Know the concept of peak margin reporting!
A new framework of upfront margin collection from clients
You’ve been attaining services from Astha Trade since very long. So, it’s our responsibility as your trustable service provider to advise you of the latest amendments & regulations from the giant regulator of our country SEBI. Sebi has published a framework to enable verification of upfront collection of margins from clients in cash and derivatives trading. This very recent framework will come into existence from December 1, 2020.
Presently, the principle of generating in the entire upfront margins is only applicable to traders in derivatives that is us. To broaden up with the phenomenon of what upfront margins consist of, it comprises the value of risk (VaR) margin & extreme losses margin (ELM). They are evaluated by the trades on the basis of volatility and change often. Earlier, the margins were paid to brokers at the end of the day by the clients.
To streamline a system & to curtail risk management this framework is being emanated with a set of phases to be acknowledged.
According to Sebi, Clearing corporation shall send a minimum of 4 snapshots of client wise margin requirements to the Trade member/ Clearing member. This submission will help them to know the intraday margin requirement per client in each segment. The number of times snapshots need to be sent in a day may be decided by the respective clearing corporation depending on the market timing, subject to a minimum of four snapshots in a day. The snapshots would be randomly taken in predefined time windows.
The last snapshot for commodity derivatives will be generated at 5 PM.
The client wise margin file submitted by the clearing corporations to trading or clearing members will encompass the end of the day (EOD) margin requirements of the client as well as the peak margin requirement of the client, across each of the intra-day snapshots.
The member will have to report the margin collected from each client, as at EOD and peak margin collected during the day, in a manner prescribed by the regulator.
EOD margin obligation of the client will be compared with the respective client margin available with the TM/CM at EOD and peak margin obligation of the client, across the snapshots, will be compared with respective client peak margin available with the TM/CM during the day.
With concern to penalty, Sebi announced higher of the shortfall in collection of the margin obligations at the two prescribed manner will be considered for levying a forfeit.
The verification of the availability of margins with TM/ CM will be done by exchanges or clearing corporations on a weekly basis by verification of the balances in the books or of the TM/ CM in respect of the client.
It has been explained that the peak margin obligation of clients across snapshots will be adopted in a phased manner.Clients will need to maintain a lot more margins for initiating intraday trades. Return on investment on intraday trading will fall substantially.
According to brokerage assessments, intraday margins will go. This could result in a huge deduction in intraday turnover which is almost 90 per cent of all turnovers. This is because an excess intraday margin provided could result in margin penalty.
The shortfall in collection of margins will be calculated by taking into consideration the phased adoption of peak margin obligation of the client. As per our expert’s opinion, ”the new norms would harm traditional firms, not the new-age online entities.”