Securities Exchange Board of India, referred to as SEBI, is the regulatory authority that governs stock market transactions through a body of rules and guidelines that it releases from time to time. As an investor, it is important to keep up with new SEBI rules that are notified and updated on their website. Your broker or broking platform will also keep you apprised of SEBI’s new rules through official communication. It is important to stay updated on new developments posted by SEBI as the impact of new SEBI rules on margins, deadlines and procedures can influence your bottom line as an investor.
Restrictions on Maximum Intraday Leverage by Broker
The maximum leverage a broker can offer for intraday trading would be 20% of VAR (Value At Risk) + ELM (Extreme Loss Margins). What this means is that if you are buying shares worth INR 100, bank-owned brokers would block 20% of that amount on the trade day itself. Previously, the whole amount would be debited on T+2 days by the broker.
Similarly, in case of sale of securities, the seller would have to deposit 20% of the total value of the securities upfront to avail margin facility offered by the broker until the shares are debited from the investor’s account and made available to the clearing corporation. Only 80% of the sale value from shares sold will be available for further intraday trades. This of course does not include other additional margin/amount the trader may have in their trading account.
Lien on Pledging of Shares
Shares pledged as collateral for marginal requirements will no longer need to be transferred from the investor’s demat account to the account of the broker. Under the new rules a lien is created in favour of the broker using which the broker can then pledge the shares to the clearing corporation. As an added safety measure, the broker will have to procure a one-time password from the investor before the shares are pledged. This creates an added layer of security and reduces the risk involved in trading.
Additional benefits such as the direct accrual of rights and dividend issues to the investor as opposed to the demat account of the trader are also meant to benefit investors.
New Rules on Use of Intraday Profits for Further Trading
SEBI has placed restrictions on the use of intraday profits made by traders to carry out additional stock market trading activities on that same day.The profits can only be used 2 days later for trading activities. Traders must fulfil the minimum margin requirement in order to carry out intraday trading.
To conclude, the new SEBI rules on intraday trading may inconvenience brokers and investors in the short term, however with prevailing trends of brokers offering almost 100% margin to traders and the resulting risks and losses that come with it make the new rules a need of the hour. If you are interested in intra day trading, it is important to educate yourself and do your research before making any actual trades.