The third phase of Securities and Exchange Board of India’s (Sebi) peak margin regulations became effective from June 1. As per these rules, brokers are required to collect a minimum margin of 75 percent of the trade value for offering intraday trading across various products.
In simple terms, if a trader wants to take up a position of Rs 1 lakh, and assuming that the margin applicable on that trade is Rs 30,000, the trader will now have to put up 75 percent of Rs 30,000--Rs 22,500--as a margin with his broker. Till Monday, the trader had to deposit 50 percent of the margin--Rs 15,000--as margin.
The norms are being implemented in phases starting December 2020. Between December 2020 to 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.
It has been raised to 75 percent between June and August and from September 1 onwards, it will be raised to 100 percent.
The market regulator had last year introduced the peak margin regulations with an aim to decrease speculative trading and curb the leverage brokers offer to their clients. From December 2020, brokers moved away from using the end-of-day position to calculate margin requirement to using the intraday peak position.
According to rules, the exchange will randomly select 4 times in the day to take snapshots of all margins and the highest margin of the 4 snapshots taken will become the peak margin. This is applicable for both cash and F&O segments.
Additionally, the rules also mandate that the securities lying in clients' demat account cannot be used towards margin payment. These are needed to be pledged with the broker after client authorisation and further re-plegded with clearing corporations and exchanges.
A penalty will also be levied to clients and trading members for any shortfall in margin collection.
The new margin rules have negatively impacted the trading volumes on the exchanges. Brokers are worried that the 75 percent and 100 percent margin requirement would further drive out small traders from the market and hurt liquidity.
“The third phase of the peak margin norms had its impact on volumes on Tuesday which were about 10 percent lower than recent averages,” said Devarsh Vakil, Deputy Head of Retail Research, HDFC Securities.
According to reports, the brokers’ association had asked the regulator Sebi to continue with the 50 percent peak margin norms.
“Nowhere in the world, clients are required to pay upfront peak margins. Already open interest in the Nifty is more in Singapore compared to India, though it is a product based on Indian stocks...,” industry body Amni said in a letter last week.