The stringent margin collection and reporting norms that were to be implemented in the stock markets from August have been pushed to December by market regulator SEBI. In a circular issued on Monday, the regulator said it has done so after receiving representation from market participants on the operational aspects.

But SEBI has also introduced a concept of ‘peak margin’, which brokers say is draconian and kills intra-day trading.

Margin is nothing but minimum cash to be put up with a broker in the stock market. So far, brokers collect upfront margin only for the derivative segment. In the cash segment, the risk of default or major loss is low and hence no up front margin was required made compulsory by brokers.

What is Peak Margin

The clearing corporations, which settle trades, will send 4 snapshots during the day for identifying the margin requirements for clients that day. This practically means, no more intra-day leverage, brokers say.

“Brokers won’t be able to offer intra-day margins beyond value at risk and extreme loss margin. This could result in huge reduction in intra-day turnover, which is almost 90 per cent of overall market trading. This is because excess intra-day margin provided could result in margin penalty,” said Jimeet Modi, CEO, Samco Securities. “Our estimate is that almost 30-35 percent of the intra-day turnover is based on additional leverage provided by brokers. Now assuming full margin is required, turnover would shrink by nearly 20 per cent,” Modi said.

Though the concept of peak rate is already there, but was never implemented, said brokers. and added now SEBI has asked the exchanges to implement it

There is a view that discount brokers will gain more market share after SEBI's new margin norms.

ANMI seeks review

Brokers are mainly worried about the upfront collection of margin in the cash segment. Just last week, ANMI, the brokers association, wrote to SEBI for a review of its margin collection norms in the cash segment in areas where there is zero risk.

For instance, SEBI’s upfront norms will be applicable even for selling of shares. ANMI had flagged concerns on the methodology of levy of margins on the sale positions resulting in deliveries, margins on square up of open positions and margins on securities intended to be delivered on T+2 day. As it is, brokers allow clients to sell shares only if they hold it in their demat account. So there is no risk involved. Also in the buying in cash segment, if there is a margin short-fall it is a brokers risk and instances of defaults in this segment have been negligible compared to derivatives, brokers told Business Line . They also say that this could affect the government's tax collection from the cash segment as the turnover would fall.

ANMI has also suggested that margins on small investors should be exempted for up to ₹5 lakh of obligations in order to mitigate the hardships on small traders and investors.

"SEBI's postponement of upfront margin in cash is good news. Upfront margin in the cash segment could affect overall margin turnover. In the cash segment, often the risk of default is very low and stringent norms could have affected sentiments,” said Rakesh Bhandari, Director, Nirmal Bang Securities.

“A few think that SEBI has postponed new margin norms to December, which is not the case. In fact, the August 1 implementation date will remain where the margin computations shall be done on the end of day basis,” said Modi.

Lawyers say that despite the fact that there have been many instances of misuse of client power of attorney by brokers, the new margin norms give them more power to handle shares and margin money as money will be received up-front and traders being punched later.

comment COMMENT NOW