New Peak Margin Requirement by SEBI: Know the Updates | Espresso

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SEBI Circular on Peak Margin Requirement (Effective Dec 1, 2020)

November 30, 2020
SEBI Circular on Peak Margin Requirement (Effective Dec 1, 2020)

The following is an important update that comes into effect on December 1, 2020.

As per this SEBI circular dated July 20, 2020, Espresso is required to collect upfront margin as well as peak margin (that is, Intraday margin) from clients as per the predefined script-wise percentage of margin prescribed by the Clearing Corporations/Espresso, which are subject to change on a daily basis depending on parameters such as volatility in the scrip, overall market conditions and so on.

Based on these regulatory changes, there will be the following impacts on trades executed in the Cash and Derivative (Equity, Currency and Commodity) segments. The provisions mentioned will be applicable from Tuesday, Dec 1, 2020:

Existing Process

New Process (from Dec 1)

For Intraday products, limits and leverage was determined by Espresso’s Risk Management System (RMS) and Risk policy.

Clearing Corporations/Espresso have defined minimum margin that would be required for all trades (Intraday or Delivery-based trades in all segments; that is, Cash, F&O, Currency and Commodities segments

The peak margin (highest margin) would also be applicable on all open positions as per random snapshots provided by Clearing Corporations for all open trades/positions taken during the day

Clearing Corporations are not giving peak (Intraday) margin on all open positions at particular periods of time of trading day through snapshots

Clearing Corporations have started giving 4 random screenshots of peak margin applicable on open positions at particular periods of time of the trading day

Leverage on Intraday products was higher because margin was collected as per Espresso’s RMS

Leverage on Intraday products will get reduced, since the prescribed minimum margin as per Clearing Corporations/Espresso is required to be collected by all trading members from the clients before executing any orders in any of the segments

Margin reporting is based on End-of-Day (EoD) margin obligation for all segments, excluding any Intraday trades made on the day

Espresso is now required to report:

  • Margin collected from each client against EoD margin obligation
  • Peak margin available during the day against peak margin obligation across snapshots

Margin shortfall penalty was applicable on EoD margin obligations

The higher of shortfall in collection of margin obligation at the following 2 scenarios shall be considered for levying of penalty as per extant framework:

  • Margin collected from each client against EoD margin obligation
  • Peak margin available during the day against peak margin obligation across snapshots

The following is the illustration of present margin % and proposed increase in margin % due to applicability of peak margin for your perusal. The peak margin as mentioned here will increase in a phased manner on a quarterly basis as per the SEBI circular. The following is just an illustration for better understanding of reduction in leverage due to increase in margin %:

Intraday Products

Scrip

Present Margin %

Proposed Margin %

MIS+
(Cash segment)

TCS

3

5

MIS+
(F&O segment)

Bank Nifty

2.5

5.38

Tap here for the detailed SEBI and NSE circulars as well as FAQs on peak margin requirements and tap here to know the penalty applicable for shortfall in payment margin and MTM amounts.

We urge you to take note of these points and comply with the peak margin and EoD margin requirements before placing orders to avoid monetary penalty.

Also Read about Sebi: Allow pension funds to participate as anchor investors in IPOs

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