Markets

SEBI’s new margin rules to cost investors more

PALAK SHAH Mumbai | Updated on July 30, 2020 Published on July 30, 2020

The new rule will come into force from September 1   -  Paul Noronha

Clients have to pay ₹50 a scrip for ₹1 lakh shares pledged, as brokers lose PoA

SEBI’s new rules on margin collection in stock markets will come with additional cost burden. So far, there had been no charges when brokers used client shares as margin and allowed them leverage in trading. But now, the same will attract charges, which will be in addition to the brokerage fees.

Margin is the upfront amount that brokers collect as security to extend leverage. Shares can be placed as margin to claim derivative trading limits. The brokers have been using Power of Attorney (PoA) to transfer clients shares into a separate ‘margin account’ for allocating trading limits. Since the broker held the PoA, further client permission was not required to transfer shares for margin.

However, SEBI has now discontinued the PoA process for margin. Instead, the regulator has mandated pledging of client shares with the broker.

This creation and revocation of pledge attracts charges from the depository players (DPs) like Central Depository Services Ltd (CDSL) and National Services Depository Ltd (NSDL), and has to be borne by clients. The two DPs hold all the demat accounts. Hundred and thousands of crores worth of pledge will have to be created and revoked daily.

As per the tariff card, clients will have to bear a burden of ₹50 per scrip up to a value of ₹1 lakh shares pledged. Above this, the transaction per scrip will attract 0.5 per cent cost of value of shares.

On the face of it, the charge may look small, but when seen in terms of the daily derivative churn, it can be figured that hundred and thousands of crore worth of pledging will take place daily to claim margin limits.

Good news for depositories

Brokers say the two depositories will rake in huge revenues due to this, but it will be additional cost on traders. On an average, derivatives trading worth more than ₹10-lakh crore takes place daily, and brokers demand margins anywhere between 12 and 30 per cent from traders. Then, there is market-to-market that requires additional top-up margin.

The share price of CDSL, the only listed depository, has risen nearly 25 per cent in the past one month on the back of anticipated higher revenues due to SEBI’s new rule, which will come into force from September 1.

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Published on July 30, 2020
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