The new rules are expected to severely impact intra-day stock trading, which accounts for about 90% of the market volumes in India.
SEBI (Securities and Exchange Board of India) has said enhanced margin requirements in the cash segment of the stock market will be implemented in phases starting 1 December, following concerns from market participants.
Under the new requirements, announced in November last year, brokers in the cash segment are required to collect margins from clients upfront, prior to the trade, to align with current practice in the derivatives market.
Under the rules, clearing corporations would send snapshots of client positions to brokers at least four times a day, in addition to the ‘peak margin’ requirement of the client, with a 5pm cut-off. This would be used to calculate any margin shortfalls and related penalties on a daily basis.
Last week, brokers’ association ANMI (Association of National Exchanges of Members of India) wrote to SEBI, saying the margin framework is “unjust and unfair”, as it requires investors to deposit margin on same day, subject to a penal charge, even though the settlement cycle itself is T+2.
Samco Group founder & CEO Jimeet Modi says in a Times of India report that the new rules will lead to the ‘death of intra-day trading’, which accounts for about 90% of the market volumes in India. Margin penalties will be based on peak margins reported during the day, based on snapshots files or end-of-day margin, which means “no more intra-day leverages”, he said.
On Monday (20 July), SEBI said the new framework will come into effect from 1 December 2020, three months a in a phased manner, whereby only 25% of the client’s peak margin obligation will be compared against their available margin. This will increase to 50%, 75%, and 100% every three months to take full effect from 1 September 2021.
SEBI’s circular, available here, includes a framework for the verification of upfront collection of margins from clients in the cash and derivatives segments.