SEBI, the market regulator, implemented new margin regulations on September 1st. Traders must offer a 100 percent margin upfront for their deals under the new peak margin requirement. The new rule is going to show an impact on intraday trading.
A year ago, the SEBI imposed a new peak margin restriction for day traders. It has started to be introduced in stages. Traders were needed to maintain a minimum of 25% of the peak margins from December 2020 to February 2021 in the first phase. This margin was extended to 50% between March and May in the second stage. It is planned that it be raised to 75% during June – August in the third stage, and then to 100% from September 1st onwards.
The second-order impact of the new Sebi regulations is significant for day stock traders. Peak margin laws limit the amount of leverage traders can obtain from their brokers to complete a deal in the market. Reduced debt is likely to undermine market liquidity and upset the stock market’s price-setting mechanism in one of the worst scenarios.
Before explaining the rules further, if you are new to the Stock Market, it is suggested to join a good stock market institute. This will help you to gain the knowledge required in trading. You will also not lose your money while trading because someone who is exerted in the field will guide you. The Thought Tree is one such institute.
Table of Contents
Major Change in SEBI Rules for Trading
From now on, buying and selling shares will demand an advance buffer. For example, if you wish to buy Rs 1 lakh worth of Reliance Industries shares, you must have Rs 20,000 in cash in your account as well as the rest of the money should be paid within two days.
Major change: You should have a minimum of Rs 20,000 in your portfolio if you wish to sell Rs 1 lakh worth of Reliance stocks from current holdings. If you don’t follow the rules, you’ll be penalized. Selling from a position of holding will likewise necessitate a cash margin. As a result, dealers might store extra cash or pledge other assets to provide the needed margin.
The second-order impact of the new Sebi regulations is significant for day stock traders. Peak margin laws limit the amount of leverage traders can obtain from their brokers to complete a deal in the market. Reduced debt is likely to undermine market liquidity and upset the stock market’s price-setting mechanism in one of the worst scenarios.
This is the Peak Margin Rule. So let’s understand it in a more detailed manner.
What is the Peak Margin Rule?
Stockbrokers are now required to collect minimal margins on leverage-based trades before each day, instead of the previous practice of collecting everything at the end of each day, under new peak margin requirements.
The year before, the Sebi decided to implement peak margin rules to reduce speculative trading and limit the leverage that stockbrokers may provide their customers. Stockbrokers ceased utilizing end-of-day positions to determine margin needs when the new standards were published and instead began using intraday peak positions in December 2020.
Clearing organizations would demand minimum margin throughout the session under the new rules, compelling brokers to collect more margin from customers if they fall short. Stockbrokers who may not comply will be penalized.
The other rules are:
Closed BTST
Shares purchased today cannot be sold the next day. For example, you bought Reliance on Monday. You can now only sell such shares when they have been delivered to you. On Wednesday, T+2, you can sell. Only after getting the shares in the DP/after obtaining the stock delivery may you sell them.
Cash and F&O
Shares sold for delivery today cannot be utilized to make fresh transactions the same day. The money will be available for new deals the next day. For example, suppose you sold the Rs 100,000 value of Reliance Industries stock today. You can no longer use these funds to purchase new shares in other firms. The regulations for Options and Futures, on the other hand, will remain unchanged.
Conclusion
Traders are unhappy with said new peak margin rules because they’ll have to put more money aside to meet trading margin requirements. Futures and options trading will, in reality, become much more pricey. Previously, the stockbrokers’ association ANMI had criticized SEBI’s new peak margin regulation as unfair. It had even requested the market regulator to review its peak margin rules, particularly those governing intra-day trade. When the trade is lucrative, leverage is your friend; however, leverage may be your worst enemy when your transaction is losing money. The purpose of SEBI is to limit market leverage to avoid significant fluctuations in share prices during periods of acute stress or severe bullishness.