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Latest Update: Peak Margin Regulation

02 November 2021
4 minutes

Recently SEBI, the market regulator, came out with a circular on peak margin. Exchanges too had issued FAQs regarding the same. It states that only 80% of the sell amount (delivery) will be available to invest immediately. The balance 20% will be available only on the next trading day.

While 20% amount will not be visible in Groww Balance on T day, the same will be added to Groww balance on the next trading session.

Why?

SEBI introduced peak margin reporting from December 1, 2020. This is done to restrict brokers from giving excessive leverage than the minimum margin requirement.

Brokers such as Groww should have enough margin before clients places a buy order. In this regard,  they can only provide 80% of the sell proceeds for further investing on the same day. And the 20% of the order value is required as the margin.

Prior to this new regulation, brokers were able to give very high margin to investors. This often ended up in brokers collecting margins that are way lesser than the minimum — putting us, the broker, at risk.

Now, SEBI wanted to make this system stable and less risky. However, it led to some unintended consequences that you will only get 80% of the sell proceeds on the same day of selling.

Where is the 20% Money? 

To make it easier and more transparent, we have added a section ‘20% Delivery Sell Amount Blocked’ under Groww Balance Transactions. This will show the remaining 20% of the sell amount. And will be added to ‘Available to Invest’ on the next trading day.

For example:

You sell a share for Rs 100.

Rs 80 will be added to ‘Available to Invest’ immediately.

The remaining Rs 20 will be visible in the ‘20% Delivery Sell Amount Blocked’ section on the same day.

Before the next trading session, this Rs 20 will be added to ‘Available to Invest’.

How does it impact investors?

Intraday

For intraday leverage, SEBI wants all brokers to take the Var+ELM margin. If you are a Groww investor, you need not worry as we already use Var+ELM margin.

The maximum intraday leverage will be restricted and it will keep on reducing until September 1, 2021. SEBI will be implementing this change in 4 phases to ensure that all brokers gradually move to the same model.

Here’s how margin will be restricted in a phase-wise manner:

  • 1 Dec – 28 Feb:
    25% of the minimum 20% margin required on trade value (VaR+ELM) for stocks in the cash segment or SPAN +Exposure in the derivative segment.
  • 1 Mar – 31 May:
    50% of the minimum 20% margin required on trade value for stocks in the cash segment or SPAN +Exposure in the derivative segment.
  • 1 Jun – 31 Aug:
    75% of the minimum 20% margin required on trade value for stocks in the cash segment or SPAN +Exposure in the derivative segment.
  • 1 Sep onwards:
    100% of the minimum 20% margin required on trade value for stocks in the cash segment or SPAN +Exposure in the derivative segment.

Delivery sell orders

80% of the sell amount: Available to invest immediately.

Rest 20% of the sell amount:  Available to invest on the next trading day.

Let’s understand with an example

Same-day buying of the sold stock

Going forward, any stocks sold from a Demat account will be debited by Groww and given to the Clearing Corporation. This process is called Early Pay-In (EPI) of securities. This helps in covering your margin requirement and avoiding any penalty due to margin shortfall as per the new regulation.

Let’s say, you sell 10 stocks from your Demat account with the current value of Rs.100/share. 

Also Read: What is Demat Account

Example 1:

Earlier, you would get Rs.1,000 immediately to buy back the sold stocks easily. But, if you bought back 8 stocks on the same day, Groww would do EPI of the remaining 2 stocks.

Now, you will get 80% (Rs.800) immediately. If you reinvest the Rs.800 in the same stock, you will be able to buy back 8 stocks, but Groww will do EPI of all the 10 stocks that you sold.

Example 2: If you sell shares Rs 1,000 in a delivery order, then according to this new rule, Rs 200 is held, Only Rs 800 will be available to invest the same day. Now, if you buy back the same number of shares on the same day, your Rs 200 (20%) is released because it becomes an intraday trade.

Note: DP charges will be applicable for all sell orders from Demat (per ISIN per trading day).

For references:

  • https://www1.nseindia.com/products/content/equities/equities/equities.htm

For ASM and GSM list: Please refer the link below.

  • https://www1.nseindia.com/invest/content/equities_surv_actions.htm
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