Uniform Membership Structure Across Segments — TM, SCM, CM & PCM Explained
SEBI introduced a uniform membership structure across equity cash and derivatives segments to streamline the roles of market participants. This article explains the four categories of membership — Trading Member (TM), Self-Clearing Member (SCM), Clearing Member (CM), and Professional Clearing Member (PCM) — and the operational and financial requirements for each.
The Regulatory Evolution
Earlier, membership requirements varied across cash and derivatives segments. SEBI Circular SEBI/HO/MIRSD/DOP/CIR/P/2019/14 dated January 11, 2019 implemented a uniform membership structure. Under this framework, a registered trading member / clearing member can operate in any segment of the recognised stock exchange / clearing corporation under the single registration number granted by SEBI. SEBI (Stock Brokers) Regulations, 2026 now provides the overarching framework for these roles.
The Four Categories
1. Trading Member (TM)
A Trading Member is a stock broker who has trading rights on a recognised stock exchange but does not have the right to clear its own trades. A TM must tie up with a Clearing Member (CM) or Professional Clearing Member (PCM) for clearing and settlement of its trades.
Key characteristics:
- Trading rights only.
- No clearing and settlement rights.
- Must have a clearing arrangement with a CM/PCM.
- Minimum net worth: ₹1 crore (cash segment), ₹3 crore (derivatives segment). Reference: SEBI Master Circular for Stock Brokers, Para 47
Obligations:
- Collect margins from clients.
- Report trades to the clearing member.
- Ensure timely pay-in of funds and securities.
2. Self-Clearing Member (SCM)
A Self-Clearing Member is a stock broker who has trading rights and also clears and settles its own trades. An SCM can clear its proprietary trades and client trades but cannot clear trades of other trading members.
Key characteristics:
- Trading rights and clearing rights for own trades.
- Cannot clear trades for other TMs.
- Minimum net worth: ₹5 crore (cash segment), ₹10 crore (currency derivatives segment). Reference: SEBI Master Circular for Stock Brokers, Para 47
Obligations:
- Maintain separate pool accounts.
- Collect and report margins to the clearing corporation.
- Comply with capital adequacy norms.
3. Clearing Member (CM)
A Clearing Member is a stock broker who has clearing rights and can clear trades for itself and for other trading members. A CM is responsible for guaranteeing the settlement of trades of its clients / TMs to the clearing corporation.
Key characteristics:
- Clearing rights for own trades and trades of other TMs.
- Guarantees settlement to the clearing corporation.
- Minimum net worth: ₹15 crore (cash segment), ₹25 crore (derivatives segment). Reference: SEBI Master Circular for Stock Brokers, Para 47
Obligations:
- Maintain segregated client accounts.
- Ensure timely pay-in and pay-out.
- Comply with default management procedures.
4. Professional Clearing Member (PCM)
A Professional Clearing Member is a clearing member that does not have trading rights in the same segment of the stock exchange for which it is acting as a clearing member. A PCM is typically a bank or a specialised clearing entity.
Key characteristics:
- Clearing rights only.
- No trading rights in the segment.
- Minimum net worth: ₹50 crore. Reference: SEBI Master Circular for Stock Brokers, Para 47
Obligations:
- Clear trades of multiple TMs.
- Maintain high capital adequacy.
- Comply with stringent risk management norms.
Net Worth Requirements Summary
| Category | Cash Segment | Derivatives Segment | Currency Derivatives | | Trading Member (TM) | ₹1 crore | ₹3 crore | ₹3 crore | Self-Clearing Member (SCM) | ₹5 crore | ₹5 crore | ₹5 crore | Clearing Member (CM) | ₹15 crore| ₹25 crore| ₹10 crore | Professional Clearing Member (PCM) | ₹50 crore| ₹50 crore| Not specified
Source: SEBI Master Circular for Stock Brokers, Chapter X
Transition from Existing Cash Segment Brokers
Existing cash segment stock brokers who were not registered as SCM/CM in derivatives segment automatically became SCM in cash segment with effect from April 01, 2019. However, they had to meet the net worth requirement for SCM/CM by September 30, 2019. Those who failed to meet the requirement continued to trade as TMs in cash segment provided they tied up with a CM/PCM for clearing and settlement. Reference: SEBI Circular SEBI/HO/MIRSD/DOP/CIR/P/2019/14 dated January 11, 2019
Operational Implications
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Risk management. CMs must maintain at least 50% of the total collateral in the form of cash or cash equivalents. TMs and SCMs have less stringent collateral requirements.
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Reporting. CMs must report disaggregated information on collateral up to the level of clients of TMs and proprietary collaterals of the TMs to the stock exchanges and clearing corporations on a daily basis. Reference: SEBI Master Circular for Stock Brokers, Para 43 — Segregation and Monitoring of Collateral at Client Level
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Default management. In case of default, the CM is the first line of defence. The CM must use its own collateral to meet settlement obligations before invoking client collateral.
Common Pitfalls
- Inadequate net worth. The CM must maintain the highest net worth. Shortfall can lead to suspension of clearing rights.
- Failure to report client collateral. CMs must report client-wise collateral to clearing corporations; failure to do so attracts penalties.
- Non-compliance with default management procedures. CMs must comply with the default management framework; failure can lead to disciplinary action.
How We Help
At Anuj Desai & Associates, we help broking firms choose the appropriate membership structure, apply for registration in the desired category, and comply with the operational and financial requirements. If you are considering upgrading from TM to SCM or CM, or setting up a new broking entity, reach out to our capital markets desk.