From T+2 To T+1: SEBI’s New Margin Collection Norms And Market Impact

Posted On - 9 June, 2025 • By - Aurelia Menezes

Introduction

On April 28, 2025, the Securities and Exchange Board of India (SEBI) issued a circular mandating a key change in the timeline for margin collection in the cash segment.[1] In view of the T+1 settlement cycle now followed across all scrips, SEBI has directed Trading and Clearing Members to collect all margins—except upfront VaR and ELM—by the settlement day itself. The move is aimed at aligning margin collection with the shorter settlement cycle and ensuring tighter risk controls across the equity markets.

Understanding the Circular

Background and Context

  • Master Circular Reference: The Master Circular for Stock Brokers dated August 9, 2024, mandates that Trading Members (TMs) and Clearing Members (CMs) collect margins from their clients in the cash segment.[2] For this, reference is made to paragraph 39.1 of the Master Circular.
  • Requirement under Existing Norms:
    • Under Para 39.1.2, it is mandatory for TMs/CMs to collect upfront VaR (Value at Risk) margins and ELM (Extreme Loss Margin) from clients.
    • For other types of margins, TMs/CMs were previously allowed up to T+2 working days for collection.
  • Change in Settlement Cycle:
    • Effective from January 27, 2023, the settlement cycle in the cash market was shortened to T+1 across all scrips.
    • This move necessitated an alignment of margin collection timelines with the new, shortened settlement schedule.

Purpose of the Circular

This circular has been issued:

  • In light of the reduction of the settlement cycle from T+2 to T+1.
  • On the basis of representations received from the Brokers’ Industry Standards Forum (ISF).
  • To strengthen the risk management framework and bring greater alignment between margin collection and the new T+1 settlement cycle.

Key Changes Introduced

The circular modifies the relevant provisions of the Master Circular as follows:

Revised Para 39.1.2

  • Mandatory Collection of Upfront Margins: TMs/CMs must mandatorily collect upfront VaR margins and ELM from clients before executing trades, similar to the derivatives segment.
  • Deadline for Other Margins: All other types of margins must be collected by the settlement day (T+1). This change takes into account practical difficulties that TMs/CMs may face in collecting margins immediately.
  • Clarification:
    • Clients must pay upfront margins (VaR and ELM) in advance of the trade.
    • Other margins must be paid as soon as margin calls are made.
    • The time until the settlement day is provided only for the purpose of penalty waiver, not as a relaxation in the payment obligation for clients.

Revised Para 39.1.3

  • Deemed Margin Collection:
    • If the client makes pay-in (both funds and securities) by the settlement day, then other margins are deemed to have been collected.
    • No penalty will be imposed for short or non-collection of such margins in such cases.

Revised Para 39.1.5

  • Penalty in Case of Default: If the client fails to make pay-in by the settlement day, and the TM/CM also fails to collect the other margins, this shall lead to the levy of penalty as applicable.

Instructions to Stock Exchanges and Clearing Corporations

SEBI has directed all recognised Stock Exchanges and Clearing Corporations (excluding those dealing exclusively in commodities) to:

  • Amend Bye-laws and Rules: Make necessary changes in their bye-laws, rules, and regulations to incorporate the above provisions.
  • Dissemination to Market Participants: Ensure that the contents of this circular are brought to the attention of all relevant market participants. The information must be made available on their respective websites.

Implications of the Circular on Stakeholders

By requiring all margins (except initial VaR and ELM) to be received by the settlement date (T+1) rather than the previously allowed T+2 period, the circular is attempting to tighten risk management procedures and introduce uniformity across market segments. But this regulatory move impacts various stakeholders.

Trading and Clearing Members (TMs/CMs)

Trading Members and Clearing Members are likely the most directly affected stakeholders. The new timelines impose a stricter operational cost, mandating them to enhance their internal systems and client interfacing mechanisms to facilitate timely margin collection. Upfront VaR and ELM margins continue to be collected prior to trading, but the window for collecting other margins is now closed by the settlement day itself, leaving absolutely minimal time for communicating margins, making calls, and ensuring compliance.

In addition, non-collection of margins within the time frame—if coupled with non-pay-in by the client—will incur penalties. Therefore, TMs/CMs will have to rethink their risk management policies, automate margin alerts further, and intensify monitoring of client positions to prevent regulatory sanctions. The working allowance of time until settlement day for collection—intended to minimize penalty exposure—is not a waiver of obligation and requires diligent documentation and surveillance.

Clients (Investors and Traders)

From the viewpoint of clients, especially retail and high-frequency traders, this transition shortens the margin funding horizon, which requires them to arrange timely funding of their trading accounts. Although the exposure of penalty belongs mostly to the TMs/CMs, in reality, the latter would set more stringent trading terms or margin calls on clients to prevent defaults. Clients that hitherto traded with back-loaded margin payments now have a narrower flexibility window, potentially influencing intraday trading patterns and liquidity management.

Greater clarity on margin commitments and margin monitoring systems in real time will be required to prepare clients to meet this tighter regime. Institutional clients, while better prepared, could also need to reset their fund administration and settlement processes to fit the T+1 environment.

Stock Exchanges and Clearing Corporations

Stock Exchanges and approved Clearing Corporations are responsible for implementing and enforcing this new schedule. They have to modify appropriate bye-laws, regulations, and compliance procedures to comply with the alterations. This also involves improving surveillance facilities to closely monitor margin compliance and ensuring that systems can differentiate between initial margins and other types of margins while determining penalty exposures.

In addition, market exchanges have to implement investor education and awareness measures to make the transition smooth and prevent participants from being confused. Technology enhancement and amended reporting templates can be necessary to ensure real-time compliance.

Overall Market Impact

The circular is a step in establishing a harmonised and effective risk management environment in the cash market, in line with best international practices. Although the initial compliance cost is not negligible, particularly to small brokers and retail investors, the long-run impact is likely to be beneficial through lowering systemic risk and facilitating timely collateralisation. It promotes discipline, transparency, and quicker recycling of capital in the market, aligning India’s capital market infrastructure with its aspiration to become a global investment destination.

Conclusion

By tightening the margin collection timeline to match the T+1 settlement cycle, SEBI has pressed market participants to improve internal efficiencies and adopt more disciplined trading practices. While the adjustment may compress operational buffers, it is likely to reduce counterparty risk and improve market hygiene. Brokers, clients, and exchanges must now recalibrate systems and behaviours to operate within a sharper time frame, ultimately encouraging quicker settlement and greater transparency. Over time, these changes could lead to a more resilient cash market – one where risk is better managed, and capital moves more swiftly and securely through the system.

[1] https://www.sebi.gov.in/legal/circulars/apr-2025/timelines-for-collection-of-margins-other-than-upfront-margins-alignment-to-settlement-cycle_93685.html.

[2] https://www.sebi.gov.in/legal/master-circulars/aug-2024/master-circular-for-stock-brokers_85605.html.

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