to predict the inflection point, ”he said.

SPAN stands for Standard Portfolio Analysis of Risk, VAR is Value at Risk and ELM is Extreme Loss Margin – measures used to determine investment risk for securities.

Regarding the T + 1 settlement cycle, Tyagi said: “The transition from T + 3 to T + 2 took place in 2003. It is necessary to reduce it further now because there have been significant reforms in payments and the banking system. Investors have the right to receive what they buy as quickly as possible.

On September 7, Sebi issued a circular introducing an optional T + 1 settlement cycle for domestic markets from January 1, 2022. The regulator has asked the exchanges to decide whether they want to go for the shorter cycle for one. rated scripts.

Tyagi said Sebi is moving towards a shorter settlement cycle on an incremental basis due to the concerns and challenges highlighted by REITs.

REITs opposed the move citing several operational challenges such as jet lag, cumbersome information flow process and currency issues. Dismissing some of these concerns, Tyagi pointed out that REITs have been investing in the derivatives market since 1999, where upfront payments are required. “Plus, they invest in the IPO market where the money is locked in for seven days. Even the US clearinghouse has launched a discussion paper to move towards a T + 1 settlement. This is something that is desirable for everyone, ”he said, adding that REITs need to do some soul searching.

The head of Sebi said that domestic investors currently account for 95% of the volumes on one of the exchanges (ESB). When asked if different exchanges opting for different settlement cycles would fragment liquidity, Tyagi said, “This will not impact liquidity. Considering the overall liquidity and costs, investors will take a call to trade. On the requirement to separate the posts of chairman and chief executive officer for listed companies, Tyagi said one can understand the argument that this should not be made mandatory, but suggest that the two can be linked. is unfair “I want to ask if they are related, then what is the relevance of separating them,” he said.

Regarding Sebi’s recent crackdown on insiders, Tyagi said the regulator was dealing with the issue effectively. However, he declined to share details of the technology he uses because it could cause people to play with the system, he added.

In the recent past, the regulator has passed orders for violating insider trading standards in companies such as Poonawalla Fincorp, Infosys and Zee using sophisticated technological tools.

Regarding foreign listings, Tyagi said the government must decide the issue. Welcoming recent examples of shareholder activism, he said this “is good for everyone, especially minority shareholders”.

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