PEAK / UPFRONT MARGIN REQUIREMENTS FROM 1ST DECEMBER 2020 AND ITS EFFECTS

PEAK / UPFRONT MARGIN REQUIREMENTS FROM 1ST DECEMBER 2020 AND ITS EFFECTS

This is in reference to the SEBI Circular SEBI/HO/MRD2/DCAP/CIR/P/2020/127, the new framework on peak/upfront margin reporting for INTRADAY transaction which will be coming into effect from 01 DEC 2020, the same will be implemented in a phase to phase manner from December 2020 to August 2021.

Let’s see how the exposure limit is going to react as per SEBI Circular in EQUITY Segment:

From 1st of December 2020, a phase to phase implementation will take place in the EQUITY Segment.

Phase 1: From December 2020 to February 2021, the required margin will be 25% on 20% of the transaction value which means 20 times exposures will be provided.

Phase 2: From March 2021 to May 2021, the required margin will be 50% on 20% of the transaction value which means 10 times exposures will be provided.

Phase 3: From June 2021 to August 2021, the required margin will be 75% on 20% of the transaction value which means 7 times exposures will be provided.

Phase 4: The final phase will start on September 2021 from which the required margin will be 100% on 20% of the transaction value which means 5 times exposures will be provided.

Illustration:

Let us assume, client A is going to purchase an INFY stock at Rs. 1,000/- with the deposit amount of Rs. 1,000/- for which the margin requirement is as follows,

INFY = 1*1000 = Rs. 1000 * 20 % (which is the current margin requirement) which means the requirement will be Rs. 200, but from 01 DEC 2020 to 28 FEB 2021 the client A will need  25 % on Rs. 200/- which means the required margin amount is Rs. 50/-, From March 2021 to May 2021, it’s required to have 50% which is Rs.100/- whereas from June 2021 to August 2021 it’s required to have 75% which is Rs. 150/- and finally 100% margin is required which is Rs.200 from September 2021 onwards to complete the transaction.

Now, let’s see the, EQUITY DERIVATIVES / COMMODITY DERIVATIVES / CURRENCY DERIVATIVES Segments:

From 1st of December 2020, a phase to phase implementation will take place in equity derivatives, commodity derivatives, and currency derivatives segments.

Phase 1: From December 2020 to February 2021, the required margin will be 25% of SPAN + Exposure Margin which means 4 times exposures will be provided.

Phase 2:  From March 2021 to May 2021, the required margin will be 50% of SPAN + Exposure Margin which means 2 times exposures will be provided.

Phase 3: From June 2021 to August 2021, the required margin will be 75 % of SPAN + Exposure Margin which means 1.33 times exposures will be provided.

Phase 4: The final phase will start on September 2021 from which the client will have to pay 100% SPAN + Exposure Margin is required, which means no exposure will be provided.

The Equity Derivatives segment, across exchanges, however, is supposed to follow the SPAN + Exposure margin, whereas in the case of commodity and currency derivatives segments SPAN Margin + ELM will be considered

It is to be noted that this will not be applicable for F&O-Options Buying as it will be calculated based on the premium which is also required to be paid upfront.

Illustration 1 :

Suppose the client A, is interested in buying 1 lot of NIFTY Future which belongs to EQUITY DERIVATIVES, the assumed SPAN + Exposure margin will be Rs. 1,25,000 + Rs. 25,000, which will make a total of Rs. 1,50,000. Now, let’s see phase by phase margin requirements,

Phase 1: The client A should have a 25% margin, from December 2020 to Feb 2021, that is Rs. 37,500/-

Phase 2: From March 2021 to May 2021, the client A should have a 50% margin, that is Rs. 75,000/-

Phase 3: From June 2021 to August 2021 the client A should have a 75% margin, that is Rs. 1,12,500/-

Phase 4: The client A should have a 100% margin, from September, that is the whole of Rs. 1,50,000/-

Illustration 2 :

If the Client A wants to sell one lot of NIFTY INDEX CALL OPTIONS Strike Price 12900 belongs to EQUITY DERIVATIVES, the assumed SPAN Margin + Exposure margin will be Rs. 1,30,000 + Rs. 20,000, which will make a total of Rs. 1,50,000. Now, let’s see phase by phase margin requirements

Phase 1: The client A should have a 25% margin, from December 2020 to Feb 2021, that is Rs. 37,500/-

Phase 2: From March 2021 to May 2021, the client A should have a 50% margin, that is Rs. 75,000/-

Phase 3: From June 2021 to August 2021 the client A should have a 75% margin, that is Rs. 1,12,500/-

Phase 4: The client A should have a 100% margin, from September, that is the whole of Rs. 1,50,000/-

Illustration 3 :

If the Client A wants to buy one lot of CRUDE OIL Future which belongs to the COMMODITY Segment, the assumed SPAN Margin + ELM will be Rs. 4 lakhs, Now, let’s see phase by phase margin requirements

Phase 1: The client A should have a 25% margin, from December 2020 to Feb 2021, that is Rs. 1,00,000/-

Phase 2: From March 2021 to May 2021 the client A should have a 50% margin, that is Rs. 2,00,000/-

Phase 3: From June 2021 to August 2021 the client A should have a 75% margin, that is Rs. 3,00,000/-

Phase 4: The client A should have a 100% margin, from September, that is the whole of Rs. 4,00,000/-

It is to be noted that according to this new implementation of SEBI, from September of 2021, no exposures and margin support will be provided. Since all the brokerage firms will now have to maintain a similar margin, their point of attraction will be brokerage and services; this will ensure premium services and quality support for traders.

Here is to better days and better ways of trading!

It is now necessary to keep enough margin amount in your account or pledge your shares with Goodwill Wealth Management for an open position and for smooth trading.

Here is to better days and better ways of trading!

Please refer to the links listed below for more information and details.

CLICK HERE – SEBI circular: Framework to Enable and Verification of Upfront Margins Collection.

CLICK HERE – SEBI circular: Way of Pledge/ Re-pledge in the Depository System

CLICK HERE – NSE Circular: Clarifications on Peak Margin collection and reporting

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