Beginning May 2, individual traders must provide 50 percent of their stock derivative margin requirements in cash. This is part of the Securities and Exchange Board of India’s tougher customer margin requirements, which are intended to reduce system risks.
Traders can already utilize the value of shares pledged with brokers as margins for futures and options contracts. SEBI delayed the execution of this regulation until May 2 from February 28. Brokers are currently preparing for the new regulations’ implementation.
Some brokerage houses have already begun to receive increased cash margins. Private investors will sell some stocks in the market before May 2, according to brokers. Brokers will be fined if the client’s margin criteria are not met. They will also be unable to utilize the funds from one client to finance another.
Brokers will be required to divide customer money into categories such as cash, F&O, currencies, and commodities under the new SEBI regulations, and to upload the data to clearing firms. This is intended to reinforce the customer collateral protection system against broker misuse.
Because there was no split in the funds of customers and brokers until today, reporting and margin computation at brokers were done at an aggregated level.
As customer collateral is not considered over 90%, SEBI has indirectly imposed a capital adequacy ratio (CAR) of 10% for brokers under the new regulations. Previously, brokers’ net worth was increased through earnings. To sustain the increased business, a broker must first improve their net worth.