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Why Is Full Credit Not Being Received Against the Sell Value of the Holdings

You make a sale of Rs 100 from your holdings in the morning and are surprised to find only Rs 80 when you look at your funds later in the day. Don’t worry, the remaining Rs 20 will be in your account tomorrow. But why didn’t you receive the entire amount in one go? Let's look at its key aspects.

What is the 20% Withholding Rule on Intraday Sales?

If a trader sells stocks from a Demat account or through Buy Today, Sell Tomorrow (BTST), only 80% of the sale proceeds will be available on the day of the sale. Subsequent trades on the same or different segment have to be made using that 80% of the proceeds only.

Before this rule came into effect, traders would get the entire sale proceeds on the day of the sale itself, for further use.

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Why was this rule introduced?

This rule of withholding 20% of the selling credit allows brokers to retain the amount as a margin. The brokers utilise the extra day to make sure that the shares are debited from the trader’s Demat account and are available for early pay-in. An additional day is required for this process, as it can be completed only after the market closes.

Thus, if you have sold 1000 stocks of a particular company earlier in the day, you can buy back 800 of it using the sale proceeds. You can, of course, buy more if you add additional margin/funds. 

How did SEBI change intraday leverage?

It is useful to understand the above rule in conjunction with the SEBI restrictions on leverage. The peak margin reporting has been put in place by SEBI to restrict brokers from allowing additional leverage to traders. Since 1 December 2020, the maximum allowable leverage was gradually reduced by September 2021. Post-September 2021, the maximum leverage is dictated by the margin calculation rules. 

For stocks, the minimum margin is 20%, which is essentially VAR+ELM (Value at Risk and Extreme Loss Margin). This minimum margin will have leverage in it, and there can’t be any additional leverage beyond it. The same goes for futures and options, where the margin is the sum total of SPAN and Exposure.

The clearing corporations take snapshots of the margin position. This is done to ensure that there is no shortage of margin at the broker’s end for intraday positions. In case of shortage, a short-margin penalty is imposed.

Who does this affect my trading? 

These rules have made little changes in the way you trade. Let us understand how SEBI guidelines have affected your trading.

The sale - Your Demat account has 100 shares of one company, and no other holdings or margin. You sell these shares for Rs 1000, which generates the sale proceeds of Rs 1 lakh. But remember, you will only receive Rs 80,000 today.

The Consequent Transactions - With the Rs 80,000 you carried out an intraday sale, let us assume a futures contract. Apart from the intraday futures contract, you also bought back 800 shares of the company you had sold earlier in the morning.

The Effect – Since you bought back 800 shares, only 200 shares will be transferred to the clearing corporation. For the sake of simplicity, let us assume that the value of these 200 shares is Rs 20,000. As a result, at the time of your futures trade, you were actually short by Rs 60,000 (Rs 80,000 less Rs 20,000). Hence, a peak margin penalty will be applicable.

To sum up

If you sell a holding and buy it back during the same day, and used the proceeds to carry out an intraday trade. If you don't have any additional funds to cover the deficit, you will face a peak margin penalty. SEBI has introduced these changes to ensure that a margin is available to the broker as the shares sold are cleared by the clearing corporation.


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