“India is one of the few…”: what Nithin Kamath said about this important regulatory change

Zerodha Founder and CEO Nithin Kamath took to Twitter on Tuesday to share the impact of new regulations on the separation of customer collateral by the Securities and Exchange Board of India (SEBI) regulations and its impact on the brokerage industry.

Nithin Kamath on Twitter shared that “from May 2, brokers must segregate collateral at the client level. Thus, funds from one client cannot 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, “the broker’s capital will be blocked if he allows clients to sell shares without any funds in the account, use sales credit to trade further, use 100% of funds, etc. Essentially increasing the working capital requirement of the brokerage firm,” Kamath explained.

However, he did notify that “nothing changes @zerodhaonline, but it may post-July 31st in brokerage firms that are not well capitalized relative to the size of their business. We are currently in a 3 month transition period. months towards the new regulations where there are no penalties.”

Meanwhile, market regulator Sebi on Monday asked stock exchanges and other market infrastructure institutions (MIIs) to submit information related to outstanding major non-compliances observed in the audit of systems and networks.

The Systems and Networks Audit Report will be filed with the relevant IRM Board. Later, the report along with the IRM management’s comments should be submitted to the Sebi within a month of the completion of the audit, according to a circular.

Given the rapid technological developments in the securities market and the risks these developments pose to the efficiency and integrity of the markets, Sebi in January 2020 had mandated that exchanges, clearing houses and depositories carry out an annual audit of the system by a reputable independent auditor.

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