Upfront Margin In Cash Segment

Published Oct 12, 2024

Flat 20% upfront margin to be collected in Cash Segment from Sep 1st, 2020.

As per the SEBI circular dated November 19, 2019, brokers are now required to collect and report margins in the cash segment, similar to the current requirements in the derivatives segment. Let’s begin by understanding SEBI’s motive behind this move and how it will affect your trading in the cash segment with Stocko.

Traditionally, brokers allow clients to buy and sell stocks for delivery without requesting upfront margins or delivery. The client is required to fund the account by T+1 after the trade execution or transfer the sold shares using a DIS slip. However, this practice increases the risk for the broker and the overall system, as the client may fail to pay or provide the shares sold, leading to a default in the event of adverse market movement.

The new circular mandates that a minimum of 20% of the transaction value must be collected upfront, irrespective of the VAR+ELM of the stock. This simplifies the process, as Stocko already collects 100% upfront margin for CNC delivery. In the case of a sell transaction, we do an Early Pay-In (EPI), meaning no margin is levied on the sell transaction by the exchange. However, in special cases, there may be a margin shortage, and a penalty could be imposed. Please refer to the following scenario to understand how this works:

In the case of BTST (Buy Today Sell Tomorrow), a minimum of 40% margin will be levied, and a shortage could arise if the full funds (released from selling stocks) are used in the F&O/CDS segment to take new positions.

Let’s understand the T+1 settlement mechanism generally followed by exchanges in India. If you buy a share on Monday (T Day), the securities will be credited to your account on Tuesday (T+1 Day, i.e., the payout day for securities). Similarly, if you sell a stock on Monday (T Day), it will be debited from your account on Tuesday (T+1 Day, i.e., the pay-in day). Correspondingly, funds will also be credited or debited as per this process.

For latest exchange cash margins, VAR/ELM/Adhoc click here.

Reference links

https://www.sebi.gov.in/legal/circulars/nov-2019/collection-and-reporting-of-margins-by-trading-member-tm-clearing-member-cm-in-cash-segment_45011.html

https://archives.nseindia.com/content/circulars/CMPT44712.pdf

https://archives.nseindia.com/content/circulars/CMPT45210.zip

https://archives.nseindia.com/content/circulars/CMPT45405.pdf

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