New Rules for Margins and Pledging of Shares Come into Force from 1st September
IANS 01 September 2020
Two major regulatory changes have kicked in for stock market investors from Tuesday (1st September), including the method of pledging stocks and upfront margin requirements for stocks and futures and options (F&Os).
Under the new margins system, there will be a bunch of changes with respect to margin requirements.
Buying and selling of shares will require an upfront margin from now onwards. So if anyone wants to buy shares worth Rs1 lakh, they must have Rs20,000 in their account as cash and the rest of the money is to be paid within 2 days.
The major change is that if anyone wants to sell Rs1 lakh worth of shares from their holdings, for that scenario also, they must have a minimum of Rs20,000 in their account, failing which penalties will be levied.
The sale from holdings will also require an upfront margin in cash. An investor can keep extra cash/pledge other holdings for the stipulated margin required.
In addition, the shares bought one day cannot be sold the next day. So, if an investor bought shares on, say, Monday, then he can only sell them after receiving the delivery of shares. So, in T+2, they can sell these on Wednesday.
If shares are sold after delivery, the funds cannot be used for new trades the same day, and can only be used the next day.
So, for instance, if an investor sold Rs10,000 worth of Reliance's shares on Monday, he cannot use this money to buy fresh shares of other companies. This Rs10,000 will be cleared the next day and can be used the next day.
There are no changes in F&O rules for now till further notice.
Under the new pledging system, until now, when anyone pledged stocks as collateral to receive margins for trading F&Os, they had to move it from their demat account to the broker and, in turn, to the clearing corporation.
Going forward, the stock will continue to remain in the demat account and can be directly pledged to the clearing corporation.
"Over the last weekend, we have unpledged all securities which were pledged with us to the customer demat account and many have repledged it, using the new mechanism," Zerodha said in a note to clients.
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1 year ago
With this new rules in place, what will happen of intra day traders?
1 year ago
Prima facie the intention to introduce these new guidelines seems to curb speculation but doing so is likely to destroy the liquidity in the markets. Speculators are an essential element in efficient markets. The requirement of upfront margin on selling of shares is ridiculous and is a way to control the selling in the markets, in other words SEBI (or government or whoever) is trying to penalise sellers. They want people to bring in money and resist them from taking it out, they are actually trying to manipulate the market. I pity the Indian investors (which includes me as well), they are now left with no good options to invest their hard-earned money. FD interest rates are already at all time low’s of around 5%, with the introduction of these guidelines they can now put money in the stock market but when they have to withdraw they will have to borrow the 20% margin money from somewhere or else pay the penalty thus reducing the returns on the investment. What are these guys trying to do? Are such rules applied in any other countries?
1 year ago
Why should one maintain a margin for selling his own shares ? Idiotic. Whose idea is this ? What's the logic behind this in curbing market volatility ?
1 year ago
For buying shares, having balance of Rs.20,000 in account is OK but for selling shares, it is a stupid requirement. So long account is operative, balance therein is of no concern for selling of shares. Should not be a requirement. What is the rationale behind such stupid orders? Instead of simplifying transactions, things are getting very very complicated.
1 year ago
While this is the correct first move in crippling the high volatility in the daily stock price movement, and a stop to the officially authorized gambling, insisting on margin for selling one's stock at his/her demat account does not appear to be correct or legally tenable.
1 year ago
this is clearly welcoming move.gullible speculators in the name of investors protected.sebi wants to discourage excessive speculation .
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