The fourth and final phase of the Securities and Exchange Board of India’s (Sebi) peak margin norms will come into effect from September 1, 2021, which would mandate stock and commodity brokers to collect 100 percent of the total margin required for initiating intraday positions.
Last year, Sebi had introduced the peak margin regulations with an aim to decrease speculative trading and curb the leverage brokers offer to their clients. This led the brokers to move away from using the end-of-day position to calculate margin requirement to using the intraday peak position from December 2020.
The rules mandate the exchange to randomly select four times in the day to take snapshots of all margins, the highest margin of which will then become the peak margin.
In simple terms, if a trader wants to take up a position of Rs 1 lakh, assuming that the margin applicable on that trade is Rs 30,000, the trader will now have to put up 100 percent of Rs 30,000 as a margin with his broker.
This rule is applicable for both cash and F&O segments.
Earlier, margins were collected upfront and calculated on the basis of the end-of-day positions. The broker funded intraday positions of the clients as long as they brought the outstanding by the end of the day to below what they had already deposited.
The new norms are being implemented in phases, the first of which began in December 2020. Between December 2020 and February 2021, traders needed to maintain at least 25 per cent of the peak margin. This margin was increased to 50 percent between March and May (second phase). It was then raised to 75 percent between June and August (third phase). From September 1, it will be raised to 100 percent.
Meanwhile, brokers have raised concerns about the new rule saying that the new margin requirements are resulting in “unwarranted penalties” on trading members.
Earlier this month, the Association of National Exchanges Members of India (Anmi), an industry body for brokers, had written to Sebi highlighting some of the issues faced by them.
Anmi had said the new margin requirements were resulting in certain anomalies, whereby unwarranted penalties are levied on trading members for not complying with the requirement.
"The new upfront peak margin essentially requires a trading member to collect uncrystalised and uncertain peak margin from clients in advance. In other words, the trading members are mandated to collect upfront money before clients undertake trades," Anmi had written in its letter to Sebi.
The brokers had highlighted several issues faced by them in complying with the margin norms.
(Edited by : Jomy Jos Pullokaran)