Sebi's margin rule changes to bring relief to traders, brokerages

Capital markets regulator Sebi has tweaked peak margin rules which will bring huge relief to traders and brokerage houses that have been incurring high margin penalties so far, experts said on Wednesday.

Under the new framework, the beginning of the day margin will be considered as peak margin.

This is only in respect of the collection of upfront margin.

The peak margin rule that was implemented last year restricted brokers' ability to fund clients' intraday positions.

In addition to that, the margin requirements are changed up to five times intraday based on the updated NSE SPAN files, Tejas Khoday, CEO, FYERS, said.

So, even if clients pay a 100 per cent margin upfront, they could incur heavy penalties based on the updated SPAN requirements during the day.

This was a major cause of concern for traders as there is no way to predetermine how much the SPAN margins can change after trades are initiated, he added.

Sebi on Tuesday tweaked the rules, whereby margin requirements to be considered for the intra-day snapshots in the derivatives segment (including commodity derivatives), will be calculated based on the fixed Beginning of Day (BOD) margin parameters. The new framework will come into effect from August 1.

The BOD margin parameters would include all SPAN margin parameters as well as extreme loss margin requirements.

"The modified peak margin rule brings relief to traders and brokerages who have been incurring high margin penalties so far," Khoday said.

Welcoming Sebi's move, Vijay Singhania, chairman, TradeSmart said it will remove several anomalies and confusion.

"Peak margin introduced by Sebi was creating a big problem for investors and traders.

"Sometimes due to an increase in volatility the margin used to increase without any change in portfolio," he added.

Consequently, stock brokers' association Anmi made representations to Sebi and stock exchanges, and requested for a change in the upfront collection of peak margin from clients in cash and derivatives segments.

Now Sebi agreed that the beginning of the day margin will be considered as the peak margin.

This is only in respect of the collection of upfront margin.

EOD margin will be based on the EOD position of the particular client and there is no change in that, Singhania said.

In July 2020, Sebi came out with framework that required clearing corporations to send snapshots of client- wise margin requirement to trading members or clearing members for them to know the intra-day margin requirement per client in each segment.