SEBI : The New Policies Impacting Trading

Over the past few years, a lot of instances came to light where brokers either misused client moneys or securities or were not clear about the flexibility available and therefore did certain things which eventually turned out to be disastrous. In addition, the banking sector /NBFC NPA crisis also ensured that the regulators became extra sensitive about bank – capital market relationships .

And finally, SEBI anyways has a medium term agenda to ensure that the overly leveraged derivative segment cools off slightly and margins are higher so that the industry is safe from shocks and the retail investor doesn’t lose.

Over the past few months, therefore, the regulator has begun tightening a lot of things including how brokers lend money,  how indebted client securities are handled, what margins are levied on contracts and of course, how client money is returned via regular settlements.

Now they have turned their attention to how trades happen.

The Changes

SEBI is keen on bringing in three key changes to how the broking industry operates which will dramatically alter how clients get facilities at their brokers and while we have sent specific circulars internally, it may be important for you to understand what these imply.

Upfront Margin in Cash Segment

SEBI is working on a principle that will go live as soon as July 1 2020 – after being postponed repeatedly – which will require brokers to ensure, just like in derivatives segment, that the client had upfront margins available prior to placing a trade.  Upfront margin is basically the VAR +ELM margin that the broker anyways gets blocked for – whether or not the client got blocked so far- and the intent is to now ensure this at the client level. Just like derivatives, therefore, whether it’s a buy OR a sell trade, the margin would be required upfront.

So if you don’t have a DP account with the broker where you execute trades, life will become very difficult. And of course, you should know how to use online fund transfer facilities (like for example, via our PL Mobile App, where you can transfer funds online via your login id- visit )

Intraday Trading

But that’s not all. SEBI has brought another twist to this earlier – though not part of the original November 2019 circular – and of course its on hold due to its huge implications on exchange turnover. Its possible that what gets implemented at some stage may be a “peak upfront intraday margin concept”– which is how the exchange system works currently vis a vis brokers. Brokers however consider only end of day net positions and not what happened intraday as far as client margins are considered.

Lets assume you bought Rs 1000 worth of securities using a 10 times intraday exposure and had only Rs 25 available – which would have actually allowed Rs 100 exposure only. You then made some money and squared up the position completely and have no obligation at end of day. Even then , the extra 900 Rs worth of exposure (upfront margin of Rs 225 extra)-  would be recorded as your peak margin utilisation during the day and since the margin was not available, there will be a penalty levied on you.

Yet another twist in this – its possible that the regulator may allow intraday trading upto a certain extent but to only those brokers who have the capital to fund it – and may not allow brokers to use client margins for the extra limits availed.

Of course this changes the rules of the game completely and hence the brokers forum has been up in arms against introducing this peak margin concept and we will come to know only at some stage over the next few weeks whether it is allowed and in what form it is allowed.

This makes intraday trading impossible as well.

For now, at least the upfront margin end of day is most likely from July 1, 2020 after being postponed twice.

Specific Margin Transfers, Not Lazy Style

We are all used to keeping stocks in our DP account under a POA which the broker would then use to give limits as well as use for settlement obligations OR for margin reporting.

This will no more be the case.

Brokers will have to accept collateral from clients in the form of securities, only by way of ‘margin pledge’, created in the Depository system and not by directly debiting client POAs. This is being done to safeguard clients and ensure that the POA is used only for logical clearing and not for trade limits and reporting purposes. The earlier concept of availing of limits by transferring to broker collateral accounts will also cease from September 1, 2020 and only a depository process will have to be followed to avail of any benefits. Between August 1 and August 30, there will have to be a phasing in and out of this to ensure open positions don’t get impacted.

In turn, the Depositories will seek your pledge /re-pledge confirmation through OTP (One Time Password) every time of such occurrence of pledge/re-pledge.

PL has , in the client logins at (please visit the profile area on top right in your login) , created a facility to ensure that you can view as well as modify your own mobile number & mail id to avoid any inconvenience.

What Happens Next

The entire brokerage industry is awaiting clarifications on the above and even if these were again postponed or modified , the intent of the regulator is clear – Trade only with money you can afford to lose, stocks that you have and margins you have specifically transferred. This makes leverage lesser but the industry safer. And brokers clearer on what is possible and whats not.

Clarity on intraday trading will hit the profitability of options sellers to a great extent as they primarily relied on the intraday bit to create magnified profits. Maybe this therefore also implies that the typical Wednesday and Thursday volatility in indices drops as volumes shift to month end contracts.

Keep watching this space for more!

Do visit us at to open your trading account or to see our various products and services.


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