Here’s what’s new about Peak Margins

SEBI has prescribed a new set of guidelines focusing primarily on Peak Margin Collection & Reporting, and these guidelines have come into effect from 01-Dec-20. Here’s a quick synopsis on what’s new and how it affects you and your trading activity.

Before we go to Peak Margin, let’s understand the concept of Margin.

WHAT IS MARGIN & MARGIN REPORTING?

Margin Trading allows you to purchase shares by paying only a part of the trading value. Margin refers to the minimum payment that you have to contribute to place your order.

Prior to 01-Dec-20:

  • Brokers collected upfront margin only for the derivatives segment
  • From 15-Sept-20, brokers also started collecting upfront margin for Cash segment
  • Brokers reported client transactions along with the collected margin to the exchanges and clearing corporations at the end of the day

INTRODUCING PEAK MARGINS

From 01-Dec-20, to calculate the margin obligation, exchanges and clearing corporations will take minimum of 4 random snapshots of trading positions. The highest margin of these 4 snapshots will be considered as the Peak Margin of the day.

EXAMPLE

Snapshot of Positions during the Day

All Values in INR

Amount

Minimum Margin Requirement (VAR + ELM)

PHASE 1

(01-Dec-20 to 28-Feb-21)

Minimum Peak Margin
Requirement

(25% of Minimum Margin Requirement)

Position 1

1,00,000

25,000

6,250

Position 2

1,25,000

31,250

7,812.5

Position 3

50,000

12,500

3,125

Position 4

75,000

18,750

4,687.5

 

Peak Margin Requirement during
the Day

7,812.5

Note: For the above example VAR + ELM is assumed at 25% (20%+5%). Value at Risk (VAR) margin depends on the liquidity of the stock, and varies from scrip to scrip. For instance, for stocks that are part of Group 1 (classified as liquid stocks), the applicable daily VAR is 3.5 times the volatility or 7.5%, whichever is higher. Extreme loss margin (ELM) is computed as 1.5 times the standard deviation of daily returns of the security price in the last six months. Minimum ELM = 5%.

This peak margin will be collected during the day itself, and will be applicable on all segments, including Intraday trades.

WHAT DOES THIS MEAN FOR YOU

  • You will need to pay upfront margin before placing any trade across all segments.
  • You will need to ensure that you maintain an account balance equal to or more than the peak margin requirement in order to execute your order.
  • To avoid margin shortfalls and penalty, Funds Payout will now be processed only pre and post equity market hours (Before 7.30 am and after 5.30 pm).
  • Sale benefit for shares that have been sold from your account on the same day is revised to 80% (as compared to 100% prior to 01-Dec-2020). For example, if you sell your holdings worth Rs.1,00,000, you will now get limit/margin against Rs. 80,000.

4-STAGE IMPLEMENTATION

Here’s another important aspect for you to consider. These guidelines will be implemented in a phased manner from 01-Dec-2020 to September 2021, as mentioned in the table below:

 Date RangeRequired Upfront Peak Margin
(% of the minimum requirement)
Phase 101-Dec-20 to 28-Feb-2125%
Phase 201-Mar-21 to 31-May-2150%
Phase 301-Jun-21 to 31-Aug-2175%
Phase 401-Sept-21 onwards100%

In conclusion, here are 2 recommendations to ensure that you don’t face any disruptions due to inadequate funds:

  • Keep your Angel Broking account well-funded at all times
  • Pledge your shares lying in your Angel Demat account

For more details, feel free to visit the below links.


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