SEBI tweaked peak margin rules to ease difficulties of brokers and traders

SEBI released a circular where it tweaked the peak margin rules to relieve brokers who have been incurring huge penalties so far. It has now reduced the count of calculating the peak margins only once a day before the equity market starts. 

Peak Margin Rule 

Stock exchanges usually require a minimum amount of cash or securities (also called margin) to be held in one’s trading account for trading a certain value. It ensures that buyers in the stock market have actual cash backing to their trades.

Currently, the peak margin rules require the investors to maintain margins with their broker for any trade calculated based on the maximum value of positions they took during the day. The peak margin rules require the brokers to check on their client’s positions four times (at random) during each trading day. Of the four intra-day snapshots, in derivatives segments (including commodity derivatives), the broker should use the maximum exposure to calculate the client’s margin requirement.

New Framework

SEBI said that the Beginning of Day (BOD) rates should be considered to calculate the margin collection from clients instead of allowing the margin rate to fluctuate with the underlying security price. It clarified that the change is only for collecting upfront margins from clients. There is no change in the method of calculation and collection of the client’s End of Day (EOD) margin obligation.

As per the circular, the decision was followed by the representations received from market participants and based on deliberations with various stakeholders. It will be effective from 1st August 2022.

For any clarifications/feedback on the topic, please contact the writer at namita.shah@cleartax.in