Brokers’ body Association of National Exchanges Members of India (Anmi) has requested the Securities and Exchange Board of India to maintain status quo on the peak margin rules as there had been no reported instances of defaults under the current system.
Sebi has effectively capped the leverage possible in derivatives to four times the margin in phase 1 (from December 1). A penalty is levied if margin blocked is less than 25 per cent of the minimum 20 per cent of the trade value (VAR+ELM) for stocks or SPAN+Exposure for F&O. From March 1, penalty will be levied if margin blocked is less than 50 per cent of the minimum margin required.
Peak margin rules dictate a short-margin penalty — ranging from 0.5-5 per cent of the shortfall per day — if brokers fail to secure the minimum margin for intraday positions.
“Going to 50 per cent from the current 25 per cent would affect the business of the members and their clients especially when the current norms seem to have been sufficient enough to manage the risks arising out of intraday trades and volatility,” said Anmi.
Anmi has also requested for a virtual meeting with Sebi to discuss the matter.
A further 20-30 per cent decline in retail derivatives volumes is likely as phase two of peak margin norms kicks in from March 1. Retail participation in the F&O segment — especially that for options writers on expiry days — has already been impacted owing to these norms, which became effective from December 1.
On February 9, the stock exchange NSE warned brokers against entering arrangements with non-banking financial companies to fund the peak margin requirements of their clients. It said trading members should not finance or act as a conduit or front for financing any secondary market transactions or margin requirements for their clients unless it conforms to the regulatory provisions of Margin Trading Facility and Securities Lending and Borrowing mechanisms. This may further plug the loophole brokers used for financing clients.