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 & reporting of margins from clients in the cash segment.
The penalty structure in case of short collection of this margin will come in effect from August 01, 2020, vide subsequent circulars issued by SEBI (Circular SEBI/HO/MIRSD/DOP/CIR/P/2020/61 dated 16th April 2020 and SEBI Circular SEBI/HO/MIRSD/DOP/CIR/P/2020/101 dated 19th June 2020).
Thus, when you place an order, the trading member has to mandatorily 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.
To understand the concept of VaR, ELM and MTM , read : Understanding the concept margins.
How Does it Affect You?
As an investor, these changes affect you in the following ways:
(Regulatory charges and taxes have not been included in the examples below for simplicity)
1. BUY Order – There are no changes here. You will have to pay the entire amount upfront. For example, if you buy a stock worth Rs.1000, then you will have to pay Rs. 1000 upfront.
2. SELL Order (from Demat) – No changes here. When you sell shares from your Demat account, you will receive the entire amount as ‘available to invest’ in your trading account immediately.
3. SELL Order (Intraday) –If you buy a stock and sell it on the same day and book a profit, such profit cannot be used as upfront margin amount on the same trading day.
For example, if you buy a stock worth Rs.1000 and sell it at Rs.1100 then the profit of Rs.100 cannot be used as upfront margin against any stock order on the same trading day.
4. SELL Order (BTST – Buy Today Sell Tomorrow) – If you buy a stock today and sell it tomorrow (BTST), upfront margin amount will be put on hold. In case upfront margin balance is not enough, amount from Groww balance will be used.
Please note that no amount will be made available to invest immediately after SELL order gets executed. The SELL order amount and upfront margin amount will be released within two trading days from date of sell order.
For example, a stock has upfront margin requirement of 40%. If you buy this stock worth Rs.1000 today and sell it for Rs.1000 on the next day then Rs. 400 upfront margin will be held. In case, upfront margin balance is not enough, Groww balance will be used. Also, you will not receive the SELL amount of Rs.1000 immediately as available to invest. These amounts will be made “available to invest” within two trading days of sell order.
If Groww balance is not enough for upfront margin requirement of a SELL order, you will need to add money to Groww balance to place such SELL orders.
- Some stocks have a higher margin requirement than others as per exchange. Trade these stocks cautiously.
- Certain BTST trades might attract additional margin requirements i.e. additional amount might be charged from Groww Balance to execute BTST Sell orders.
- Any MTM (Mark to Market) losses will be debited within two trading days. Investors must ensure sufficient balance in their Groww account .
Hope this was helpful.