A New Update in SEBI Peak Margin Rule

Margin

SEBI introduced a 100% peak margin rule on September 01, 2022, but tweaked it a little for the betterment of the retail traders and stockbrokers who were continuously requesting to take the margin rule back. Now, what is a new update in SEBI Peak Margin Rule?

Let’s have a look at the same.

As per the new update in the SEBI peak margin rule, the retail trader has to keep an upfront margin of 20% at the beginning of the day only, to reap the leverage benefit in intraday trade in the derivatives segment. 

This rule will come into effect from August 01, 2022, till that period retail traders have to follow the same old margin rule.

Now, what is the peak margin rule in terms of upfront margin?

SEBI New Margin Rules

As already known for intraday trading, a trader can reap the leverage benefits from their stockbroker. Earlier this leverage was decided by the stockbroker and was as high as 40x-50x. This means, that a trader was getting the chance to increase its profit to many folds even with the limited funds in hand.

Now to avail of this benefit, the trader had to maintain a minimum margin balance in his account but the validation of which was done at the end of the trading session. Thus, the trader need not worry about funds and margin until and unless he entered a good trade.

But as per SEBI, this was leading to major losses as most of the beginner traders were taking blind positions in the market and suffering huge losses. To reduce such cases, the regulatory body came up with the peak margin rule, where it makes mandatory for intraday traders (cash and derivatives) to keep and maintain 20% of the upfront margin in the trading account throughout the trading session.

The rule does not end here. Along with this, the duty was assigned to the Clearing Corporations who are asked to take the four snapshots of the traders’ margin account at any time during the trading hours.

In case the trader shortfall the margin amount in the trading account, the broker either has to collect the amount in order to maintain a peak margin or penalized the trader who fails to keep the required margin. This makes it difficult for retail traders to do intraday trading in the highly volatile market.

Let’s understand this with the help of an example. 

Suppose you begin your intraday trade-in the options segment of ABC stock. The CMP of the stock is ₹1000 and the lot size is 50. This means the total turnover value of the trade would be ₹50,000. 

As per the peak margin rule, there should be a 20% upfront margin in the trading account of the trader, i.e. ₹10,000 at the beginning of the trade to reap the leverage benefit of up to 5x.

Now after 2 hours stock price reaches 1100, here if you wish to continue then here you need to add ₹1000 more to meet the peak margin requirement. Failing to do so you will receive a margin call and also be penalized by your stockbroker.

Along with traders, keeping this on track and validating the information of thousands of clients is difficult and challenging for brokers as well.

But with the new update in the margin rule retail traders trading in derivatives will now be relaxed and can trade freely by maintaining a stable margin amount in the account.


Conclusion

Although this rule comes up with bare minimum relaxation for retail traders, it gives a ray of hope of getting margin benefits back. For now, it will imply in the derivatives market, but one can hope for such changes and updates in the cash market too, which has a comparatively large scale of potential traders.

A Digital Blogger also ran a margin campaign to raise the voice against the margin rule and SEBI on behalf of retail traders. This initiative by the regulatory body marks a success for us and the strength to continue our fight against the margin rule.


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