Regulator (SEBI) has introduced a new peak margins regulation that shall take effect in 4 phases, of which the 1st phase takes effect starting tomorrow (1st Dec 2020). The intention behind this new regulation is to curb brokerages from providing high leverages to clients for intraday trades, which in majority of the cases harms the traders and also exponentially increase the risks in the entire capital markets systems.
 
As of now brokerages are required to report to the exchanges at the End Of Day (EOD) wether the clients have sufficient margins for the trades taken by them or not. However, this means that during the trading day there is no check on the adequacy of margins in clients account by the exchanges, and this lack of check has been mis-utilised for years by some brokerages to provide exponentially high leverages to clients for intraday trades with a condition that the trade will be squared off if there is a certain degree of loss or if the markets are about to close.
 
 
What changes at PM Securities?
 
At PM Securities we’ve always placed utmost importance to safety of clients capital and as a good practice we have never provided any super-leverage beyond the regulator permitted thresholds . This also means that majorly nothing changes for PM Sec’s clients as our risk policy and framework is already in line with the newly proposed regulatory changes, and that business shall continue as usual at PM Securities..

However there are a few things that you should know:
Due to the operational mechanism of the newly introduced framework, there are some indirect albeit small point to make a note of:

  • 80% Credit for selling Demat Holdings:
As of now, when you sell shares held in your PM Securities Demat A/c you immediately get a full value (100%) of sales as credit which you can further use as margins to take other positions, however starting 1st Dec 2020 this shall be reduced to 80% as we are now required to block 20% for the sold shares until we debit shares from your Demat A/c which in most cases happens after markets close.

Eg. If you sell 50 shares of reliance worth Rs. 1,00,000 you will now receive a credit of Rs. 80,000 that can be used as margins for taking any subsequent trades.

  • Always exit hedged positions in derivatives by placing the order for the high margin leg first:
If you hedge your derivatives positions either to reduce risk / to reduce margins please note that it is very important to exit your primary leg with higher margin first to avoid a Peak Margin shortfall penalties. 

Eg: If you buy 1 lot of nifty futures the margin blocked is Rs. 100,000 however if you hedge the position by buying an OTM PUT option the margin drops to Rs. 30,000 as the overall risk of your position reduces. Now, when you are trying to exit your position it is important that you first exit  1 lot of nifty futures (The higher margin leg) first and then exit the OTM PUT option to avoid Peak Margin shortages.

  • Restriction on squaring off of sold holdings if CFS is used for taking other positions:
If you sell your demat holdings and receive a credit for selling the same, and you end up using the entire credit as margins to enter another position then you will be restricted from buying back the sold holdings if you decide to do so later in the day unless you add additional funds as margins.

Eg: If you sell Reliance shares at 10 AM from your holdings worth Rs. 1,00,000 you will receive a credit worth Rs. 80,000. Now if you use this 80,000 as margins to enter another position in derivatives at 11 AM where by you use up the entire 80,000 as margins you will not be allowed to buy back the shares of Reliance if you decide to do so at 12 PM unless you add additional funds / square off your derivatives position and free up the margins.


  • Fund Payouts can only be done at the End of Day
Withdrawal of funds can only be done, at the end of trading day, any intraday withdrawals may now trigger a penalty levied by exchanges. You can place withdrawal requests at any time during the day however the schedule for processing the fund transfers shall be as follows:


Withdrawal requests placed UPTO 5 PM on a working day shall be processed on the same day at 8 PM.

Withdrawal requests placed AFTER 5 PM on a working day shall be processed on the next working day at 8 PM. 

Withdrawal requests placed on weekends & on Exchange Holiday's shall be processed on the next working day at 8 PM.


Once we've processed the request the time for the money to reflect in your bank account shall depend on banking systems and the bank where you account is held. 



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