Peak Margin Update By SEBI: How Does It Impact You?

With reference to the SEBI circular dated 20. July 2020; Peak Margin will be introduced in Equity, Commodity & Currency segment from 1st December 2020.

What it means for traders? 

Earlier, margin reporting was done on an EOD basis and brokers could provide extra margin to traders, given that the positions are squared off EOD. With this new SEBI update, Peak Margin will involve upfront collection of margin in Equity, Commodity and Currency from clients.

Brokers on the other hand, will not be able to provide extra leverage to clients, which is capped at VAR+ELM(min 20%) or SPAN+Exposure. 

With this new update, SEBI intends to ensure safety, transparency and smooth functioning between the brokers and the clients to avoid unwarranted risks. High leverage comes with higher risk, and SEBI is invested in protecting the traders from avoiding a potential settlement crises in the case of taking extremely high risks.

 

How will it work? 

Clearing Corporations will monitor trading positions (client & broker-wise) by taking 4 snapshots at random times to identify whether sufficient margin was maintained with the broker at random times, failing which a short margin penalty will be applicable. The SEBI Circular Nov, 19 2019 stated that “short-collection/non-collection of client margins, the Stock Exchanges shall take  the  disciplinary  action as  per  the  framework  specified  in  SEBI circular CIR/DNPD/7/2011 dated August 10, 2011.”

It will be increased gradually in a phased manner. 

Dec 2020 – Feb 2021 Traders need to maintain 25% peak margin in their account. 
Mar 2021 – May 2021 Traders need to maintain 50% peak margin in their account.
June 2021 – Aug 2021Traders need to maintain 75% peak margin in their account.
From September 2021 Traders need to maintain 100% peak margin in their account.


Let’s understand how it works with an example.  

If you have a margin of Rs.100 in the form of ledger credit of shares pledged or a mix of both, then you can trade intraday maximum up to 20 times of trade value in the cash segment. This means you can buy/sell stocks worth Rs.2000 at a single time. But you must make sure that this leverage is for intraday trades only.
Secondly, you can buy/sell multiple times also and it may cross Rs.2000 by square-off of earlier trades. For e.g. You buy for Rs.1000 and then sell, you buy again for Rs.2000 and then sell; and so on. At the end of the day, you can carry over the trade value of Rs.500 only.

In Derivatives (FNO, Currency, Commodity) you can trade maximum up to 4 times of margin available in your account. For e.g: If you have a margin of Rs.100 in the form of ledger credit of shares pledged or a mix of both; in intraday, you can take a position worth of margin Rs.400 only. You can trade multiple times as mentioned above but at the end of the day you can carry over position worth margin of Rs.100 only.

How Can You Maintain Margin In Your Account? 

  1. You can use the idle shares in your Demat Account and pledge them to Choice to avail Margin benefits. 
  2. For Cash Margin, you can instantly transfer funds to your account, using either of the below mentioned bank details. 
FOR EQUITY 
Name: CHOICE EQUITY BROKING PRIVATE LIMITED 
Bank: Yes Bank 
Account Type: Current 
IFSC Code: YESB0CMSNOC (Fifth character is number zero) 
MICR Code: 400532047 
Account No: CHOIEQXXX000 

For example: If your client code is XXX000, then you need to add CHOIEQ XXX000 as the Account Number. 

FOR COMMODITY 
Name: CHOICE EQUITY BROKING PRIVATE LIMITED 
Bank: Yes Bank 
Account Type: Current 
IFSC Code: YESB0CMSNOC (Fifth character is number zero) 
MICR Code: 400532047 
Account No: CHOIMCXXX000 

For example: If your client code is XXX000, then you need to add CHOIMC XXX000 as the Account Number. 

BOTH EQUITY / COMMODITY 
Name: CHOICE EQUITY BROKING PRIVATE LIMITED 
Bank: HDFC BANK LTD 
Account Type: Current 
IFSC Code: HDFC0000060 
MICR Code: 400240015 
Account No: CHOICEXXX000 

For example: If your client code is XXX000, then you need to add CHOICE XXX000 as the Account Number.