New Margin Rules
New Margin Rules
SEBI's new margin trading rules for traders
With the aim to introduce transparency in the stock market and to decrease speculative trading, SEBI had introduced peak margin regulations last year.
The final phase of the peak margin norms will come into effect from 1st September 2021.
It would be compulsory for brokers to collect the 100 percent margin required for intraday positions.
What is margin?
Margin is the upfront trading amount collected by brokers as security to increase support.
In simple words, the margin is money borrowed from a broker to purchase an investment
SEBI's New Margin Trading Rule
SEBI had come out with the norms regarding margin trading.
The guidelines were not welcomed by the brokerage firms as they would pause intraday trading and turnover generated out of it. The rules are likely to come into effect in a phased manner starting from 2020.
Phase I
Between December 2020 and February 2021, traders were supposed to maintain at least 25% of the peak (maximum) margin.
Phase II
Between March 2021 and May 2021, traders were supposed to maintain at least 50% of the peak (maximum) margin.
Phase III
As a part of phase adoption starting from June 1,2021 traders are expected to have 75% of peak margin available with the broker.
Phase IV
In the last and fourth phase by September 2021 clients should have 100% of peak margin obligation available with the broker during the day.
What is peak margin?
It is the minimum margin that must be collected by brokers from their clients in advance of placing any intraday order.
The implementation of the peak margin rules curtails the leverage that traders can get from their brokers to execute a trade in the market.
Peak margin enhances the risk at the individual level and at the aggregate market level. As traders would probably be tempted to incur losses.
What is the new rule?
The broker will have to collect the minimum margin paid by a client for taking a leveraged position.
Under the new rule, the clearing corporations will demand that minimum margin be maintained throughout the session, forcing brokers to demand additional margin from clients. If they fall short stockbroker will face a penalty.
ANMI (Association of National Exchange of India) plea
ANMI has urged authorities to reconsider the proposed 100% levy on day trade peak margin.
They have requested to stretch the date of implementation on the margin pledge by one month till September 30. But SEBI refused to grant the extension.
Why SEBI has done this?
To protect retail investors from leverage.
As leverage is considered a friend when your trade is profitable but sinks your trading account if your trade works against
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