Regulatory Changes from 1st December 2020 and Its Impact

There are a bunch of new regulatory changes that are going live w.e.f. from December 1, 2020.

Here’s how it’s going to impact traders and investors:

Impact for Traders:

  1. Increase in Margins required for trading in Bracket and Cover Orders.
    1. From December 1, there’s going to be an increase in the margins required for trading across all segments and contracts in the BO and CO Order types. Check out the new margins required on Samco’s margin calculator. For now, there’s no change in margins required if you trade in the NRML or MIS product types.
  2. Be careful while unwinding hedged positions with spread /hedge margin benefits
    1. From December 1, exchange margins required will be checked even during the day (unlike before which used to be only end of day). Due to the same, computations of margin penalties would be applicable even if there is a margin shortfall during the day. This makes it imperative that when hedged / spread positions are unwound, the trader must square off the higher margin position first. And to the extent possible, also reduce the time lag for which positions are open unhedged. Let us explain with an example – Say you have a calendar spread position i.e., Long Nifty December 2020 and Short Nifty January 2020. In this case, the margin required would be only about Rs. 56,000. However, let’s say you sold the Nifty December contract at 11 AM, then the margin required for the unhedged January short goes up to Rs. 153,000. If the exchange margin snapshot runs at the same nanosecond, then the margin required for your account will be Rs. 153,000 even though you may be exiting the second leg of the transaction. In case you do not have this margin required, a margin penalty would be applicable. You can check out margins required for multi-leg / hedged strategies on our margin calculator.

Impact for Investors:

  1. 80% credits for sale of holdings in CNC orders for the trading day
    1. From December 1, you can use only 80% of the value of stocks sold in the CNC product for the same day. For E.g. If you sold stocks worth Rs. 1,00,000 on Monday, you could re-utilize only Rs. 80,000 on Monday for either trading in the futures segment or buying other stocks in the cash segment. You will be able to use full sale proceeds from Tuesday. On account of this change, it is recommended that you do not buy back stocks sold in the CNC product on the same day. In case you wish to buy back stocks sold earlier in the day, we recommend you to the use the MIS product type.

The subsequent round of regulatory changes go live from February 2021 and we’ll keep you posted on the same.

References:

SEBI Circular on Peak Margin

Exchange FAQs on the Peak Margin Framework

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