SEBI defers 50% compulsory cash margin rule for F&O trading to Feb 28

Our Bureau Mumbai | Updated on November 23, 2021

Norm was scheduled to come into effect from December 1

Just two days ahead of November month derivative expiry, market regulator SEBI has postponed the implementation of a crucial but stringent rule that would have effectively stipulated 50 per cent margin requirement in cash from futures and options traders.

After market hours on Tuesday, SEBI announced that the implementation of most clauses of its circular relating to segregation and monitoring of collateral at client level will be effective from February 28, 2022, instead of December 1, 2021.

Brokers said the deferment is likely to create positive sentiments in markets since the rule would have led to many retail investors trimming their derivative trades as the margin requirement would have witnessed a steep hike.

Clearing members (CM) guarantee trade settlement to stock exchanges on behalf of clients and SEBI has asked them to maintain 50 per cent cash margin on behalf of each trader.

Brokers already tightening

Following the SEBI dictat, brokers had already started collecting 50 per cent cash margin from derivative traders even though the circular was to come into effect from December 1. Cash margins had started putting pressure on brokers for additional cash margin to reduce their risk. SEBI had also stipulated that any excess margin of one client cannot be used for another.

Brokers said such a move would improve the bruised market sentiments in the short run. The Sensex and Nifty witnessed a sharp fall of nearly 5 percent in two trading sessions before Tuesday. Before SEBI differed the margin norms on Tuesday, Sensex and Nifty rose by nearly 0.5 percent.

Retail: Dominant players

Brokers will now be able to accept shares as margin instead of cash, which is the preferred mode by the retail segment traders. In the derivatives, retail players are currently dominant players as their positions, mainly in the futures and options segment, are way higher than foreign institutional traders.

Currently retail investors hold 69 per cent of the overall index long calls and 67 per cent index short call options; 60 per cent and 71 per cent of index long put and index short put options positions respectively; 55 per cent of index long futures and 45 per cent of index short positions; and 54 per cent of stock futures long.

Published on November 23, 2021

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