New margin norms weigh on volumes, brokers estimate 10-15% impact

Industry players say biggest impact could be on derivative futures volume followed by cash market volumes

The 75 per cent peak margin norms came into effect from Tuesday. The broking industry expects 10-15 per cent hit on volumes are leveraged bets in the system will reduce significantly on account of the new norms. Industry players say the biggest impact could be felt on derivative futures volume followed by cash market volumes. They say traders could shift to riskier options trading.

The norms are being implemented in phases starting December 2020. Between December 2020 and February 2021, traders were supposed to maintain at least 25 per cent of the peak margin. This margin was raised to 50 per cent between March and May. The same will be raised to 75 per cent between June and August. And finally to 100 per cent September 1 onwards.

The implementation of 25 per cent peak margin norms didn’t have a big impact on volumes. In March, cash market volumes were down 20 per cent over the previous month. With the exception of index options, all the derivatives categories also reported declines. Volumes in May, for all categories except options, were much below February levels. On Tuesday, volumes about 10 per cent below May’s average daily turnover.

“In the short term the new rules will negatively affect liquidity as the average volume per trader will go down because of reduced leverage. Over the long term, the number of traders who survive will hopefully make up for the liquidity shortage,”said Prateek Singh, Founder of LearnApp.com.