Margin collection in the equity cash segment will get stringent from Wednesday, brokers told BusinessLine. This is due to a clarification issued by the Securities and Exchange Board of India on Tuesday that mandates brokers to collect ‘additional’ margin from clients over and above the near 20 per cent compulsory margin. Till a fortnight ago, brokers had informed their clients that the 20 per cent upfront margin in the cash segment was mandatory from September 1. But now, ‘advance’ margin for buying stocks means that collection could go up to 50 per cent, brokers said.

Before September, the clearing corporations of exchanges did not impose any penalty on margin shortfall on brokers. Hence, they did not largely bother to collect any advance from clients for allowing them to trade or buy and sell stocks in the cash segment. From this month, SEBI asked brokers to collect value at risk (VAR) and extreme loss margin (ELM) from clients and announced penalty on short reporting. On an average, VAR and ELM on most stocks comes to around 20 per cent. Additional margin differs from scrip to scrip and could be as high as 50 per cent, depending on market volatility.

Margin collection

“Clients must ensure VAR and ELM are paid in advance and ‘other margins’ are paid as soon as calls are made. T+2 days has been allowed to collect margin from clients... it should not be construed that clients are allowed two days to pay margin due from them,” SEBI said.

According to brokers, when SEBI issued a circular on cash margin on July 31, there was no mention of ‘additional margin.’ Subsequently, exchanges issued circulars in August and talked about ‘additional margin.’ On Tuesday, SEBI clarification confirmed the point of ‘additional margin.’ Brokers say, since other margins differ from scrip to scrip they will have to configure their back-end and front-end software to update that daily and then link it with client payments, which is tedious.

As per SEBI’s clarification, ‘additional’ margin can be collected at pay-in, which follows the T+2 cycle. Brokers say, allowing additional margin collection during pay-in is just a ‘sham.’ For instance, if someone buys stocks worth ₹100 on Monday by paying ₹20 in advance, then as per SEBI’s clarification, if the additional margin is ₹30, the same can be collected on Wednesday. But if the additional margin is not collected on Wednesday, brokers will be penalised for a three-day margin shortfall.

Brokers say, no one would take the chance of ‘anticipating’ that a client will pay the margin at pay-in or even the next day of trade. If no payment is received from the client on Tuesday for stocks bought on Monday, and even if brokers sell the shares, there is still a risk of penalty.