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NEW MARGIN RULES BY SEBI

Updated: Dec 4, 2020





Hello Everyone


We hope you are safe and healthy.


In this blog we will see what all implementation have been done by SEBI


How the Margins are calculated?


There are 3 factors through which margin of particular stock is calculated i.e VAR, ELM and ADHOC


The Securities and Exchange Board of India asked brokers to collect VAR (value at risk) and ELM (extreme loss margin) upfront from their clients. The rules are likely to stag into effect in a phased manner starting in December 2020.


PAYINS & PAYOUTS


Let’s look at the regulatory changes now

For example, if you buy shares of Titan worth Rs. 1 lakh on Monday (delivery based) with a trading balance of Rs. 1 lakh and you want to sell these shares worth Rs. 50,000 on Tuesday that is at T+1 to buy TCS then you can do that.


Here, the transaction that you will do on T+1 or Tuesday will become your T-day. Therefore, the T+2 of your original transaction will be T+1 of your order where you sell shares of Titan and buy TCS. In order to balance out these two transactions, you will only be able to further sell balance Titan and TCS if any on Wednesday. Whereas, on Thursday, the net of proceeds posts selling and buying of Titan will be available for trading.


Monday: Buy Titan worth Rs. 1 lakh (100 shares) using 1 lakh transferred on Monday morning

Tuesday: Can sell Titan worth Rs. 101,000 (100 shares) at a profit of Rs 1000 and buy TCS worth Rs 50,000 (T-day of this transaction)

Wednesday: Cannot buy further unless the funds are transferred however you can sell TCS bought on the previous day. Holdings for Titan on this day will be zero

Thursday: – Can then trade with the proceedings (plus profits earned) out of Titan

You will also not be able to use booked profit on Intraday positions for the same until its realisation i.e. T+2.


PLEDGING & RE PLEDGING


The new rule obliterates POA practice. It mandates that when you pledge securities to the broker, it will remain in your Demat account. You must then pledge these securities directly to the clearing corporation to receive a margin loan. Previously, when you used to pledge, your stocks were transferred to the broker’s Demat account. But from now on, you would need to authorise a pledge to your broker; it will then repledge with the clearing corporation to offer you margin facilities.


From now on, you would need to generate a separate margin pledge using the broker’s system. You will receive an SMS/email from the depository (CDSL or NSDL) asking for authentication. You will need to authenticate your request at the depository page. Verify all the details and approve the request using PAN or an OTP. Once you verify, your broker will receive the pledging request, which they will need to repledge with the clearing corporation


PEAK MARGIN


Following are the guidelines for collection of upfront margins from clients in Cash & Derivative segment: -

1. SEBI circular Exchanges/ Clearing Corporations have mandated trading members to collect applicable margins from their clients/ constituents in advance of the trade for all the segments i.e. Equity, Commodity & Currency.


2. MOFSL shall have to report the margin collected from each client for EOD as well as Peak margin during the day, in the following manner:


EOD margin obligation of the client shall be compared with the respective client margin available with the Trading Member (TM)/Clearing Member (CM) at EOD.

AND

Peak margin obligation (Highest) of client, during the day, shall be compared with respective client peak margin available with the TM/CM during the day.

Higher of the shortfall in collection of the margin obligations at (a) and (b) above, shall be considered for levying of penalty as per the extant framework


3. The above framework will be prescribed in the phased manner as below


· Phase 1 (for 3 months from the date of implementation) - 25% of (Peak margin obligation of the client) shall be compared with respective client peak margin available with the TM/CM during the day.

· Phase 2 (for subsequent 3 months) - 50% of (Peak marginobligation of the client) shallbe compared with respective client peak margin available with the TM/CM during the day.

· Phase 3 (for subsequent 3 months) - 75% of (Peak marginobligation of the client) shallbe compared with respective client peak margin available with the TM/CM during the day.

· Phase 4 (subsequently) - 100% of (Peak marginobligation of the client) shall be comparedwith respective client peak margin available with the TM/CM during the day.


Peak margin file will be sent by exchanges 4 times in a day at random time schedule, the maximum margin in any of these files will be considered as peak margin for the day and margin will have to be complied based on the peak margin or EOD margin which is higher.


Let’s understand with an example





KEY HIGHLIGHT FOR INVESTOR


- Everything stays as before when you sell shares post 2 days of purchasing stocks

- When you want to sell stocks the next day –

- Stocks bought today can be sold the next day (same as before)

- If you sell any of these stocks the next day (T+1), funds available from selling these stocks can be invested again

- Funds available from selling the shares next day (T+1) can’t be used for investing on the second day (T+2)


KEY HIGHLIGHT FOR TRADERS


- Intraday profits can’t be used for trading on the same day and next day. They can use only the second day from the day of trading i.e T+2.







Thank You

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