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Mumbai: The Securities and Exchange Board of India (Sebi) on Monday prescribed a framework to enable verification of upfront collection of margins from clients in cash and derivatives segments, and introduced the concept of peak margin reporting and penalty, a move that market participants say will lead to a steep decline in intra-day trading.
The markets regulator introduced the concept of peak margin reporting, wherein the clearing corporations will send four snapshots during the day for identifying the margin requirements for clients across the day. The margin penalty will be based on the higher of peak margins reported during the day based on snapshot files or end of day margin.
For the commodity derivatives segment, Sebi has already prescribed that though trading in commodity derivatives is happening till mid-night, risk parameter file (RPF) of 5 PM shall be applicable on end of day (EOD) portfolio for margin collection from clients.
Therefore for the commodity derivatives segment, the last snapshot for commodity derivatives shall be generated at 5 PM and EOD margin will also be determined in accordance with the new circular, the regulator said.
The new framework will be effective from December 1, 2020, and stipulates phased adoption over 3 phases of 3 months each. There will be full adoption by September 1, 2021.
Jimeet Modi, founder & CEO of Samco Group pointed that brokers will not be able to offer intraday margins beyond VAR+ELM (value at risk margin and extreme loss margin), which could result in huge reduction in intraday turnover which is almost 90 per cent of all turnover, as if excess intraday margin provided could result in margin penalty.
“Now the industry and exchanges will need to adjust to this new reality,” said Jimeet Modi, founder & CEO, Samco Group, adding that this probably also accelerate the market share towards discount brokers from full service brokers.
“Differentiated margins was a service offering by full service brokers which has now been arbitraged away. Interesting times ahead!,” he said.
The markets regulator introduced the concept of peak margin reporting, wherein the clearing corporations will send four snapshots during the day for identifying the margin requirements for clients across the day. The margin penalty will be based on the higher of peak margins reported during the day based on snapshot files or end of day margin.
For the commodity derivatives segment, Sebi has already prescribed that though trading in commodity derivatives is happening till mid-night, risk parameter file (RPF) of 5 PM shall be applicable on end of day (EOD) portfolio for margin collection from clients.
Therefore for the commodity derivatives segment, the last snapshot for commodity derivatives shall be generated at 5 PM and EOD margin will also be determined in accordance with the new circular, the regulator said.
The new framework will be effective from December 1, 2020, and stipulates phased adoption over 3 phases of 3 months each. There will be full adoption by September 1, 2021.
Jimeet Modi, founder & CEO of Samco Group pointed that brokers will not be able to offer intraday margins beyond VAR+ELM (value at risk margin and extreme loss margin), which could result in huge reduction in intraday turnover which is almost 90 per cent of all turnover, as if excess intraday margin provided could result in margin penalty.
“Now the industry and exchanges will need to adjust to this new reality,” said Jimeet Modi, founder & CEO, Samco Group, adding that this probably also accelerate the market share towards discount brokers from full service brokers.
“Differentiated margins was a service offering by full service brokers which has now been arbitraged away. Interesting times ahead!,” he said.