F&O: F&O traders prepare for new margin rules

Mumbai: Particular person merchants should deliver 50% of their fairness spinoff margin necessities in money from February 28. That is a part of Securities and Trade Board of India’s stricter shopper margin guidelines, aimed toward decreasing dangers to the system.

At present, merchants can use the worth of the shares pledged with brokers as margins for futures and choices trades. In November, Sebi had postponed the implementation of this rule to February 28, 2022, from December 1, 2021. Brokers at the moment are gearing up for the implementation of the brand new guidelines.

Some broking companies have already began amassing the extra money margins. There will likely be some promoting out there from particular person buyers earlier than February 28, stated brokers.

“Some buying and selling members have already began amassing 50% money margins. Nonetheless, many buyers have leveraged positions on the F&O phase, and the brand new rule would hamper their buying and selling actions,” stated B Gopkumar, MD & CEO, Axis Securities. “Buyers might should trim their open positions to fulfil the margin necessities in the event that they fail to deliver funds.”

Brokers will likely be penalised if there’s any shortfall within the shopper’s margin necessities. They may also not have the ability to use one shopper’s cash to fund one other shopper.

Markets might see a decline in buying and selling volumes and diminished liquidity within the coming days after the implementation of the brand new margin norms, stated Ashish Chaturmohta, director of analysis, Sanctum Wealth.

“Over the longer interval, it’ll scale back the volatility out there and reduce the losses in case of an unexpected occasion,” stated Chaturmohta.

In keeping with the brand new Sebi norms, brokers must segregate shopper funds in several segments like money, F&O, foreign money, and commodities and add the main points to clearing companies. That is aimed toward strengthening the safety mechanism of shopper collateral from misappropriation by the brokers.

Till now, reporting and calculation of margin at brokers had been taking place at an aggregated stage since there was no bifurcation within the funds of purchasers and brokers.

“Henceforth, the implied fungibility will cease, and brokers will not have the ability to use one shopper’s credit score stability to fund one other shopper,” stated B Gopkumar of Axis Securities.

KK Maheshwari, president, Affiliation of Nationwide Exchanges Members of India (ANMI) stated Sebi has additionally not directly launched a capital adequacy ratio (CAR) for brokers at 10% by the brand new norms as shopper collateral shouldn’t be thought of above 90%. “This could sound just like the loss of life knell for small- and medium-sized brokers which should not have enough internet price in proportion to the sum of credit score stability of their purchasers. Earlier brokers would develop their internet price by earnings. Now a dealer would first have to extend their internet price to help the rise in enterprise,” stated ANMI in a letter to Sebi early this month.