The new margin rules went into effect today after Sebi’s refusal to extend the deadline to implement the new rules on margin commitment. Sebi’s new margin rules are intended to provide transparency and prevent brokerages from misusing client securities. These rules were released earlier this year in February and were initially scheduled to go into effect on June 1. The date was then extended to August 1 and then September 1. While the runners and other participants requested more time to prepare their systems, Sebi declined to extend saying there was enough time to make the changes.
Here are the changes:
- The shares will remain in the investor’s demat account and can be pledged directly to the clearing company. As the securities remain in the investors’ own demat account, they will enjoy all the corporate benefits of their shares.
With the old system, the broker handled the cash margins. investors had to transfer their shares to the brokers account or grant a power of attorney (POA) to the broker. Some runners misused the POA assigned to them.
- Brokers are required to collect margin from investors in advance for any purchase or sale of shares. Failure to do so will result in a penalty.
- No power of attorney (POA) to be assigned to brokers. Investors used to give brokers authority through POAs to execute transactions on their behalf. The POA can no longer be used to make promises.
- Investors who want to take advantage of margin must now create a separate margin guarantee.
- “It was not mandatory to collect margin up front, but under the new system, investors will have to pay at least 30% margin up front to take advantage of a margin loan,” says Angel Broking.
- Shares bought today cannot be sold tomorrow. Currently, an investor can use intraday earnings to take new positions on the same trading day. According to the new rules, you will be able to use it only after T + 2 days in case of shares / shares once you receive the delivery of shares to your account.
- “Until now, clients needed to meet margin requirements on their account once at the end of the day. But, SEBI’s new margin rules will require them to meet their margin obligations at the beginning of the deal,” says Angel Broking.
Here’s what analysts have to say about the impact of Sebi’s implementation of the new margin rules:
Deepak Jasani, Director of Retail Research, HDFC Securities
The change in the margin system and the replacement of securities guarantees could undoubtedly bring interruptions in the daily trading volumes, since there is not enough preparation and validation on the part of the participants in this system, that is, Exchanges, Depositories, Participants Deposit, Clearing Corporation, Brokers and Clients.
We could witness further polarization of stocks in the markets for some time, with the top 200-300 stocks experiencing the most depth and liquidity. The securities currently committed to the brokers must undergo the new process, which until now has not been easy according to the executions carried out so far. Therefore, large traders are not sure if they will have limits to trade on September 1, which can lead to a drop in volume in the cash and F&O segments that can last for a few days / weeks.
The short-term trend of the markets appears to be down.
Siddhartha Khemka, Director of Retail Research, Motilal Oswal Financial Services
Going forward, the market may remain under pressure due to the introduction of a new margin requirement in the cash segment as of September 1 and geopolitical tensions between India and China. Any sharp drop in the market would be a good buying opportunity for long-term investors to add quality stocks to the portfolio. “
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