The Securities and Exchange Board of India (SEBI) vide Circular no. CIR/HO/MIRSD/DOP/CIR/P/2019/139 dated November 19, 2019, has mandated the collection and reporting of margins from clients in the cash segment since January 1, 2020. Further, the penalty for short collection/non – collection of margins will be mandated from April 01, 2020.
However, keeping in view the current pandemic, SEBI has extended the provision of levying penalty on short/non-collection of margin from time to time vide circulars. Effective from September 1, 2020, the aforesaid penalty provisions will be applicable and users will be required to ensure upfront margin availability as per the requirements for executing trades in the cash segment.
So, when you place an order, it is mandatory for Groww to collect upfront margin amount [Value at Risk (VaR) and Extreme Loss Margin (ELM)] from you on the day of the trade. Also, the Mark to Market (MTM) Margin and any other special or additional margin as prescribed by the exchange is to be collected within two trading days.
In this article
Peak Margin Reporting
As per the latest circular SEBI/HO/MRD2/DCAP/CIR/P/2020/127 by SEBI and FAQ issued by the stock exchanges pertaining to peak margin reporting, only 80% of the Delivery sell amount will be available to invest immediately, and the rest 20% will be available on the next trading day.
20% amount will not be visible in Groww Balance on T day but don’t worry that amount will be added to your GB before the next trading session.
From now onwards, brokers (Groww) should have enough margin before clients place an order in lieu of which we can only provide 80% of the sell proceeds for further investing on the same day as 20% of the order value will be required as the margin.
Sebi introduced peak margin reporting from December 1, 2020. This has been done to restrict brokers from giving excessive leverage than the minimum margin requirement.
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.
Read more on Groww: https://groww.in/blog/margin-on-selling-stocks/
Where is the 20% Money? Is It In My Groww Balance Wallet?
To make it easier and more transparent, we have added a section “20% Delivery Sell Amount Blocked” under Groww Balance Transactions, which will show the remaining 20% of the sell amount. This will be added to ‘Available to Invest’ on the next trading day.
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 you as an investor?
For intraday leverage, SEBI wants all brokers to take the Var+ELM margin. If you’re a Groww investor, you need not worry as we already use Var+ELM margin on Groww.
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
Example: Let’s say, you sell 10 shares from your Demat account today with the current value of Rs.100/share.
Earlier, you were getting the entire Rs.1000 as ‘Available to invest’ immediately.Now, you will get 80% of the sell amount (Rs.800) immediately as ‘Available to invest’. The rest 20% (Rs.200) will be ‘Available to invest’ on the next trading day.
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.
For example, you sell 10 stocks from your Demat account with the current value of Rs.100/share.
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 rule, Rs 200 will be held and 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%) will also be 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 ASM and GSM list: Please refer the link below.
Hope this was helpful!