{"id":61690,"date":"2022-12-15T12:28:36","date_gmt":"2022-12-15T06:58:36","guid":{"rendered":"https:\/\/enterslice.com\/learning\/?p=61690"},"modified":"2024-05-23T11:05:51","modified_gmt":"2024-05-23T05:35:51","slug":"equity-exchange-traded-funds-allowed-as-eligible-security-for-mtf-sebi","status":"publish","type":"post","link":"https:\/\/enterslice.com\/learning\/equity-exchange-traded-funds-allowed-as-eligible-security-for-mtf-sebi\/","title":{"rendered":"Equity Exchange Traded Funds Allowed As Eligible Security for MTF: SEBI"},"content":{"rendered":"

The SEBI, through circular “Inclusion of Equity Exchange Traded Funds as a list of eligible securities under MTC (Margin Trading Facility)<\/em><\/strong>” on 30th<\/sup> November 2022<\/em><\/strong>, has allowed the Equity Exchange Traded Funds to be categorised as an eligible security or collateral for Margin trading facility. With effect from this circular, the SEBI, in furtherance to accommodate new provisions for Equity exchange traded funds, has modified circular No. CIR\/MRD\/DP\/54\/2017 dated 13th<\/sup> June 2017. The present article will cover the modified provisions brought under the circular.<\/p>\n\n\n\n

What is Equity Exchange Traded Funds and Margin Trading Facility?<\/strong><\/h2>\n\n\n\n

The Equity Exchange Traded Funds<\/em><\/strong> is a pooled investment which operates similarly to Mutual Funds. It is a collection of securities that are traded on the stock exchange<\/strong> just like any other securities. The price of equity exchange traded funds fluctuates all day as it is purchased and sold throughout the day, which is different from the mutual fund as it is traded only once a day after the market<\/a> close. The ETFs hold assets such as  bonds, stocks, currencies, futures, contracts and commodities. Most of the ETFs hold the same securities in the same proportions as a bond market index or stock market index. They are attractive to the investor as they offer low-cost and efficient trading.<\/p>\n\n\n\n

The MTF or the Margin Trading Facility<\/em><\/strong> can be termed as when the trader increases its buying capacity of the securities by paying only a small or marginal amount.<\/p>\n\n\n\n

What Are The Reasons For Treating Equity Exchange Traded Funds As Eligible Security?<\/strong><\/h2>\n\n\n\n

Looking at the emergence of Equity Exchange traded funds as an investment product offering various advantages, including diversification, transparency, lower cost etc., in the market and based on the feedback received from market participants & the Secondary market Advisory Committee of SEBI, the SEBI decides to allow equity Exchange traded funds as eligible security under Margin trading facility.<\/p>\n\n\n\n

What Are The Modifications Introduced Under The Article?<\/strong><\/h2>\n\n\n\n

The SEBI, through its present circular on Equity Exchange Traded Funds, has modified the following provisions of SEBI circular No. CIR\/MRD\/DP\/54\/2017 dated 13th<\/sup> June 2017:<\/p>\n\n\n\n

Paragraph 3: Securities Eligible for Margin trading:<\/em><\/strong> The modified provisions now include units of Equity Exchange traded funds which are categorised as “Group I Security” under SEBI Circular on “Comprehensive Risk Management Framework for the cash market<\/em><\/strong>” dated 23rd<\/sup> February 2005 <\/em><\/strong>along with the equity shares. Henceforth, the inclusion has made the equity ETFs eligible for the Margin Trading Facility.<\/p>\n\n\n\n

Paragraph 4: Margin Requirement: <\/em><\/strong>the margin requirement for Equity Exchange Trade Funds on a Margin Trading facility shall be:<\/p>\n\n\n\n
Securities Category<\/strong><\/td>Applicable Margin<\/strong><\/td><\/tr>
Group I stocks available for trading in F & O Segment<\/td>Value at Risk + 3 x Applicable Extreme loss margin<\/td><\/tr>
Group 1 Stocks other than F & O stocks & units of Equity Exchange Traded Funds<\/td>Value at Risk + 5 x Applicable Extreme loss margin<\/td><\/tr><\/tbody><\/table>\n\n\n\n

Paragraph 5: <\/em><\/strong>The modification in the circular has now allowed the client to pay the initial margin to the stock broker in the form of units of Group I Equity ETFs in addition to payment in the form of cash, cash equivalent and Group I Equity share.<\/p>\n\n\n\n

Paragraph 6:<\/em><\/strong> The modified circular has allowed the units of:<\/p>\n\n\n\n