Brokers can now consider beginning-of-day rates for margin calculation
After stock brokers complained that it was impossible to comply with the new structure of the peak margin norms, SEBI on Tuesday tweaked it.
Brokers can consider beginning-of-day (BOD) rates to calculate the margin that has to be collected from clients, SEBI said, adding that the rate of margin to be collected will now be fixed based on the BOD rates, instead of the earlier practice of allowing the rate of margin to fluctuate with the price of the underlying security.
Margin is nothing but minimum cash to be put up with a broker in the stock market. Earlier, brokers collected 20-40 per cent upfront margin only for the derivative segment. However, last year, SEBI asked them to do the same in the cash segment too.
How margin works
In the cash segment, the risk of default or major loss is low and hence no upfront margin was required by the brokers until SEBI made it compulsory. SEBI further said that margin should be collected at the peak rate. Margin is calculated on the possibility of extreme loss and the clearing corporations, which settle trades, send four snapshots during the day for identifying the margin requirements for clients. Brokers are required to collect the margin at the peak rates as determined by the snapshots.
“SEBI’s relaxation will help the markets and day-traders, who provide liquidity. If the margin requirement was ₹20 at the start of the day and the client paid the same, the client would still be penalised if the rate of required margin changed during the day. But now since SEBI has fixed the rate of margin based on BOD parameters, a client will have clarity that he can trade five lots if he had ₹100 in hand and the margin was ₹20 per lot,” said Rajesh Baheti, MD, Crosseas Capital.
Norm from August
However, Bathi says that the relaxation should come into play with immediate effect or the penalty to clients should be suspended till the tweaks mentioned by SEBI are implemented. SEBI has said that the tweak to the margin rules, which fix the rate of margin, will come into effect from August. Till then, clients will have to bear the brunt of the norms, brokers said.
“When SEBI’s tweaks come into effect, brokers can communicate a stable margin rate for the day to clients without the fear of an inadvertent penalty,” said Uttam Bagri, former Chairman, BSE Brokers Forum.
Many day-traders have faced huge penalties due to the fluctuating rate of margin during the day, which had become difficult to anticipate.