The Commodity Participants Association of India has urged the Ministry of Finance and Sebi to cap the peak at current level of 50 per cent and stop penalising the intra-day investors who provide much needed liquidity in the market.
Peak margin is the maximum margin obligation of a market participant at any given time and applies to both equity and commodity derivatives.
In its virtual meeting with Sebi on Friday, the CPAI said the trading volumes have fallen sharply in last few months and will dip further with peak margin increased to 75 per cent from June. Nowhere in the world, clients are required to pay upfront peak margins. Logically, margins are to be collected at the end of the day and not when the trade is open.
Narinder Wadhwa, President, CPAI said penalising investors for short of margin during the intra-day position is unjustified as no one in the market can predict price movement of a particular stock or commodity in a day.
Illustrating the predicament of investors with live example, Wadhwa in a letter to the regulator and government said investors will be forced to close their position to avoid penalty.
Peak margin rules also dictate a short-margin penalty — ranging from 0.5-5 per cent of the shortfall per day — if brokers fail to secure the minimum margin for intra-day positions.
Wadhwa said the market needs all kind of participants including algo and intra-day traders as the provide liquidity.
The cost of trading in India is already the highest in the world and these kind of measure would further drive away investors to international markets, he said.
Sebi started levying peak margin of 25 per cent between December 2020 and February 2021. It increased to 50 per cent between March and May and further to 75 per cent in June reaching to 100 per cent in September.