Market liquidity may be affected under new margin rule, warn brokers

Association of National Exchange Members of India (NMI) president KK Maheshwari told Mint that the new peak margins will definitely have an impact on trading volumes. They expect trading volumes to drop significantly. “We will also see reduction in intraday positions in the derivatives segment. Also, volumes are likely to shift from the futures segment to the options segment as traders try to extract better leverage. We will also see long exposure trades with longer or deeper stop losses in higher risk trades.”

Under the new system, securities lying in the demat account of clients cannot be used for margin payments, instead these need to be pledged with the broker after client authorization and further re-pledged with clearing corporations and exchanges. need to be kept. Customer authorization is being received through One-time Password (OTP) and email. Any shortfall in margin collection also leads to penalties for clients and trading members.

In a letter to SEBI, the broking industry body had earlier said that the proposed margin is 300% of the actual levy. Nitin Kamath, Founder and CEO, Zerodha, a popular trading platform, tweeted, “Dangerous days have arrived for brokers, exchanges, intraday traders.” According to Kamath, another unintentional second-order effect would most likely require a minimum margin. The SPAN (Standard Portfolio Analysis of Risk) plus the exposure for F&O positions should also be higher. “This is because if there is a sudden increase in volatility the margin intraday for F&O may increase. The SPAN margin is updated 5 times during the day. The SPAN margin is the minimum required margin which is ordered by the exchange for futures and options writing positions. blocked for.”

On Wednesday, both BSE and NSE did not see much impact on trading volumes at Rs 449.90 million and 2330.06 million respectively. This compares to an average volume of 300.45 million and 1027.24 million on BSE and NSE respectively from early January to August.

According to Deepak Jasani, Head of Retail Research, HDFC Securities, higher upfront margins will have an impact on volumes in a bearish situation in the stock markets. “With widespread optimism, investors are generally willing to trade the stock markets even with higher margin requirements,” he said.

Markets opened at record highs in early trade on Wednesday but closed at lower levels. The BSE Sensex closed 214.18 points or 0.37% lower at 57,338.21. Nifty closed at 17,076.25, down 55.95 points or 0.33%.

An analysis of earlier data shows that exchange volumes for the cash and commodity segments declined sequentially, while those in equity derivatives increased in June as compared to the previous month.

ICICI Securities had said in a note, “The impact of Phase III of the upfront margin norms (75% margin requirement) was seen in the cash and commodity segments, while the derivatives volumes witnessed month-on-month growth.

Meanwhile, SEBI on Wednesday relaxed the framework relating to the time period for launching a scheme to enhance liquidity on securities by stock exchanges. Under the new rule, SEBI said that the stock exchange can offer a scheme to increase liquidity on any security. Once the plan is closed, the plan can be restarted on the same security.