SEBI has taken the initiative to implement new margin rule from September 1, 2020 onwards despite the stock brokers’ demand to postpone it. Under the present system, if anyone wants to trade with his broker, he is required to maintain margin. So, when he pledges his stock to obtain margins, he has to transfer his securities from his account to the broker’s account. The broker then pledges these to clearing corporation.
So, in this existing system, what happens is that the brokers generally take Power of Attorney (POA) from their clients to access their accounts. However, many brokers misuse this POA by pledging the shares of their clients to raise money to fund their other businesses. They also take dividend of clients who are unaware and not actively trading in the stock market.
In this backdrop, the new margin rule system intends to plug this loophole and has removed the requirement of creating a POA. So, this prevents the brokers from having a direct access of their client's account. So, now clients can pledge and re-pledge their share holdings with the brokers for generating margins. Another benefit is that now investors can continue to enjoy the benefits which the companies provide to them without any worry.
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