Photo for representation. , Photo Credit: Reuters
capital market regulator Securities and Exchange Board of India (SEBI) Brokers have been permitted to extend Margin Trading Facility (MTF) to Equity Exchange Traded Funds (ETFs) and such funds can also be used as collateral.
Presently, only select stocks falling under Group 1 securities are offered by the brokers for MTF facility.
“taking into account the emergence of ETF as an investment product With various benefits like transparency, diversification, low cost etc., it has been decided to allow units of Equity Exchange Traded Funds (Equity ETFs) as eligible security for MTF as well as eligible collateral under MTF . said in a circular.
This facility is executed with borrowed funds or securities which enable investors to invest in the market in excess of their own resources.
SEBI said that the initial margin payable by the client to the stock broker should be in the form of cash, cash equivalent or equity ETF.
Further, the shares or units of the equity ETF are deposited as collateral with the stock broker to get the collateral and the shares or units of the equity ETF are purchased. funded stock Must be separately identifiable and no collusion will be permitted for the purpose of calculation of funding amount.
SEBI said, “While providing MTFs, stock brokers shall ensure that the exposure to shares and units of equity ETFs purchased under the MTF and collateral held as stocks and units of equity ETFs is well diversified “
Stock brokers would need to have a suitable Board approved policy in this regard.
For the purpose of providing MTF, a stock broker may use own funds, may borrow funds from scheduled commercial banks or NBFCs regulated by RBI, may borrow funds by way of issuance of commercial paper (CP) and in the form of unsecured long-term loans from their promoters and directors. SEBI said, ‘The circular will be applicable from December 30.’