In a move that would hit retail investors and impact equity and commodity derivative trading volumes, brokers will start levying a penalty of 18-30 per cent on margin shortfall from Tuesday.

Under the new margin norms, clearing corporations have been told to capture the segment-wise intra-day trading position of brokers and impose a penalty if there is a shortfall in the margin.

The move will lead to brokers increasing the margin call from investors to safeguard their interest.

Though SEBI had implemented the norms to track investors’ margin on a live basis last May, it had postponed the penalty clause by one year for both brokers and investors to get used to the new regulations.

Also read: Brokers protest penalties over new client margin norms

SEBI typically wants investors to bring in the margin money before they put trades on the exchange platform. Brokers have to do real-time allocation of margins and report to exchanges and clearing corporations. This will not only protect investors’ interests but curb speculative trades.

Reform impact

Narinder Wadhwa, National President, Commodity Participants Association of India said the third phase of margin reforms is expected to affect volumes in the short term but in the long run it will be good for markets and its integrity.

“The new norms will also increase capital requirements for brokers and indirectly increase the cost for investors and traders,” he added.

SEBI had come out with a framework for segregation and monitoring of collateral at the client level amid instances of misuse of clients’ collaterals by some of the brokers.

Such misuse was exposed in the aftermath of the Karvy Stock Broking scam where the shares of clients were pledged illegally as collateral against loan.

SEBI analysis

According to the recent SEBI analysis, the number of individual traders in the equity F&O segment jumped more than five times to 45.2 lakh in FY22 against 7.1 lakh in FY19. More importantly, nine out of 10 individual traders in the equity F&O segment incurred net losses during both FY19 and FY22.

On average, net trading loss by investors was about ₹50,000 in FY22. The average absolute net loss of a loss maker was over 15 times the net profit made by a profit maker, said SEBI study.

Also read: Mastering Derivatives: Does T+1 impact F&O trading?

While the gross equity derivatives trading in BSE was down 18 per cent in March to ₹1.15-lakh crore while that of NSE was up 19 per cent at ₹49.5-lakh crore, according to SEBI data.

However, equity cash volumes at NSE were up two per cent at ₹10.28-lakh crore while that of BSE increased 8 per cent to ₹77,039 crore.