Margin rules: What has changed since Sebi's circular on May 10?

Margin rules: What has changed since Sebi’s circular on May 10? – Mail Bonus

NEW DELHI: The market regulator Sebi has made changes to the calculation of margin requirements to take into account snapshots within a day in the derivatives segment. According to Sebi’s circular from May 10, starting August 1, it would be calculated from the fixed start of the day (BOD) margin variables.

At present, margin requirements are calculated four times per cycle. The new move is expected to ease traders.

Previously, there were cases where a client could have made a sufficient margin when he went into a position, only to realize as a result that the margin requirements have increased as the margin SPAN files are updated by the stock exchanges several times a day. In addition, brokers had argued that it was impossible to estimate the exact amount of maximum margin required at any given time for a trading partner, which led to uncertainty.

Kamlesh Shah, President of ANMI, gave an example. He said that if the margin guarantee on the transferred position is 100 rupees at the beginning of the day and due to price fluctuations the margin goes to 102 rupees, in the absence of the new circular, the broker has been forced to collect an additional 2 rupees from the client.

“Now it is not required, as long as I have collected 100 rupees for trading. It will avoid frequent calls to the customer for a margin per day, as we get four snapshots a day for maximum margin. Also in the current situation I would have paid a fine if “I was not able to collect the additional margin in time. So with this handout, I do not have to collect the additional amount per day or my client would be fined for a short collection,” said Shah.

All brokers need is to ensure that the appropriate margin at the end of the day, according to the listing from the stock exchange or netting company, is collected.

“As a result of this handout, our customers will be released from any penalty. So for day-to-day trading, all I need to ensure is a BOD margin claim. These measures will go a long way in smooth and smooth trading without to reduce the amount of margin collection, “said Shah.

Margin allows traders in the stock market to buy shares on credit. The lower the margin requirements, the less capital an individual needs to invest to get through the business. Maximum limit rules were intended to set stricter limits on the amount of indebtedness and thus the risk that an investor or trader can take on their day-to-day position.

Many experts welcomed the move.

“Various brokers’ representatives had mentioned difficulties in implementing the maximum margin criteria, as the margins collected by the brokers fluctuated due to the fluctuating price of the underlying asset in daily trading. “I was not happy with this move by the regulator as the likelihood of penalties being imposed for the lack of the required margin to maintain became more likely,” said Eishan Agnihotri, head of Pioneer Legal. .

Moin Ladha, a partner of Khaitan & Co, said: “Suppose a business buys shares worth Rs 2 lakh that require a 20 percent minimum margin, then the prepayments you need to maintain are Rs 40,000. The new margin rules require the final balance to be Rs 2 lakh and you could exceed this amount per day. The maximum limit rules instead limit the risk through the trading day to Rs 2 lakh “.

“The maximum limit had limited the ability of brokers to finance clients’ positions today. In addition, the margin requirements were changed within the day based on updated NSE SPAN files. So even if clients pay the margin in advance, they may be subject to heavy penalties. “This was a major concern for traders as there is no way to determine in advance how much the SPAN margin may change after trading begins,” said Tejas.


The new framework will take effect on 1 August. BOD Margin Parameters would include all SPAN Margin Parameters as well as Extreme Loss Margin (ELM) requirements.

The change is only for the purpose of verifying the pre-collection of margins from customers. There will be no change in the methodology for determining and collecting the customer’s contribution margin at the end of the day (EOD). There will also be no change in the provisions regarding collection and reporting on margins in the money segment, Sebi said.

Before the maximum limit rule

Before the maximum margin rule came into being, the margin was calculated based on the position at the end of the day.

Previously, if a trader had a risk exposure of Rs 1 million to the value of R&D securities from the previous date and he has taken up an additional risk of Rs 1 million at the current market conference, he was not required to pay a margin before the maximum margin rule was set. money for Rs 1 million additional risk taken until the end of the session.

After the introduction of the maximum margin rule, the margin requirement was no longer calculated on the basis of position at the end of the day. Instead, the stock exchanges took samples of the price four times in each round and the margin was calculated on that basis. So even positions within the day came under the margin.

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