August 13, 2022

Published from Mumbai, Delhi & Bhopal

Peak margin levy will lead to export of business to overseas markets

New Delhi, Association of National Exchanges Members of India (ANMI) has urged regulatory authorities to reconsider the proposed 100 per cent levy on day trade peak margins as the margin is 300 per cent of what should have been the actual levy.

ANMI has written to the Securities and Exchange Board of India (SEBI), expressing its opinion that there is a great disconnect between what is being collected from clients and what needs to be collected vis-a-vis the attendant risks arising in intraday trades.

ANMI, however, reiterates that they are not against collection of intraday margin levied on clients nor the levy of full margin on the Clearing member irrespective of the nature of the trade.

Sharing its data with the regulator, ANMI pointed out that the rate of overnight margins, levied on intraday trades are almost 3.33 times more than what is warranted based on the risks of the trade.

In the current margin structure, the current levy of Peak margins is actually 300 per cent of the margin which should have been actually levied,” said ANMI spokesperson. “The levy of margin being a high multiple on intraday trades is also causing effects elsewhere”

Also, nowhere in the world, clients are required to pay upfront peak margins. Already open interest in Nifty is more in Singapore compared to India though it is a product based on Indian stocks. Indian markets are already at a disadvantage compared to SGX in terms of margins, time of trading, transaction cost and taxation. Any further unwarranted restrictions will result in export of business from India to overseas markets.

According to ANMI, the spike in peak margin will bring change in market behaviour by shifting from future to option buying and a shift in the mind-set of people gravitating more towards options trading and moving away from Stock / Index Futures and Stock Options. They also pointed out that higher margins would also imply prolonged carry forward of loss making trades giving a false sense of security. Due to the shift, hedging opportunities have seen a dip due to lower volumes in capital market and commodity markets have been greatly impacted.

ANMI’s concern over the peak margin issues rises as the deadline for the increase of current margin of 50 per cent to 75 per cent from June 1, 2021 is closing in. Between December 2020 and February 2021, traders were supposed to maintain at least 25 per cent of the peak margin. This margin was raised to 50 per cent between March 2021 and May 2021 and is proposed to be raised to 75 per cent between June 2021 and August 2021 and finally to 100 per cent from September 1st onwards.

ANMI hopes that the regulating authorities will consider our suggestions and bring the peak margin back within the band of 25 per cent to 33.33 per cent from the current rate of 50 per cent.

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