How are new SEBI margin rules impacting traders

How are new SEBI margin rules impacting traders


In February 2020, The Securitiesand Exchange Board of India (Sebi) came up with new margin pledge rules, that came effective from September 1st, 2020. With the intent of bringing transparency and stopping brokers from misusing client’s money, the new norms are making the lives of investors as well as brokers more painful. But what do they hold for traders? Read along.

Decrease in volume

Margin trading basically gives traders, the power to buy more stocks than they can afford, by just paying a part of the share. This can be understood by taking the broker as the moneylender and securities as collateral. With the new norms, brokers are compelled to collect a 20% margin upfront for any buying or selling of shares, hence, traders will be able to buy as many stocks as they can afford, resulting in lower purchase volume.

Intraday profits

Earlier traders used their intraday profits to create new positions, but with new norms, traders will be able to use their intraday profit only after T+2 days. Intraday profits cannot be used to enter new trades, the same day.

Future and Options traders

If you re a future and options trader, the new norms are all set to drench all the fun f4rom trading. If you have credits from options sell, you can only use it to buy options on the same day. In order to enter a sell option, you will have to wait for T+1 days, ie, until the transaction gest over. Only 60% of the value of BTST trade will be available to take new trades in F&O.

Power of Attorney

Earlier, clients give a PoA to the brokers, that the new norms aim to end, giving them the power to execute the transaction on their behalf. The brokers misused this power to take out money from the client’s accounts to adjust other client’s accounts. The most famous case of misuse of PoA is the Karvey Issue. With the new norms, the system of PoA hs been eradicated, making it better for traders.

Read More: Your Go to Guide on Stock Indexes

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