Inability to comply with the peak margin rules: ANMI in Sebi

The stockbrokers organization ANMI said on Monday that it wrote again to market regulator Sebi, stating that it was impossible to comply with the maximum margin provisions related to intraday transactions.

Under the new margin rules, trading members are required to collect the amount in advance (before the trade) at the time clients enter the relevant positions or complete the relevant trades.

The National Membership Exchange Association of India (ANMI), a group of 900 stockbrokers, said in a statement that they wrote to Sebi and the ESB for calling a meeting to discuss the failure to comply with maximum margin provisions.

The investment dealer organization cited specific examples detailing the difficulty of complying with members’ compliance with initial and maximum margins.

He further said the rules cause immense hardship for clients for bringing in margins for circumstances beyond their control, as well as brokers who are also penalized for not complying with the initial margin collection.

“The situation will be more acute when the allocation mechanism becomes operational,” he added.

The client’s margin will exceed his guarantee and the deemed allocation will result in a penalty, which again was impossible to meet at the start of the day or even during market hours, he noted.

ANMI said the exchanges and the Clearing Corporation collect millions in penalties daily, and brokers would be required to repay the penalties after one year when the books are inspected although they are not at fault.

Therefore, ANMI asked Sebi to meet so that the matter could be discussed until a logical conclusion.

Sebi in 2020 implemented maximum margin rules with the aim of preventing brokers from giving excessive leverage exceeding the minimum margin requirement.

The new rules required brokers to switch from using the end of day position to calculate the margin requirement to using the peak intraday position to calculate the margin requirements from December 2020.

Additionally, the rules require the exchange to take snapshots of all margins at four different times of the day, with the higher margin being the maximum margin.

The regulation of Sebi’s peak margin is being implemented gradually.

In the first phase, traders were expected to maintain at least 25% of the maximum margin between December 2020 and February 2021.

This margin was increased to 50% between March and May 2021 in the second phase. It rose to 75% between June and August 2021 in the third phase and finally to 100% from September 2021.

Prior to these new rules, margins were collected in advance and calculated from end-of-day positions. Brokers were able to give investors a very high margin. This has often resulted in brokers collecting margins well below the minimum.

(This story was not edited by Devdiscourse staff and is auto-generated from a syndicated feed.)

Carol N. Valencia