Zerodha founder and CEO Nithin Kamath on Tuesday took to Twitter to share the impact of a new regulation on the segregation of client collateral by the Securities and Exchange Board of India regulation (SEBI) and its impact on broking industry.
Nithin Kamath on Twitter shared that, “starting May 2nd, brokers have to segregate collateral at client level. So funds of one client can’t be used to fund another. This is an important regulatory change that makes our markets even safer. India is one of the few in the world to have this.”
Following this regulation, “broker’s capital will get blocked if they allow clients to sell stocks without any funds in the account, use credit from sales to trade more, use 100% of funds, & more. Essentially increasing the working capital requirement of the brokerage firm,” Kamath shared.
However, he notified that, “nothing changes @zerodhaonline, but it might post-July 31st at brokerage firms who aren’t well-capitalized compared to the size of their business. We are currently in a 3 month transition period to the new regulations where there are no penalties.”
Meanwhile, the markets regulator Sebi on Monday asked stock exchanges and other Market Infrastructure Institutions (MIIs) to submit information pertaining to exceptional major non-compliances observed in the systems and network audit.
The systems and network audit report will be placed before the governing board of the MII concerned. Later, the report along with the comments of the management of the MII need to be communicated to Sebi within a month of completion of audit, according to a circular.
Taking into account the rapid technological developments in the securities market and the entailing risks that these developments pose to the efficiency and integrity of markets, Sebi, in January 2020, had mandated that stock exchanges, clearing corporations and depositories should conduct an annual system audit by a reputed independent auditor.