 "Sebi")
Stock brokers' association Anmi has urged markets regulator Sebi to reconsider the proposed 100 per cent levy on intra-day trade peak margins, as the higher-margin will reduce hedging opportunities.
In a letter to Sebi on May 15, the Association of National Exchanges Members of India (Anmi) said that there is a great disconnect between what is being collected from clients and what needs to be collected vis-a-vis the attendant risks arising in intraday trades.
It, however, reiterated that they are not against the collection of intraday margin levied on clients nor the levy of full margin on the clearing member irrespective of the nature of the trade.
The bookers' association requested Sebi to reconsider the proposed 100 per cent levy on day trade peak margins as the margin is 300 per cent of what should have been the actual levy.
Sharing its data with the regulator, Anmi pointed out that the rate of overnight margins, levied on intraday trades are almost 3.33 times more than what is warranted based on the risks of the trade.
It maintained that the ideal margin based on the attendant risks ideally should not exceed 33.33 per cent of the SPAN (standard portfolio analysis of risks) margin.
"In the current margining structure, the current levy of peak margins is 300 per cent of the margin, which should have been actually levied. The levy of margin being a high multiple on intraday trades is also causing effects elsewhere," Anmi spokesperson said on Monday.
Also, nowhere in the world, clients are required to pay upfront peak margins.
Already open interest in Nifty is more in Singapore compared to India, though it is a product based on Indian stocks. Indian markets are already at a disadvantage compared to SGX in terms of margins, time of trading, transaction cost and taxation. Any further unwarranted restrictions will result in the export of business from India to overseas markets, the association said.
According to Anmi, the spike in peak margin will bring change in market behaviour by shifting from future to option buying and a shift in the mindset of people gravitating more towards options trading and moving away from stock /index futures and stock options.
It also pointed out that higher margins would also imply prolonged carry forward of loss-making trades, giving a false sense of security. Due to the shift, hedging opportunities have seen a dip due to lower volumes in the capital market and commodity markets have been greatly impacted.
Anmi's concern over the peak margin issues rises as the deadline for the increase of the current margin of 50 per cent to 75 per cent from June 1, 2021, is closing in.
Between December 2020 and February 2021, traders were supposed to maintain at least 25 per cent of the peak margin. This margin was raised to 50 per cent between March and May and is proposed to be raised to 75 per cent between June and August and finally to 100 per cent from September 1 onwards.
The brokers' association suggested Sebi to bring the peak margin back within the band of 25 per cent to 33.33 per cent from the current rate of 50 per cent.
"We believe that the change will be a major boost for the industry in the current scenario," it said.
Anmi, a grouping of over 900 stockbrokers across the country, had requested for an urgent virtual meeting (keeping in mind pandemic conditions) with policymakers concerned in Sebi to discuss the submission at length.
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