The last eight months has been quite a journey for all of us, but more so for traders and brokers. From the moment the circular regarding peak margins came from SEBI, it has been a talking point across the industry. After numerous guidelines and FAQs issued by the regulator and exchanges, peak margins are going live from 1st December 2020 in a phased manner.
But what are peak margins?
Currently, margin reporting happens only at the end of the day for all the carry-forwarded trades executed by the customer on that particular trading day. This reporting system enabled brokers to provide higher leverages by offering products like intraday (MIS), cover order (CO) and bracket order (OCO). Brokers used to ask for lower margins from the prescribed limit of VAR (Value-At-Risk) + ELM (Extreme Loss Margin) for equities and SPAN + Exposure for F&O for creating an intraday position for their customers. This created a risk at the broker’s end as there could be cases where the customers would not be able to cover up the margins at the end of the trading day, thereby creating a shortfall. In order to tackle this risk, SEBI has now mandated all brokers to report the margins several times during the day as compared to just once at the end of the day. Clearing members will play a key role in monitoring the margin activities of the broker as per the new guidelines.
What happens in Phase 1?
As per the SEBI guidelines, brokers have to collect a minimum of 25% of the funds on the prescribed limit if they want to offer intraday trading across various products.
- For equities, it would be 25% on VAR + ELM or 20% of the trade value (whichever is lower).
- For futures and options (writing), it would be 25% on the SPAN + exposure margin.
What changes for you at Upstox?
To stay compliant and transparent as always, we have updated the margins on our website. Click here to check out our updated margins.
What happens in the upcoming phases?
The new changes will take effect in 4 phases.
- Phase 1 (Dec 2020 to Feb 2021) - The minimum margin the broker has to collect while entering a position is 25% of the prescribed limit.
- Phase 2 (Mar 2021 to May 2021) - The minimum margin the broker has to collect while entering a position is 50% of the prescribed limit.
- Phase 3 (Jun 2021 to Aug 2021) - The minimum margin the broker has to collect while entering a position is 75% of the prescribed limit.
- Phase 4 (Sep 2021 onwards) - The minimum margin the broker has to collect while entering a position is 100% of the prescribed limit.
All these phases will result in a change in margin policy and differing margin amounts being available to customers. We shall communicate these changes to you as and when we make them.
Does this new regulation also affect me if I want to sell my equity holdings?
The recent SEBI regulation on peak margins has changed how funds are credited for your sell trades. Now, when you sell a stock from your Demat :
- 80% of the sell amount is available for trading on the same day
- The remaining 20% will be available for trading from T+1 day onwards
- 100% of the sell amount will be available for withdrawal from T+2 days onwards
There has also been a change in how funds are credited for sales from your T1 holdings. Click here to know more.
Is this the end of leveraged products?
At Upstox, no!
We are working hard to come up with a solution to make margin pledging available for all the traders who have an Upstox demat account with equity investments. With this offering, if you have equity investments in your holdings, these can be pledged and Upstox would be able to provide you with leverages on margin products where VAR +ELM or SPAN + exposure comes into play. This release is only a couple of weeks away. Stay tuned for more updates.