50:50 collateral rule to be more strictly enforced from now onwards?

Lot of people, including CNBC reporters, have been saying that 50% cash will be required for F&O positions from December 1st onwards. This is despite the fact that this rule has been there for years & there doesn’t appear to be any new circular put out by the NSE regarding this.

  1. Is this for overnight & intraday both? Currently, even Zerodha allows intraday positions (without interest) by pledging shares.
  2. Currently, many brokers are able to somewhat get around this rule by funding the clients themselves or charging higher brokerage. Does it mean now this option will be gone & traders will have to use their own cash or cash equivalent (like it’s with Zerodha)?

@MohammedFaisal, can you throw some light on this? What really is going to change (if anything)?

Hi @SachinSingh,

Regulations mandate that 50% of the margin can come from collateral margin and the remaining 50% has to be in cash. If cash margin is not available, it can be funded by the broker’s funds. At Zerodha, if you don’t have the 50% cash requirement, we fund the same and charge a nominal interest of 0.05% per day.

What has changed recently with this SEBI circular(Annexure 3 Page 16) is that brokers are required to allocate cash and collateral margins on a client-by-client basis instead of at the broker level.
For example, if client A has Rs 200 collateral and client B, C, and D have Rs 100 cash each. The broker now has Rs 200 collateral margin and Rs 300 cash margin.
Client A, B, C, D all take FO positions requiring margins of Rs. 100 each. The exchange will block 50% of this from the collateral margin and 50% from the cash margin. So Rs 200 collateral and Rs 200 cash.
From December 1st, it will be on a client level, so for B, C and D, exchange will block their respective cash margins of Rs 100 each. For A, Rs 50 collateral margin will be blocked and Rs 50 will be additionally blocked from the broker’s funds maintained at the exchange.

TLDR; At Zerodha, there won’t be any change to our clients due to this regulation as it is a back-office allocation change of funds.

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Currently, at Zerodha this 50:50 rule applies only to positional trades and not to intraday trades. Does this mean we can continue to take intraday positions with less then 50% cash component?

Like I’ve explained even after this change at the backend, you can use 100% collateral margin without cash margins to trade, but an interest of 0.05% is charged for the additional amount.
This interest won’t be levied for intraday margin utilisation and only for overnight positions.

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