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Explained: SEBI’s new margin system for non-F&O stocks

Updated : November 26, 2020 04:06 PM IST

Market regulator Securities and Exchange Board of India (SEBI) has withdrawn the increase in margin requirement for non-F&O stocks in cash market.

According the existing margin system, margins were collected upfront, but were calculated on the basis of end-of-day positions. However, from December 1, the broker will move away from using end-of-day position to calculate margin requirement to using intraday peak position.

From Tuesday, that is the first of December, we are going to see a new margin regime which will be implemented. The PEAK MARGIN system.


Lets spend a minute on the existing margin system. Right now margins are collected upfront but they are calculated on the basis of end of day positions. Your broker funds intraday positions as long as you bring your outstanding by the end of the day to below what you have already deposited as margin by the end of the day.

As an example - if you have Rs.100 as margin with your broker, you can trade multiple times that intraday and your broker funds that, and is okay as long as by the end of the day your MTM doesn't wipe out your Rs.100 in margin.


Now we come to how all this is changing from Tuesday. From December 1, your broker will move away from using end of day position to calculate margin requirement to using your INTRADAY PEAK POSITION.. how will this work ? Basically 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 peak margin. This is applicable for both cash and F&O segments.. just remember that your broker already pays this margin to the exchange. Now you will have to pay this too..


Let me explain this via an example. Suppose you own 1000 shares of full paid for Reliance in your demat and you decide to sell it.. an early pay in of shares can take care of upfront margin requirement.. then say the price of the stock goes down and you decide to buy back the same 1000 shares.. so you sold 1000 and bought back 1000 Reliance shares.. the net obligation should be zero..but under the new system 4 snapshots are taken and a peak margin will be arrived at... we understand from industry sources that the regulator is looking at allowing the early pay-in to be considered not only as early pay-in but as peak margin as well


There is also an issue of how FPI and other non institutional trades will be impacted. Right now these entities trade with a broker but their trades are settled with a custodian who has their margin. Under the new regime while in cash segment there is no issue for them - as they are exempt from margin. In the F&O segment, these clients will have to pay peak margin to the broker. Problem is - that they already have deposited margins with their custodian. So in a way it could be double margin. Again, we understand from industry sources - that this could be resolved before the deadline.


So while we understand the regulator is working on resolving some 2nd order unintended consequences of peak margin norms, the message is clear to brokers – stop funding clients and start collecting more margin.
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