SEBI Considers Margin Relief On EPI-Backed Cash Market Trades For Brokers

The Securities and Exchange Board of India (SEBI) is considering a proposal that could reduce collateral requirements for brokers by exempting certain cash market buy transactions from upfront margin collection when they are backed by accepted Early Pay-In (EPI) of securities. The proposal is intended to improve capital efficiency while preserving the integrity of the clearing and settlement system.

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Proposal Seeks Better Use Of EPI Credit

Early Pay-In allows investors to transfer shares or funds to the clearing corporation before settlement, enabling the transaction to be recognised for margin purposes while reducing settlement risk.

According to Moneycontrol, under the proposed framework, if a client has a net sell obligation and the EPI request has already been accepted by the clearing corporation, brokers would not be required to provide additional margin for the client’s cash market buy transactions up to the value of the accepted sale credit. The exemption is proposed to operate in real time.

Industry Seeks Reduction In Capital Blockage

The proposal builds on earlier regulatory measures. In 2022, exchanges permitted the value of securities transferred through the EPI block mechanism to be treated as margin for the related sale transaction. In October 2024, exchanges further allowed the full value of EPI-backed securities to be recognised as margin without deducting the 20% upfront margin requirement.

Despite these changes, brokers have maintained that clearing corporations continue collecting upfront margins on fresh buy transactions even after sale proceeds have been secured through EPI.

Moneycontrol also reported that the proposal originated from the Brokers’ Industry Standards Forum (ISF), which argued that once EPI is completed, the client’s sale obligation has effectively been fulfilled because the securities are already with the clearing corporation. As a result, collecting additional collateral for purchases of an equivalent value unnecessarily locks up capital.

To ensure adequate safeguards, one clearing corporation has suggested creating a virtual ledger for each client. When an EPI is accepted, the corresponding value will be entered to this ledger and will be offset against qualifying purchases thereafter.

Risk Controls Remain Central

The proposed framework would continuously monitor client positions. If an investor later reverses the original EPI-backed sale or creates additional positions that reduce available margin, the clearing corporation would immediately block the required collateral from the proprietary resources of the broker or clearing member.

Brokers would also need to strengthen their internal risk management systems. However, the clients will be permitted to offset the EPI-supported positions or enter into new transactions if adequate margin exists after taking into account all risks involved.

It is a component of the measures being taken by SEBI with a view to enhancing efficiency and making it possible for cash market involvement despite risk controls in place. Implementation of such policies will reduce the requirement of collateral on the part of the broker, effective use of funds, and streamlined settlement procedures.