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Reuters
Capital markets regulator Securities and Exchange Board of India (SEBI) has allowed brokers to extend the margin trading facility (MTF) to equity trade traded funds (ETFs) and such funds can be utilized as collateral as nicely.
Currently, solely choose shares that come beneath Group 1 securities are supplied the MTF facility by brokers.
“Taking into account the emergence of 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)… as an eligible security for MTF as well as an eligible collateral under MTF,” SEBI mentioned in a round.
The facility is executed with borrowed funds or securities that allow buyers to take publicity out there over and above their sources.
SEBI mentioned that preliminary margin payable by the consumer to the inventory dealer ought to be within the type of money, money equal or equity ETFs.
Further, the shares or models of equity ETFs deposited as collateral with the inventory dealer for availing collaterals and the shares or models of equity ETFs bought beneath the funded stocks ought to be identifiable individually and no co-mingling could be permitted for the aim of computation of funding quantity.
“While providing the MTF, stock brokers will have to ensure that exposure towards stocks and units of equity ETFs purchased under MTF and collateral kept in the form of stocks and units of equity ETFs are well diversified,” SEBI mentioned.
Stock brokers will probably be required to have applicable board-approved coverage on this regard.
For the aim of offering the MTF, a inventory dealer could use personal funds, borrow funds from scheduled industrial banks or NBFCs regulated by RBI, borrow funds by means of issuance of Commercial Papers (CPs) and by means of unsecured long-term loans from their promoters and administrators. “The circular will come into force from December 30,” the SEBI mentioned.