The stock brokers’ body has cited specific examples detailing the difficulty in complying with upfront and peak margin compliance by members
Stock brokers (Photo: Kamlesh Pednekar)
Under the new margin rules, trading members are mandated to collect the amount upfront (before the trade) at the time of clients entering the relevant positions or undertaking the relevant trades.
The Association of National Exchanges of Members of India (ANMI), a group of 900 stock brokers, in a statement said it has written to Sebi and BSE for convening a meeting to discuss the impossibility of compliance with provisions of peak margin.
The stock brokers’ body has cited specific examples detailing the difficulty in complying with upfront and peak margin compliance by members.
It further said the rules are causing immense hardship to the clients for bringing in margins for circumstances beyond their control, as well as to the brokers who are also penalised for not complying with the collection of upfront margin.
“The situation will be more acute when the allocation mechanism becomes operational,” it added.
The margin of the client will exceed their collateral and the deemed allocation will attract penalty, which again was impossible to comply with at the beginning of the day or even during market hours, it noted.
ANMI said exchanges and the Clearing Corporation are collecting millions in penalties on a daily basis and the brokers will be forced to shell out refund of penalties after a year when the books are inspected in spite of not being at fault.
Sebi in 2020 came out with peak margin rules with an aim to restrict brokers from giving excessive leverage exceeding the minimum margin requirement.
The new rules required brokers to shift from utilising the end-of-day position for calculating margin requirement to using the intra-day peak position to compute the margin requirements from December 2020 onwards.
Also, the rules require the exchange to take snapshots of all margins at four different periods during the day, with the highest margin being the peak margin.
Sebi’s peak margin regulation is being implemented in a phased manner.
In the first phase, traders were supposed to maintain at least 25 per cent of the peak margin between December 2020 and February 2021.
This margin was raised to 50 per cent between March and May 2021 in the second phase. It increased to 75 per cent between June and August 2021 in the third phase and finally to 100 per cent from September, 2021.
Prior to these new rules, margins were collected in advance and calculated using end-of-day positions. Brokers were able to give very high margin to investors. This often ended up in brokers collecting margins that were way lesser than the minimum.
(Only the headline and picture of this report may have been reworked by the Business Standard staff; the rest of the content is auto-generated from a syndicated feed.)