 "New margin rules result in unwarranted penalties on trading members: Anmi")
Brokers have raised concerns that new margin requirements are resulting in unwarranted penalties on trading members, who are being mandated to collect money upfront even before clients undertake trades.
The Association of National Exchanges Members of India (Anmi), an industry body for brokers, has written to the Securities and Exchange Board of India (Sebi) highlighting some of the issues. Penalty for margin shortfall or non-collection is in the 0.5-1 per cent range, depending on the short collection.
According to Anmi, members should be allowed to pass on peak margin penalty to the client when the margins levied for the position increases, leading to increased margin requirements for clients, who may have taken the position with sufficient margins while initiating the trade but find themselves in violation of margin norms because of the increase in exposure margin.
This could occur because of the increase in VAR or SPAN margin, which is revised 4-5 times a day. Or the violation could be because of the increase in exposure margins, which are currently levied as a percentage of the contract value. As the contract value increases, the exposure margins levied for the position also increases, leading to increased margin requirements for clients and subsequent violation.
Anmi favours a model that may predict the peak margins to be complied with by the trading member so that on any given day upfront compliance may be considered based on the margins for T-1 day. The industry body wants a T+1 day timeline to be considered for compliance, based on the details of the T day peak and/or end of day margins.
“Allowing compliance on these timelines will ensure that peak margin penalties are not levied without a reason and members are compliant with peak margin regulations,” said Anmi said in a recent letter to Sebi.
From September 1, the fourth phase of peak margin norms will kick in. There will be no additional margins apart from VAR+ELM (equity) and Span + Exposure (F&O). Penalty will be levied if margin blocked is less than 100 per cent of the minimum margin required.
The Association of National Exchanges Members of India (Anmi), an industry body for brokers, has written to the Securities and Exchange Board of India (Sebi) highlighting some of the issues. Penalty for margin shortfall or non-collection is in the 0.5-1 per cent range, depending on the short collection.
According to Anmi, members should be allowed to pass on peak margin penalty to the client when the margins levied for the position increases, leading to increased margin requirements for clients, who may have taken the position with sufficient margins while initiating the trade but find themselves in violation of margin norms because of the increase in exposure margin.
This could occur because of the increase in VAR or SPAN margin, which is revised 4-5 times a day. Or the violation could be because of the increase in exposure margins, which are currently levied as a percentage of the contract value. As the contract value increases, the exposure margins levied for the position also increases, leading to increased margin requirements for clients and subsequent violation.
Anmi favours a model that may predict the peak margins to be complied with by the trading member so that on any given day upfront compliance may be considered based on the margins for T-1 day. The industry body wants a T+1 day timeline to be considered for compliance, based on the details of the T day peak and/or end of day margins.
“Allowing compliance on these timelines will ensure that peak margin penalties are not levied without a reason and members are compliant with peak margin regulations,” said Anmi said in a recent letter to Sebi.
From September 1, the fourth phase of peak margin norms will kick in. There will be no additional margins apart from VAR+ELM (equity) and Span + Exposure (F&O). Penalty will be levied if margin blocked is less than 100 per cent of the minimum margin required.
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