Not able to comply with peak margin rules: Brokers tell SEBI

Our Bureau Mumbai | Updated on August 09, 2021

Many components of margin levied or to be increased are excessive, bear low correlation to risk and, can damage the growth of the equity derivatives market, brokers have submitted to SEBI

Brokers say that earlier margins rules were adequate in risk management

Stock brokers’ body ANMI has written to SEBI stating that it was impossible to comply with provisions of peak margin in the present form. This is with regard to the minimum margin that brokers have to collect from clients and report to the authorities for intra-day or delivery orders. The peak margin rule has significantly hiked the initial money requirement to trade.

Brokers believe that earlier margins rules were adequate in risk management and the recent changes are draconian.

In a letter to SEBI on Monday, ANMI said, “New margin requirements are resulting in certain anomalies, whereby unwarranted penalties are levied on trading members for not complying with the requirement. The new upfront peak margin essentially requires a trading member to collect uncrystalised and uncertain peak margin from clients in advance. In other words, the trading members are mandated to collect upfront money before clients undertake trades.”

ANMI says the situation was more egregious in case of maintaining end-of-day margins. The National Stock Exchange has told brokers that parameters for computation of margin will be updated as specified by the relevant authority from time to time. Currently, the parameters are updated six times a day based on the share prices at 11:00 a.m., 12:30 p.m., 3:30 p.m., end of the day and the beginning. Risk parameters generated based on the update are provided on NSE’s web site. The brokers say this leads to undue penalties on end-of-day margins, despite the client and trading member doing everything to maintain sufficient margins in the account during the day.

Undue penalty

“We have frequently observed instances where clients have maintained sufficient margins right until the point of market close, and have yet ended up facing a margin shortfall after the import of the last file for the day. Since the last file comes well past market closing time, there is no way to recover the additional margin from the client in case the crystallised margin increases significantly. This leads to the levy of undue penalties,” ANMI said in its letter.

ANMI has highlighted several such scenarios to demonstrate its inability to comply with the margin norms. Interestingly, discount brokers that have managed to corner a huge chunk of business from the traditional brokers are not complaining on the margin requirement.

Published on August 09, 2021

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