Under the new maximum margin standards, investment dealers are required to collect minimum margins for leverage-based trades in advance, compared to the previous practice of collecting them at the end of the day. Under the new peak margin standards, margin requirements are calculated four times during each trading session. It will also include intraday trading positions. Peak margin rules limit the number of leveraged trades that intraday traders or derivatives traders can make on a given day. In this regard, they reduce not only risk appetite, but also liquidity. Suppose you buy a stock worth 1 lakh that requires 20% as the minimum margin, the initial funds you need to maintain are ₹20,000. However, the minimum margin may increase depending on the stock. More volatile stocks may require higher margins. For example, the applicable margin rate for Indiabulls Real Estate shares on the NSE on Monday was 100% – to buy shares worth 1 lakh, 1 lakh funds must be maintained throughout the trading day. According to experts, the new peak margin rules will be a blow to intraday trading, as margins are now increased in advance, unlike the previous practice of collecting at the end of the day.
To ensure that buyers on the exchange actually have money that supports their trades, exchanges usually require that a so-called “margin” or a minimum amount of cash or securities be held in one`s own trading account to make a trade at a certain value. In India, SEBI recently introduced the concept of “peak margins”. If you are a trader and you are used to taking positions with intraday leverage that goes beyond what is defined by the stock market, this is no longer possible from now on. Since brokers are penalized when the margin collected is less than their clients` maximum margin commitment, they are expected not to offer such an opportunity, even if you can have a good relationship with them. Buying and selling shares now requires an initial margin. If you want to buy Reliance Industries shares worth Rs 1 lakh, you must have Rs 20,000 in cash in your account and the remaining money must be paid within two days. Previously, the investment dealers` association ANMI had called the market regulator`s new maximum margin rule unfair and even called on Sebi to reconsider its maximum margin standards, especially in the context of intraday transactions. Funds from shares sold on delivery today cannot be used for new same-day transactions. You can use the money for new transactions the next day. For example, you sold Shares of Reliance worth Rs 100,000 today. You can`t use that money today to buy new shares of other companies. However, there will be no changes to the rules for options and futures.
He said the margins that investors must hold with their broker for each trade are calculated based on the maximum value of the positions they take during the day. Previously, margin requirements were calculated based on investors` closing positions at the end of the trading day. The fourth and final phase of the new peak margin rules of the market regulator SEBI comes into force from today, according to which market participants must spend more on margins according to the new standard, intraday traders must make the entire initial payment, i.e. 100% initial margin instead of 75%. The new rules require collecting minimum margins for leverage-based trades four times per session in advance, unlike previous practices of collecting them at the end of the day. Under the old system, cash margins were taken care of by the broker. Investors had to either transfer their shares to the broker`s account or grant the broker a power of attorney. Some brokers have abused the power of attorney assigned to them. Earlier this month, the anmi investment dealers` association had written to sebi and the Ministry of Finance to express the proposal to have a 100% higher margin for intraday transactions. Sebi decided last year to introduce maximum margin standards to curb speculative transactions and limit the leverage offered by securities dealers to their clients.
Following the announcement of the new standards, investment dealers stopped using end-of-day positions to calculate margin requirements and switched to using the best intraday positions starting in December 2020. In the future, the market could remain under pressure due to the introduction of new margin requirements in the liquidity segment from September 1 and geopolitical tensions between India and China. Any sharp market decline would be a good buying opportunity for long-term investors to add high-quality stocks to the portfolio. Margins allow investors and traders in the stock market to buy shares on credit. The lower the margin requirements, the lower the equity a person must invest to complete a transaction. Peak margin rules aim to set stricter limits on the level of leverage and thus take the risk that an investor or trader can take in their intraday positions. With margin rules based on daily positions, traders and investors were able to increase their positions during the trading day with limited funds and reduce them at the end of the day to minimize margin requirements. Anmi had also found that the 100% levy on intraday transactions was 3.33% higher than the actual maximum margin. More recently, the StockBrokers Association wrote to Sebi to tell him that it was impossible to comply with its upper margin provisions.
Many brokers even believe that the maximum margin standards introduced by the market regulator are draconian. Traders are not happy with the new peak margin standards as they now have to park more money to meet the margin requirements for trading. In fact, trading futures and options (F&O) is also becoming more expensive. As part of the final phase of the new peak margin rules, securities dealers will be subject to a penalty if the margins collected by traders in the case of spot market shares are less than 100% of the trading value and of additional scope + exposure for derivatives trading. To ensure that brokers collect the required margin from their clients instead of reviewing margin bonds at the end of the day, the maximum margin rules now require brokers to randomly examine their clients` positions four times a trading day. On the four snapshots, the maximum exposure is used to calculate the customer`s margin requirement. Here`s what analysts have to say about the impact of Sebi`s implementation of new margin rules: Big change: If you want to sell Reliance shares worth Rs 1 lakh of your holdings, you must also have at least Rs 20,000 in your account for this scenario. Otherwise, penalties will be imposed. The sale of the holding company also requires an initial cash margin.
As a result, traders can hold additional cash or pledge other assets for the required margin. SEBI`s new peak margin rules will come into effect from 1 September A change in the margin system and the deferral of securities pledges could lead to disruptions in the daily volume of transactions due to insufficient preparation. On September 1, 2021, the final phase of SEBI`s upper margin rules on the Indian stock market came into effect. These regulations were introduced to curb excessive intraday speculation, which carries high risks, especially in the futures and options (F&O) segment. New seBI Margin Rules: The New Margin Rules of the Securities and Exchange Board of India (SEBI) will come into effect on Wednesday (1 September). Under the new maximum margin rule, traders must provide a 100% margin in advance for their trades. It is likely that the new rule will affect intraday trading. The new margin rules came into effect today after Sebi refused to extend the deadline for implementing the new rules for margin commitments. Sebi`s new margin rules aim to create transparency and prevent brokers from abusing their clients` securities.
These standards were published earlier this year in February and were originally scheduled to come into force on June 1. The date was then extended to August 1 and then to September 1. While brokers and other participants asked for more time to prepare their systems, Sebi declined to extend, saying there was enough time to make the changes. The dreaded day for brokers, exchanges, intraday traders, is hereBtw😬, for F&O, intraday margins can be 105% SPAN + Exposure to cover intraday margin increases due to volatility or notional losses on short option positions.t.co/OiDkZdCA5a t.co/DzaH0gsfxC “By the way, for F&O, Intraday margins may end up being 105% SPAN + Exposure 🙈 to be hedged for intraday margin increases due to volatility or fictitious short losses. Option positions,” Kamath explained while retweeting a message from Zerodha`s official Twitter account. The first step of this peak margin rule was introduced in December 2020 with a lead margin of 25%, which was then increased to 50% and 75%. Market participants and analysts perceive the implementation of the final phase of the rules as a challenge for intraday traders, brokers and exchanges, as they expect intraday trading to become more difficult for future traders. “Starting today, intraday leverage will be reduced under the new regulation on peak margins. The maximum leverage for equity will be 5X (20% of commercial value) and 1X (100% of NRML margin) for M&O for MIS and CO product types,” Nulldha tweeted.
Since intraday traders generate the maximum volumes and revenue, this should also have a significant impact on the brokerage industry. Even traders are disappointed because they have to spend more money to bet on the stock market, especially in intraday and futures trading. .