The second phase of peak margin regulations announced by the Securities and Exchange Board of India’s (SEBI) some months back has become effective from today. This means for offering intraday trading across various products, brokers need to collect a minimum of 50 percent of the trade value.
In short, if a trader needs to take up a position of Rs 1 crore, he will need to deposit Rs 50 lakh as margin with his broker. Till last week, the trader had to deposit 25 percent of the trade value as margin.
What this means is that the ability of a trader to take a leveraged bet has reduced, unless he is able to put up more money towards margin. Having to put up more margin means a higher cost of transaction because a trader would are either locking up his own funds that could have been deployed elsewhere, or borrowing funds to deposit as margin, in which case he will have to pay interest.
Brokers feel this could reduce the number of intraday trades by forcing many of the smaller traders out of the market.
From December 1, 2020, SEBI introduced the concept of peak margin reporting, in which stockbrokers have to calculate margins based on the intraday peak position, not just the end-of-the-day positions. To arrive at an intraday peak position margin, clearing corporations have to take at least four snapshots randomly during the day.
SEBI has now mandated all the brokers to report the margins multiple times during the day. This is to ensure that all leveraged trades are backed by sufficient margins.
The number of times the brokers need to send the margins in a day (at least four snapshots) is decided by the clearing corporation. The highest margin is the peak margin of the day.
This method is applicable to cash and derivatives segments.
(Edited by : Abhishek Jha)
First Published: Mar 1, 2021 2:05 PM IST
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