Recently SEBI, the market regulator, came out with a circular on peak margin. Exchanges too had issued FAQs regarding the same. It states that only 80% of the sell amount (delivery) will be available to invest immediately. The balance 20% will be available only on the next trading day.
While 20% amount will not be visible in Groww Balance on T day, the same will be added to Groww balance on the next trading session.
Why?
SEBI introduced peak margin reporting from December 1, 2020. This is done to restrict brokers from giving excessive leverage than the minimum margin requirement.
Brokers such as Groww should have enough margin before clients places a buy order. In this regard, they can only provide 80% of the sell proceeds for further investing on the same day. And the 20% of the order value is required as the margin.
Prior to this new regulation, brokers were able to give very high margin to investors. This often ended up in brokers collecting margins that are way lesser than the minimum — putting us, the broker, at risk.
Now, SEBI wanted to make this system stable and less risky. However, it led to some unintended consequences that you will only get 80% of the sell proceeds on the same day of selling.
Where is the 20% Money?
To make it easier and more transparent, we have added a section ‘20% Delivery Sell Amount Blocked’ under Groww Balance Transactions. This will show the remaining 20% of the sell amount. And will be added to ‘Available to Invest’ on the next trading day.
For example:
You sell a share for Rs 100.
Rs 80 will be added to ‘Available to Invest’ immediately.
The remaining Rs 20 will be visible in the ‘20% Delivery Sell Amount Blocked’ section on the same day.
Before the next trading session, this Rs 20 will be added to ‘Available to Invest’.
How does it impact investors?
Intraday
For intraday leverage, SEBI wants all brokers to take the Var+ELM margin. If you are a Groww investor, you need not worry as we already use Var+ELM margin.
The maximum intraday leverage will be restricted and it will keep on reducing until September 1, 2021. SEBI will be implementing this change in 4 phases to ensure that all brokers gradually move to the same model.
Here’s how margin will be restricted in a phase-wise manner:
- 1 Dec – 28 Feb:
25% of the minimum 20% margin required on trade value (VaR+ELM) for stocks in the cash segment or SPAN +Exposure in the derivative segment. - 1 Mar – 31 May:
50% of the minimum 20% margin required on trade value for stocks in the cash segment or SPAN +Exposure in the derivative segment. - 1 Jun – 31 Aug:
75% of the minimum 20% margin required on trade value for stocks in the cash segment or SPAN +Exposure in the derivative segment. - 1 Sep onwards:
100% of the minimum 20% margin required on trade value for stocks in the cash segment or SPAN +Exposure in the derivative segment.
Delivery sell orders
80% of the sell amount: Available to invest immediately.
Rest 20% of the sell amount: Available to invest on the next trading day.
Let’s understand with an example
Same-day buying of the sold stock
Going forward, any stocks sold from a Demat account will be debited by Groww and given to the Clearing Corporation. This process is called Early Pay-In (EPI) of securities. This helps in covering your margin requirement and avoiding any penalty due to margin shortfall as per the new regulation.
Let’s say, you sell 10 stocks from your Demat account with the current value of Rs.100/share.
Example 1:
Earlier, you would get Rs.1,000 immediately to buy back the sold stocks easily. But, if you bought back 8 stocks on the same day, Groww would do EPI of the remaining 2 stocks.
Now, you will get 80% (Rs.800) immediately. If you reinvest the Rs.800 in the same stock, you will be able to buy back 8 stocks, but Groww will do EPI of all the 10 stocks that you sold.
Example 2: If you sell shares Rs 1,000 in a delivery order, then according to this new rule, Rs 200 is held, Only Rs 800 will be available to invest the same day. Now, if you buy back the same number of shares on the same day, your Rs 200 (20%) is released because it becomes an intraday trade.
Note: DP charges will be applicable for all sell orders from Demat (per ISIN per trading day).
Also Read: What is Demat Account
For references:
For ASM and GSM list: Please refer the link below.
I am a financial expert with a deep understanding of the regulatory landscape in the Indian stock market. My knowledge spans various aspects of financial regulations, including those set forth by the Securities and Exchange Board of India (SEBI). I am well-versed in the nuances of market mechanisms, broker-client interactions, and the implications of regulatory changes.
The article you provided discusses a recent circular from SEBI regarding peak margin reporting and its impact on brokers such as Groww. I will break down the key concepts mentioned in the article:
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Peak Margin Reporting by SEBI (December 1, 2020): SEBI introduced peak margin reporting to curb excessive leverage provided by brokers. The regulation aims to ensure that brokers maintain sufficient margin before clients place buy orders, reducing the risk associated with inadequate margin collection.
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Sell Proceeds and Available Investment Amount: Under the new regulation, only 80% of the sell amount (delivery) is available immediately for investment. The remaining 20% becomes visible in a separate section called '20% Delivery Sell Amount Blocked' and is added to the 'Available to Invest' on the next trading day.
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Impact on Investors:
- Intraday Leverage: SEBI mandates brokers to use Var+ELM margin for intraday leverage. The maximum intraday leverage will be gradually restricted in four phases until September 1, 2021.
- Delivery Sell Orders: 80% of the sell amount is available immediately, and the remaining 20% is available for investment on the next trading day.
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Margin Restriction Phases for Intraday Trading:
- Dec 1 – Feb 28: 25% of the minimum 20% margin required
- Mar 1 – May 31: 50% of the minimum 20% margin required
- Jun 1 – Aug 31: 75% of the minimum 20% margin required
- Sep 1 onwards: 100% of the minimum 20% margin required
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Early Pay-In (EPI) of Securities:
- Stocks sold from a Demat account are debited by the broker (e.g., Groww) and given to the Clearing Corporation through Early Pay-In (EPI) to cover margin requirements and avoid penalties.
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Examples Illustrating the Impact on Investors:
- Example 1: Earlier, 100% of the sell amount was available immediately; now, 80% is available, and the remaining 20% is added on the next trading day.
- Example 2: If you sell shares worth Rs. 1,000 in a delivery order, Rs. 200 is held, and only Rs. 800 is available for investment on the same day. The held amount is released if the stock is bought back on the same day.
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Demat Account and DP Charges:
- DP (Depository Participant) charges are applicable for all sell orders from Demat (per ISIN per trading day).
This regulatory change aims to make the trading system more stable and less risky by preventing excessive leverage and ensuring brokers have adequate margins. Investors need to be aware of these changes to navigate the evolving landscape of the Indian stock market. For further details and specific queries, it is recommended to refer to the official SEBI circulars and exchange FAQs.
