The market regulator Securities and Exchange Board of India (SEBI) “peak margin” norms came into effect from 1 Dec. The new criteria mandated the collection of upfront margins from customers, which may be peak margins or end-of-the-day (EOD) margins, whichever is higher, intraday as well as delivery.
Analysts believe that the maximum trades carried out in the system are largely interday and with this regulation kicking in, both the cash and derivatives segments may have an impact on the overall volumes traded on the exchanges.
Peak margin regulation will be implemented in a phased manner as described below:
Phase 1: 25 percent of the advance margin available before the trade is being executed from December 1, 2020 to February 28, 2021.
Phase 2: 50% of the upfront margin before the trade will be available from March 1, 2021 to May 31, 2021.
Phase 3: 75 percent of the advance margin available before the execution of trade from June 1, 2021 to August 31, 2021.
Step 4: 100 percent of the advance margin available before 1 September 2021 before the commencement of trade.
Earlier, margins were collected in advance and calculated based on the end of day position. By the time he has already deposited the margin as of the end of the day, the broker ends the clients’ intraday positions.
For example: If a trader has Rs 10,000 as margin with his broker, he can trade intraday and broker funds multiple times, until MTM erases the margin of around Rs 10,000.
In September this year, SEBI waived the penalty provision in the advance margin requirement on the condition that the customer provides at least 20 percent of VAR + ELM. However, this was applicable in the cash delivery segment, while brokers continued to benefit in the intraday segment.
“In this way, depending on the extent of margin collection in the intraday segment, different brokers will experience varying levels of volume impact from December 2020. Some technology brokers provide higher leverage (5-10% VAR + ELM) strict stops. On the loss mechanism. However, the new regulation of the peak margin requirement will neutralize any such technology as all brokers will be required to ensure that the peak margin requirements are met, ”ICICI Securities said in a note.
Source : cnbctv18