Collection of Upfront Margins from the Clients

Collection of Upfront Margins from the Clients

Dear Customer,

As you are aware that SEBI and Exchanges, vide various circulars had introduced the collection of margins in Cash market and in turn revised certain rules for collection and reporting of margins received from clients.The FAQs released by NSE vide its circular dated 25th July 2020 has provided certain clarifications with respect to margin collection from clients and reporting thereof. In view of the clarifications so provided, there will be an impact on the way you are availing margin benefit for trading. I am listing down scenarios in which the change will be effected from September 1st 2020.

Margin Benefit while Buying shares

In the current system a Client buys shares by paying upfront margin i.e. VaR + Extreme Loss Margin (ELM). Though the actual delivery of shares comes on T+2 days i.e. 2 Trading days after the stock is purchased, you were provided the margin benefit to clients on the very next day after adjusting for haircut as per stock category. This process will change in the new process. 
After a stock is purchased NO benefit of those purchased shares will be provided to client upto T+2. Once the actual delivery of shares is received, we will check whether the debit arising from buying the shares is cleared by client or client has created a forward pledge for availing margin funding faclity. Only after either of condition is met, the shares will be transferred to demat account and will be available for margin benefit. Client will have to follow the Margin pledge process prescribed by CDSL and explained in my another communciation to actually avail the margin benefit. If none of the conditions are met then shares will remain in Client unpaid securities account (CUSA) and will be sold on T+7 day.

Margin Release after Selling Shares

In the current system, you can easily sell the shares from their demat account. The moment the shares are sold, we release the entire money of sale proceed to provide margin benefit. It means that you can purchase any other shares or create position in derivative segment instantly after selling shares. This benefit will no longer be available from September 1st 2020.

From 1st September 2020 proceeds from shares sold from your demat account will not be available till T+2. It means the benefit of the selling can only be available for any new purchases after 2 trading days of selling the stock. Till T+2 the margin (Entire value of sell) will be blocked. You will be able to purchase any new stock or take position in derivative or take payout only after T+2 days (T being trading day).

You may, however, get the benefit of shares sold on T-day (i.e. instantly on the same day of trading) under following circumastances:

a) Shares lying in Client Unpaid Securities Account (CUSA). This normally happens if you sell shares which are purchased in last 7 trading days and the same are not transferred to your demat account
b) If the shares are lying in your demat account and are available free i.e. there is no pledge created by you against the said stocks
c) If the shares are lying in your demat account and are pledged only for the purpose of Margin Funding (MTF) 

In case of other following scenarios, the credit of shares sold will only be available on or after T+2 day:
a) Shares pledged by you for availing margin benefit (Margin benefit is different from Margin funding benefit)
b) Profits arising out of Intra day trading
c) Sale proceeds from Derivatives positions
d) Stocks bought on previous trading day and sold on the subsequent day next (BTST)

Squaring off Buy Option position to take another position

In Current scenario, if you sell any Buy position in options contract, the proceeds of the sale can be utilized to buy any other position. 
After 31st August, 2020, sale proceeds from options can only be used for purchasing another option contract. It cannot be used for purchasing any other stock in cash segment or futures contract. 

Buy Today and Sell Tomorrow (BTST)

BTST is a very well known type of trade and lot of traders do it. It simply means a share can be sold the very next day after you buy. Today clients can seamlessly do it though they have risk of buy shares not getting delivered on account of auction and hence sold shares will go in auction. 

From 1st September 2020, there will be changes in the said process of BTST.
The new regulations require at least 20% upfront margin before initiating a sell transaction. So you can only initiate a BTST transaction only if the net available margin displayed in the Funds section in the mobile app / web login is equal to or greater than. 
If the net available margin is less than 20% of the sale value, then your order will be rejected as per the RMS policy.

Other Changes in Net Available Margins 

Profits from intra-day trading:
Currently, profits arising out of intraday trading are posted in your ledger after billing and gets added to the Net available margins for the next trading day. Effective 1st September, profits arising out of intraday trading, though getting credited in the ledger will not be available as Net Available Margin upto T+2 Day.
 
Merged Settlement:
On account of bank holidays, sometimes two settlements are settled on a single day. From 1st September 2020, any profits arising out of intra-day trading (all segments) or any credit / sales proceeds arising out of sale transaction will not be available under net available margins till the merged settlement are fully settled.

Click here to know more about New Process on Creation of Margin Pledge.