Latest update of 31st July 2020:
As per SEBI’s new circular the upfront margin for cash segment shall be collected from 1st September 2020.
In derivatives segments, collection of upfront margins from clients is mandated since a long time. Now, SEBI has mandated the brokers to collect and report an upfront margin even for the delivery cash trading just like the margin is collected (Span+Exposure) for the derivative segment. This change shall be effective from 1st August 2020. Kindly refer to the SEBI and Exchange Circular.
As per our current system of equity delivery trades, the full margin is required to take delivery trades. In the new system, Exchanges demand (VAR+ELM) margin to be present in the client’s account to avoid the margin shortage penalty. There are some cases in which clients may not maintain margin for the delivery trades. In such cases there shall be an exchange penalty charged (Same as derivatives penalty charge) at the end of the day margin shortfall amount.
Below are examples of a few scenarios for a better understanding of the above:
Case 1: In case you release derivatives margin and the proceeds is used in cash segment
In case you have zero balance and square off a derivative position then your margin blocked will be released on your trading terminal. In case if you use these released margins to buy equity shares on the same day then there shall be an exchange penalty applicable because derivatives trades settle on T+1 day and you have used the unsettled amount on T day.
Ex: Let’s assume you have zero balance on Monday, you squared off NIFTY position and released Rs.1,50,000 in your trading terminal. If you buy any stock worth Rs.1,00,000 on the same day whose VAR+ELM exchange margin requirement is 20% then at the end of the day there shall be margin short of 20,000 (20%*1,00,000) in the equity segment on which the penalty shall be charged.
Case 2: In case you sold equity stocks and creating position in derivatives or in equity segment (on T day and T+1 day)
Assuming you have zero balance and sold the delivery stocks on Monday then you cannot create any fresh position in derivatives or equity on Monday and Tuesday (T day and T+1 day). This is because the stocks get settled on T+2 days i.e on Wednesday in this case. In case for any reason if you happen to use the unsettled amount for creating position in derivatives or in equity segment, you shall be charged the margin shortage penalty.
Case 3: Stocks sold to meet margin shortfall
In case you are having a margin shortfall in any segment and you choose to sell delivery stocks to meet the margin shortfall, the benefit of the stocks sold will not be available till T+2 (till the settlement for stocks sold is done). In short, margin shortfall will still be there at the time of margin reporting and short margin penalty would be applicable.
Case 4: In case of BTST (Buy Today Sell Tomorrow) Trades
Assume if you bought Rs.100 worth delivery shares today, and sold the same value of shares tomorrow. As per VAR+ELM of 100%, for today you shall not be charged any penalty as you have 100% in your account. However, the settlement of trade takes place on T+2 days and the stock is sold before the settlement for which another Rs.100 needs to be maintained in your account for the sell transaction. Failing which, there shall be an exchange penalty applicable on Rs.100 for sell transaction.
Case 5: When bought intraday position with leverage, due to circuit limit the position is not get squared off
Assume you have 100 cash and bought 100 qty of ABC stock at Rs.10 in intraday with 10x exposure i.e the trade value is Rs.1000. ABC stock VAR+ELM margin is 10% which means, you are required to maintain at least 100 (10%*1000) in your account to avoid penalty. If at the end of the day, VAR+ELM increased to 15% then the amount required in your account should be 150. Since you have only 100 and hence penalty shall be charged on 50 (150-100).
Case 6: In case when MTM loss is observed
Let’s continue with the same above example. If the VAR+ELM is 15% then your shortage amount is 50. Going further, if on T+1 days if the stock goes down to Rs.6 then the total shortage amount shall be considered as Rs.450 (50 margin short + [4*100] MTM short). The MTM shortage amount of Rs.450 needs to be paid till T+2 days to avoid the exchange penalty to be charged.