Shares pledged as collateral for marginal needs no longer need to be transferred from the investor`s Demat account to the broker`s account. Under the new rules, a lien will be created in favour of the broker, allowing the broker to pledge the shares to the clearing firm. As an additional security measure, the broker must receive a one-time password from the investor before the shares are pledged. This creates an extra layer of security and reduces the risk associated with trading. The maximum leverage that a broker can offer for intraday trading is 20% VAR (Value At Risk) + ELM (Extreme Loss Margins). This means that if you buy shares worth INR 100, brokers belonging to the bank will block 20% of this amount on the trading day itself. Previously, the total amount was debited by the broker on T+2 days. Meanwhile, the founder and CEO of online brokerage firm Zerodha, Nithin Kamath, believes it`s a dreaded day for stockbrokers and traders as new margin rules go into effect. “The dreaded day for brokers, exchanges, intraday traders has arrived,” he tweeted. The fourth and final phase of market regulator SEBI`s new peak margin rules comes into full effect from today, requiring market participants to spend more on margins under the new standard, with intraday traders having to pay the full margin, i.e. 100% initial margin instead of 75%.
The new rules require collecting minimum margins for leverage-based trades four times per session in advance, unlike the previous practice of accumulating them at the end of the day. SEBI`s new maximum margin rules will go into effect on September 1 “Sebi has refused to allow more time to implement the margin pledge/pledge process,” an official said. So, if you plan to do day trading from September, you will have to bypass the new SEBI margin rules. New SEBI margin rules: The new margin rules of the Securities and Exchange Board of India (SEBI) will come into effect on Wednesday (September 1). Under the new peak margin rule, traders must declare a 100% margin in advance for their trades. It is likely that the new rule will affect intraday transactions. Many people don`t understand this, but the reality is that we need both traders and investors in the stock market to function properly. Traders are the ones who do the day-to-day trading and make sure investors have enough cash to buy and sell stocks. If investors are not there, traders have no basis on whom they can buy and sell. Both are playing their role as leaders in the financial market as we know it today.
A trader X decides to buy a share of company ABC, which is trading at Rs 100. He buys 100 shares of a company with a net investment of 10,000 rupees. If the share price rises to Rs 120, he makes a profit of 20% on his investment. The new rule will affect not only brokers, but also brokerage firms. Intraday traders generate the maximum volume and income. With this new rule, small traders can stop trading (profit margins will be lower) or trade with lower volumes. Either way, it will have a significant impact on the brokerage industry. Stock trading activity has increased several times in recent times, especially after the outbreak of the Covid-19 crisis.
However, you will need to follow the new rules of the Securities and Exchange Board of India (Sebi) for stock trading, which will be phased in between September 1 and December 1. With the current regulations, brokers will not only block funds, but also charge them at the time of trading. This can be either 20% of the transaction amount (the minimum amount set) or the total amount. For example, if you buy Asian Paints shares worth ₹100. Previously, the entire ₹100 was debited the next day (T+1) so that the broker could pay on T+2. From now on, ₹20 will be charged on the same day,” said Deepak Jasani, head of retail research at HDFC Securities. “If you sell $100 worth of Asian paintings, you deposit a cash margin of 20 percent of the value (of the securities) in advance or transfer all the securities in advance from your Demat account to the broker`s account on the same day, rather than the next day,” he added. According to the new margin rule, traders trading futures and options and intraday trades must keep a 100% margin on the bank account in order to start trading from 1.
September 2021. Basically, the new rule reduced the leverage traders received before. Traders now have to spend more money to bet on the futures and intraday markets. If traders` margin is not maintained during the trading session, they will have to pay penalties. SEBI restricted the use of intraday profits made by traders to conduct additional same-day trading activities. The profits can only be used for trading activities 2 days later. Traders must meet the minimum margin requirement to make intraday trades. The Securities Exchange Board of India, also known as SEBI, is the regulatory body that regulates stock exchange transactions through a set of rules and guidelines that it issues from time to time.
As an investor, it is important to keep up to date with the new SEBI rules, which will be announced and updated on their website. Your broker or brokerage platform will also keep you informed of SEBI`s new rules through an official communication. It`s important to keep abreast of new SEBI developments, as the impact of the new SEBI rules on margins, deadlines, and procedures can affect your bottom line as an investor. In summary, the new SEBI rules for intraday trading may bother brokers and investors in the short term, but with the dominant trends of brokers offering traders a margin of nearly 100%, and the resulting risks and losses, make the new rules the agenda. If you are interested in intraday trading, it is important to educate yourself and do some research before making any real trades. BTST closed – Before this new rule, you had the shares you bought today the option to sell them tomorrow or even immediately. Now, if you buy a share of TCS on Monday, you can only sell those shares after receiving delivery of the shares. So you can only sell them on Wednesdays (T+2). As mentioned earlier, market liquidity is expected to decrease, as volume may decrease in the future. However, the data so far has been the opposite of what was expected. The volume of transactions increased from 1 September.
The first stage of this maximum margin rule was introduced in December 2020 with an initial margin of 25%, which was later increased to 50% and 75%. Market participants and analysts find implementing the final phase of the rules a challenge for intraday traders, brokers and exchanges, as they expect intraday trading to become more difficult for prospective traders. Similarly, in the case of the sale of securities, the seller would have to deposit 20% of the total value of the securities in advance to draw on the margin facility offered by the broker until the shares are debited from the investor`s account and made available to the clearing company. Only 80% of the value of sales of shares sold is available for other intraday trading. This, of course, does not include any other additional margins/amounts that the trader may have in his trading account. SEBI has introduced the new margin rules for collateral of securities. This is already making a lot of noise, as several experts and market participants claim that the new regulation will significantly stifle day trading, which accounts for nearly 90% of trading volume on the stock exchange. The idea of SEBI is to control the leverage of traders and thus reduce risks. Margin requirements are calculated four times during each trading session and include intraday trading positions.
Your broker will provide you with more information on how to circumvent the new margin rules. Meanwhile, market experts suspect that SEBI`s new margin rules will severely affect daily trading volumes. 30-35% of daily turnover depends on the additional margin passed on by brokers, but in the future this facility will no longer be available, which means that investors will have to invest more of their capital to complete the trade. This could lead to lower volume and increased polarization of shares, as actions pledged to brokers will now have to be scrutinized under the new rules.