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F&O Margin Penalty

08 May 2023

Margin Shortfall Penalty

According to SEBI Regulations, a margin shortfall penalty is levied to any positions that do not have appropriate margins. The guidelines demand that the most recent SPAN & Exposure or stock physical delivery margins be accessible in the client's derivatives allocation at all times.

Margin shortfall owing to any cause, including marked-to-market losses, exchange margin increases or hedge removal, the penalty is calculated as a percentage of the Shortfall Amount specified by the exchange.

Why Does the F&O Margin Rise After the User Takes the Position?

Margin requirements rise as a result of the following:

  • When a user squares off one leg of a hedged position, the margin requirement for the unhedged leg increases.
  • Increase in SPAN margin via exchange throughout the day.
  • Market to suffer significant losses, resulting in margin shortfalls.

How is F&O Margin Tracked Intraday?

During the day, the exchange takes at least four snapshots of the client's holdings to determine the intraday margin needs. The client's peak intraday margin demand is determined by the highest margin requirement throughout these four snapshots.

Any deficit in the collection of the highest Peak margin requirements will be evaluated for the imposition of the peak F&O margin penalty in accordance with the exchange framework.

What Happens Overnight?

Clients must maintain an EOD margin for open positions after the market closes, which will be compared to the most recent exchange margin. Therefore, any deficit in client margin availability due to exchange requirements is subject to an EOD margin shortfall penalty.

Is the Penalty Subject to GST?

Yes, the penalty is subject to GST, which is applied to the penalty amount. The total amount after GST is taken from the account. The current interest rate is 18%.

How Can I Avoid the Penalty?

To prevent the penalty, make sure you have enough margin available in your account in case the exchange increases the margin requirement. Motilal Oswal enables cash or shares to be used as margin for F&O contracts. Simultaneously squared off hedged position. Check the excess or shortfall margin once you place your order or squared off every time.

Also, remember, by timing your trades correctly and selecting the correct strike prices, you can achieve a profitable transaction. If trading doesn't appeal to you, another option is to consider investing in upcoming IPOs. Whatever you decide, make sure you always have a Demat and trading account in your name. You cannot invest in the financial markets without one. Open a Demat account with Motilal Oswal today in a matter of minutes.

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