Stock market activity will undergo a big change from Wednesday, September 1, with the Securities and Exchange Board of India (SEBI) coming into effect with its new margin rules. The new rules, which have already been criticized by several participants, require traders to specify in advance a margin of 100% for their trades. Under the new peak margin standards, margin requirements are calculated four times during each trading session. It will also include intraday trading positions. 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. 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. Talk about the upper margin rule and its impact on employees, intraday traders and brokerage activity; Avinash Gorakshkar, head of research at Profitmart Securities, said: “Market participants are gaining arbitrage through exchanges, which will be difficult after implementing a 100% prepayment system. He added that in the wake of 100% prepayment standards for intraday traders, a drop in volume is expected for some time. SEBI`s new peak margin rules are likely to have an impact on intraday trading margins once they come into effect. It was introduced by the market regulator in 2020 and gradually implemented.
Maximum margin standards were introduced to restrict speculative trading and limit the leverage offered to their clients by several investment dealers. As a result, investment dealers are no longer able to use end-of-day positions to calculate margin requirements and will have to use intraday peak positions from December 2020. These margin requirements were gradually implemented from 1 December 2020. 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. Meanwhile, the founder and CEO of online brokerage firm Zerodha, Nithin Kamath, finds it a dreaded day for stockbrokers and traders as the new margin rules come into effect. “The dreaded day for brokers, exchanges, intraday traders has arrived,” he tweeted. The margin generated may take the form of funds or securities. In the cash segment, the minimum margin is 20% of the trading value and in the F&O segment, it is the sum of the SPAN and exposure margins, which can be different for each share.
The final phase of the margin scheme will be implemented on 1 September, which had been started gradually. As part of the final phase of the new margin rules, securities dealers will be subject to penalties if the margin charged to traders is less than 100% of the trading value of spot market shares and the additional Span+ exposure for derivatives trading. The margin is calculated in advance, rather than the previous practice of collecting it at the end of the day. As a result, trading futures and options (F&O) becomes more expensive. 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. “By the way, for F&O, intraday margins could end up accounting for 105% of span+ exposure to cover intraday margin increases due to volatility or fictitious losses on short option positions,” Kamath explained while retweeting a post from Zerodha`s official Twitter account. The dreaded day for brokers, exchanges, intraday traders, is hereBtw😬, for F&O, intraday margins can end up being 105% of SPAN+ exposure 🙈 to cover intraday margin increases due to volatility or fictitious losses on short option positions.t.co/OiDkZdCA5a t.co/DzaH0gsfxC He said that the margins that investors must hold with their broker for each trade based on the Maximum value of the positions they take can be calculated. during the day. Previously, margin requirements were calculated based on investors` closing positions at the end of the trading day. The new margin rules were gradually brought forward by Sebi.
The final phase of the peak margin standards will be implemented from 1 September. 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. 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 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. 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. According to the maximum margin rule, which has been criticized by many market participants, traders are required to give 100% margin in advance to their trades. Experts say this will have an impact on intraday trading.
It should be noted that Sebi introduced new margin rules for day traders a year ago. It should be noted that, under the new standards, clearing companies will aim for a minimum margin throughout the session and will require brokers to collect additional margins from clients if they fall below. Investment dealers who do not should expect a penalty. 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”. Welcoming the move to the implementation of the upper margin rules; Saurabh Jain, AVP – Research at SMC Global Securities said: “Brokers, traders and jobbers who have a better track record are mentally prepared and therefore this new standard will not affect them much as the first three steps of this rule are already in place as the first part of this maximum margin rule was introduced in December 2020 with an initial margin payment rule of 25%. Later, it was increased to 50% and 75% in the next two stages of this maximum margin rule. Traders and brokers were therefore aware of what was on the wall.
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 will have to 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%. .