Wisdom Capital challenges SEBI's peak margin circular in Delhi High Court
Dec 02, 2020
New Delhi [India], December 2 : The Delhi High Court on Wednesday sought a response from the Securities and Exchange Board of India (SEBI) and the Central government on a plea challenging a circular which mandates traders and investors to maintain minimum upfront margin in their accounts at all times during the day.
According to the plea, the circular will have a direct impact on the livelihood of many retail traders. There are apprehensions that if the volumes in derivatives deplete it will have an adverse effect on the corrections as there will be a huge drop in GST, STT and stamp duty revenues on derivatives trades, the plea said.
A bench of Justice Jayant Nath, after hearing the submission made by senior advocate Sandeep Sethi appearing for the petitioner, issued notice to the Central government and SEBI in the matter and slated it for further hearing on March 2.
The petition, filed by online marketing services provider Wisdom Capital, said that the petitioner is directly affected by any change brought into the existing system of the securities market. It said that the new rule will have a huge impact on the functioning of the stock market.
"It would be evident that the stock market was the only sector that has been able to function since the lockdown began in India on March 25, 2010. It was only the stock market which provided numerous opportunities to many people facing job losses to survive in these pandemic times," the plea said.
Wisdom Capital CEO Deb Mukherjee said that the circular, in its current form, will encourage market operators to manipulate stock prices and a handful of wealthy traders will be left to trade in the market.
"This calls into question the notion of a level playing field. Trading for option writers and those who make a living out of the financial markets will almost be finished; most of these traders end up losing a livelihood," Mukherjee said.
It also mentioned that the circular will affect all similarly placed entities in their dealings with the general public in buying and selling shares and securities on their behalf.
The concept of 'margins' has been prevalent in the securities markets all over the world since time immemorial, the plea said adding that the circular introduced a vague and cryptic concept of peak margin thereby imposing an obligation for maintaining the minimum margins.
"The circular will destroy leveraging by the brokers which in turn will constrain the Investors from trading in F&O segment due to the higher Margin obligations being payable/maintainable by them before even initiating the trade," the plea said.
"The end result would be lower intraday trading volumes (which currently accounts for 90 per cent of the total trading volume of Indian Securities Market). This is particularly critical (adversely) for the Derivative segment which excessively relies on the facility of Margins since the trading is done in huge lots," it added.
The plea said that the circular, which has come into effect from December 1, 2020, is against the very spirit and philosophy of the provisions of Section 11 of the SEBI Act and is manifestly arbitrary in nature and also impinges upon the Constitutional Rights of the Petitioner under Article 14 and Article 19(1)(g)of Constitution of India.
