Stock market trade is likely to witness a drastic shift from Wednesday as market regulator Securities and Exchange Board of India’s (Sebi) new margin rules will come into effect.
Under the peak margin rule, which has received criticism from many market participants, traders are required to give 100 per cent margin upfront for their trades. Experts say this will impact intraday trade. It may be noted that Sebi introduced new margin rules a year ago for day traders.
WHAT IS THE NEW PEAK MARGIN RULE
Under the new peak margin norms, stockbrokers are required to collect minimum margins on leverage-based trade upfront, compared to the earlier practice of collecting it at the end of the day.
Sebi had decided to introduce the peak margin norms last year in order to curb speculative trading and restrict leverages offered by stockbrokers to their clients.
After the new norms were announced, stockbrokers stopped using end-of-day positions to calculate margin requirements and shifted to using intraday peak positions from December 2020.
It is worth noting that under the new norms, clearing corporations will seek minimum margin throughout the session and forcing brokers to collect additional margin from clients if they fall short. Stockbrokers who fail to do so will face a penalty.
In addition, additional leverage will also be restricted and stockbrokers will be penalised if leverage offered to clients exceed VaR + ELM and standardised portfolio analysis risk for derivatives positions.
WHAT HAPPENS FROM SEPTEMBER 1?
The new margin rules were pushed forward by Sebi in a phased manner. The final phase of the peak margin norms will be implemented from September 1.
As part of the final phase of the new peak margin rules, stockbrokers will face a penalty if margins collected from traders is less than 100 per cent of trade value in the case of cash market stocks and an additional Span + Exposure for derivatives trade.
According to experts, the new peak margin rules will be a blow to intra-day trade since the margins will now be collected upfront as against the earlier practice of collecting on an end-of-the-day basis.
As per the new peak margin norms, the margin requirements will be calculated four times during every trading session. It will also include intraday trading positions.
BROKERS, TRADERS UNHAPPY
Traders are not happy with the new peak margin norms as they will now have to park more cash towards fulfilling margin requirements for trade. In fact, trading in futures and options (F&O) will also become more expensive.
Earlier, stockbrokers’ association ANMI has termed the market regulator’s new peak margin rule as unfair and it had even urged Sebi to reconsider its peak margin norms, especially related to intra-day trade.
ANMI had also noted that 100 per cent levy on intraday trades is 3.33 per cent higher than what should be the actual peak margin. More recently, the stockbrokers’ body wrote to Sebi to inform that it was impossible to comply with its provisions of peak margin. Many brokers even feel that the peak margin norms introduced by the market regulator are draconian.
Even traders are disappointed as they will have to cough up more money to bet in the stock market, especially intraday and futures trade. It may be noted that traders will also have to pay a penalty if the peak margin norms are not following during a trading session.