Zerodha CEO Nithin Kamath says Sebi rules protect Indians when US markets catch cold

NEW DELHI: Crediting Sebi regulations aimed at reducing the impact of leveraged positions on the Indian stock market, Zerodha CEO Nithin Kamath today said earlier when the US market caught a cold, Dalal Street would catch a fever.

“But since 2010, volatility-wise, we've been much better compared to the US. While the credit is usually given to more local participation, it has got more to do with SEBI regulations that reduced leverage,” Kamath said.

In a thread on Twitter, Kamath said most of the Sebi regulations have hurt the revenues of brokers in the short term but led to lesser volatility. “This has significantly improved the odds of retail participants doing well. One of those Nazdiki fayda dekhne se pehle, door ka nuksaan sochna chahiye things.”

In August 2011, he said Sebi imposed a penalty for non-collection of end-of-day margins (SPAN) in F&O. Until then, brokers could allow customers to trade with whatever margins, even overnight.

“Aug 2014: Min 50% haircut for loan against security. Until then, promoters & HNIs could borrow as much as 100%. Unwinding of LAS positions when markets fell in 2008 created a snowball effect. 50% is now a high margin of safety for NBFCs, enough to avoid liquidation on bad days,” he said.

In May 2018, penalty was imposed for non-collection of exposure & other margins in addition to SPAN for end-of-day F&O positions and in Nov 2019, Sebi started a penalty for non-collection of end-of-day VAR+ELM margins for stocks. Until then, brokers could potentially fund the margins to buy stocks, he said.

“July 2020: Peak margin penalty for allowing customers any additional intraday leverage above SPAN+Exposure or VAR+ELM,” said Kamath, who runs India’s largest discount broking platform.