This post was written & posted on Monday, 30-Nov-20, therefore you may read some words as Today/Tomorrow etc. Please keep this date in mind while reading.
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From tomorrow (01-Dec-20), the margin for Intraday trade will increase. Please note that exact margin may differ up to 10% from broker to broker – but in short, by Sep 2021, the margin will increase by three times for all intraday trades. Please read for more details.
Clearing Corporations (CC – https://www.nscclindia.com/ ) – will now take 4 snapshots of client positions at random times during the day and see if there was sufficient margin available with the broker at that time. If not, brokers will charge a penalty to the client at the end of the trading day.
A word on Clearing Corporation – NSE CLEARING, Website: https://www.nscclindia.com:
NSE Clearing Limited (NSE Clearing) (formerly known as National Securities Clearing Corporation Limited, NSCCL), a wholly-owned subsidiary of NSE is responsible for clearing and settlement of all trades executed on NSE and deposit and collateral management and risk management functions. NSE CLEARING was the first clearing corporation to be established in India and they introduced settlement guarantee before it became a regulatory requirement.
In other words, nscclindia.com will now have access to your trading account and will know what trades you are taking.
In this post, I will try to explain the margin changes coming into effect from Tuesday, 01-Dec-20.
Who will not be affected?
Options buyers will not be affected. The risk to buy options is blocked fully right from the day options trading started. It cannot increase from here, neither it will decrease in future.
But option buyers rarely make money.
Who will be affected?
Everyone other than option buyers. Intraday option sellers, intraday future buyers, intraday future sellers, intraday equity buyers and sellers. This will happen across the board, means the commodity traders will also be affected.
Here is some more bad news.
This margin increase is not final. They will keep increasing the margin with time. By Sept 2021 Intraday margin will match that of positional margin blocked. Please note that because there is just one day gap (not even 24 hours) for brokers to make changes to their software, there may be such that a client trade will go through without following the rules of the new margins. If that happens the brokers will charge a penalty to the client at the end of the trading day.
Here is how with time margin will increase and penalty that a client will face:
Dec 2020 to Feb 2021 — penalty, if margin blocked, is less than 25% of the minimum 20% of trade value (VAR+ELM) for stocks or SPAN+Exposure for F&O. The minimum margin the broker has to collect while entering a position is 25% of the prescribed limit.
March 2021 to May 2021 — penalty if margin blocked less than 50% of the minimum margin required. The minimum margin the broker has to collect while entering a position is 50% of the prescribed limit.
June 2021 to Aug 2021 — penalty if margin blocked less than 75% of the minimum margin required. The minimum margin the broker has to collect while entering a position is 75% of the prescribed limit.
From Sept 2021 onwards (final change) — penalty if margin blocked less than 100% of the minimum margin required. The minimum margin the broker has to collect while entering a position is 100% of the prescribed limit.
Advice: Try to take just one intraday trade from 01-Dec-20. Since the calculation is not easy it is better to avoid a penalty. With time I am sure software will be upgraded.
One more change – only 80% credit from selling holdings can be used on the same day for intraday. Till today (30-Nov-20) clients were allowed to use 100% of the credit from selling the holdings.
Here is an example:
If you had 100 shares of Infosys and sold them at a profit. Then imagine that, after you sold, price of Infosys dropped by 5% the same day. You want to book that 5% profit. Now, till today (30-Nov-20), you were able to buy back 100% of the shares – means you can buy back all 100 shares sold few minutes/hours ago, but from tomorrow (01-Dec-20), you can only buy back 80 shares as 20% money of the sold holdings will be blocked and released only after the trading day is over.
Frankly, I do not understand why they have done this. I sold my shares, so I should be allowed to buy it back. Not sure of the reason why SEBI has done this. There are absolutely ZERO risks for both the client and brokers in selling a holding and buying it back intraday. This can easily be treated as a Margin Intraday Square-up (MIS) trade. If you understand the risk please do let me know in the comments section.
Of course, had they blocked this for other intraday trades I can understand, but buying the same shares back the same day has no risk at all. Of course, you can buy back all of them if you have money in your Demat account for those 20% shares.
Here is another important change that you should keep in mind: Always first exit the high risk (margin) leg of a portfolio of your F&O positions.
Suppose you bought a Call Option (CE) at strike 10 and sold a Call Option (CE) at a strike 9. Now the sold option at strike 9 is completely hedged by the bought option at strike 10. The margin for this trade will be Rs. 30,000/- approx. in Nifty (as on Nov 20). Now suppose Nifty is rising extremely fast, and the sold option at strike 9 is losing money and is at huge risk. You want to liquidate the position due to losing money fast.
Earlier a trader could have exited the position by getting out of any one position first, and then the remaining position later. Now if you exit the bought Call Option at strike 10 first and then the sold Call Option, there can be a penalty. Why? Because once you exit the bought position – the sold option is a naked trade – completely unhedged – so even for 2 minutes if you keep that and by chance in that 2 minutes Clearing Corporations take a snapshot – you will have to pay a penalty.
Not sure how the real world will work out as there are no details on if the snapshot of the wrong margin used trades will be penalized, or brokers will see and snap a penalty. And for every second how will the brokers keep a tab? This change in brokers software in less than 24 hours is next to impossible. So some traders who do not know about the margin rules or do not read emails sent by brokers may end up paying a penalty for a trade written above or may not if they are not caught. But this will be for a limited time. I think within 15 days all top brokers would have changed their software and I feel they will not allow these kinds of trades to go through.
But who knows, greed is such a bad thing that some brokers may just love to eat money of their clients in the name of penalty where the poor clients will not have the power to fight. Honest brokers will not do this and make sure their clients are not able to trade trades that are supposed to fall under the penalty path.
The true picture will come out from tomorrow onwards.
So remember two things especially if you are an intraday trader from 01-Dec-20 onwards:
1. Take only one intraday trade from tomorrow. When the whole confusion on margin block gets cleared then take more trades intraday.
2. Exit the sold option or future first then the bought option or future to avoid a penalty. Exit the sold F&O position first even if it’s making a profit to avoid the penalty.
Hope this will help you to save a penalty.
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