Sebi has proposed to encourage Internet-based trading by incentivising retail clients, as such a framework poses zero risk, since it involves checking and blocking 100 per cent of the funds upfront.
In a discussion paper released this week, it said: “Since this trade model brings no additional risk to the system, there is a case to incentivise more and more investors to use this model, so as to reduce the overall risk in the system.
” Some of the incentives proposed by the market regulator include waiver of margin requirements by the clearing corporation (CC), release of any blocked margin as soon as the pay is made and lower clearing charges.
Further, it noted, the overall risk in the system is dependent on the number of unsettled trades in the system at any point of time, while a shorter settlement cycle can go a long way in reducing the risk in the system.
As of now, participants bring risk to the system by way of trades which the CC is obligated to settle with guarantee and the CC in turn tries to mitigate this risk by collateralization.
The benefits of a T+1 cycle listed by Sebi include 30 per cent reduction in value at risk, fewer unsettled trades’ dues, less risk of counterpart insolvency and savings in operational costs as processes become automated.