SEBI New Rules : More money To Invest for Intraday

 

What is SEBI?

Securities and Exchange Board of India (SEBI) is a statutory regulatory body entrusted with the responsibility to regulate the Indian capital markets. It monitors and regulates the securities market and protects the interests of the investors by enforcing certain rules and regulations.

SEBI was founded on April 12, 1992, under the SEBI Act, 1992. Headquartered in Mumbai, India, SEBI has regional offices in New Delhi, Chennai, Kolkata and Ahmedabad along with other local regional offices across prominent cities in India.

The objective of SEBI is to ensure that the Indian capital market works in a systematic manner and provide investors with a transparent environment for their investment. To put it simply, the primary reason for setting up SEBI was to prevent malpractices in the capital market of India and promote the development of the capital markets.

Functions and responsibilities

SEBI has to be responsive to the needs of three groups, which constitute the market:

• issuers of securities
• investors
• market intermediaries

 

SEBI New Rules  

What Is The Margin?

Margin is a concept that allows brokers to extend loans to clients against cash or securities or any form of liquid assets in their margin account to invest in the market. This helps traders and investors to leverage, that is to place a larger bet than the cash available in their account. It is also called loan against investment.

What Will Change?

Margin is calculated based on the total exposure of a client in the market. It is the total of value at risk (VAR) and extreme loss margin (ELM). The exchange calculates margin requirement on market volatility, which changes many times during the day.  Some trading members have argued that the new rule will prevent brokers from extending margin beyond the value of upfront margin.

From December 1, the clearing corporation (a part of the stock exchange) will send at least four intimations a day client-wise to meet intraday trading margin requirements. They are going to call it peak margin reporting.

According to market experts, the new rule will significantly limit intraday trading activities, which contributes almost 90 percent of the volume in the exchange. Some participants said it means ‘no more intraday leverage.’

Currently, a total of 30 to 35 percent of intraday trading turnover depends on the additional margin extended by the broker. But under the new rule, clients will have to maintain a higher margin in their accounts to receive the same leverage amount as before. Under the new directive, no broker will be able to extend any higher-margin limit than prescribed. If the broker fails to collect, or the client fails to pay the required margin within t+1 (for derivatives) and t+2 (for equities and commodities), Clearing Corporations will impose a penalty as it deems fit.