Sebi’s New Rules are Peak From Today
The market control securities and Exchange Board of India’s (SEBI) “peak margin” measures came into force from today. The new norms have mandated the set of upfront margin from clients, which can be peak margin or end-of-the-day (EOD) margin, whichever is higher, in intraday as well as delivery.
Analysts believe that the most number of trades engaged in the system are largely intraday in nature and, with this regulation hitting in, there can be a result on overall volumes traded on the exchanges both cash and derivatives segment.
Peak margin regulation will be executed in the phased manner mentioned below:
- Phase 1: 25 percent of the upfront margin to be available before the trade is being executed from December 1, 2020, to February 28, 2021.
- Phase 2: 50 percent of the upfront margin to be available before the trade is being executed from March 1, 2021, to May 31, 2021.
- Phase 3: 75 percent of the upfront margin to be available before the trade is being executed from June 1, 2021, to August 31, 2021.
- Phase 4: 100 percent of the upfront margin to be available before the trade is being executed from September 1, 2021.
First, margins were collected upfront and determined based on the end of day positions. The broker funded the intraday positions of the clients. As long as he brings the outstanding by the end of the day to below what they have already deposited as margin by the end of the day.
For example: If a trader has Rs 10,000 as margin with his broker, he can trade many times intraday and the broker funds. As long as by the end of the day the MTM doesn’t wipe out Rs 10,000 in the margin.
What changes from today in Sebi new peak
From today, the broker will go away from using the end of day position to calculate the margin call to using the intraday peak position. The exchange will randomly select 4 times in the day to take snaps of all margins. The highest margin of the 4 snaps taken will become the peak margin. This is applicable for both cash and F&O segments.
In September this year, SEBI had decreased penalty terms in the upfront margin call on the condition that the client gives at least 20 percent of VAR + ELM. However, this was appropriate in the cash delivery segment, while brokers advanced to provide leverage in the intraday segment.
“As such, depending upon the amount of margin collection in the intraday segment, different brokers will endure varying levels of volume result from December 2020. Some brokers with technology prowess used to provide higher leverage (5-10% of VAR + ELM) based on the strict stop-loss tools.
The percentage of intraday orders on cash/derivatives on its floor is 55%/40% respectively. In value terms, the same is 70%/40% respectively. Around 99% of retail trades in F&O is intraday and more than 40% of these trades are due to excess leverage provided by the brokers.
“Starting today, what is going to grow is there is a cap on maximum leverage that can be granted by the brokerage. So the impact as such today may not be as much, but again the next 9 months the maximum leverages that can be offered at brokerages will keep diminishing and traders will get used to that by then.
Large brokers like Zerodha won’t notice a reaction as it’s already holding margin. “Brokers at the tail-end would be affected more.,“Customers getting only 80 percent credit same-day on selling stock will have a deeper impact.