A client has 200 shares of Reliance, out of which 120 are pledged for collateral margin.
The client sells 80 shares of Reliance from the free holdings.
The collateral margin will reduce to the extent of 80 shares, as the pledged quantities are considered first when the stocks are sold.
Zerodha will debit 80 shares from the free holdings instead of the pledged holdings during the end-of-the-day process.
The collateral margin in the client’s account is restored the next day, and the client won’t need to place the pledge request again.
This is extremely bad for LIQUIDCASE, the main purpose of which is to park your money and pledge and unpledge it frequently (that’s the point of it being called liquid). Especially, since presently cash component securities can’t be instantly sold without placing unpledge request first (another major pain point), I thought I would keep some part of my LIQUIDCASE units non-pledged, so that I could recover some cash if I spot some opportunity, only to find out that even that amount can’t be instantly recovered by selling the non-pledged units.
Not only do we have to wait for the next day to access the cash, it also reduces the margin from pledged quantities, potentially liquidating active positions!!! Double whammy! This is horrible! There should be a WARNING about this!
What’s the point of LIQUIDCASE then? @nithin request you to further improve the experience of LIQUIDCASE by addressing this, since that’s the most popular product from Zerodha AMC. This is very inconvenient and I would like to know the reason behind why it currently works like this.
Ummmmm…
isn’t the main purpose to enable buy/sell over extremely short durations (days) without concentrating risk even during such a short period?
@VishalJain Since you also go on to mention pledging in the introductory post,
what are your thoughts on the perceived pain-point with pledging LIQUIDCASE as above?
Pledging a liquid security is an explcit act of sacrificing liquidity to gain margin, no?
We are ready to allow the instant sale and unpledge of cash collateral securities such as LIQUIDCASE, which is being tested internally. We will be live for all clients in the next couple of weeks.
This got unnecessarily delayed, and we should have rolled this out sooner.
For stocks in which you have both pledged and free quantity, ideally, we want to reduce the free quantity on sale first, followed by the pledged quantity. However, we cannot set this flow due to limitations on our OMS/RMS (powered by our vendor). Hoping that this won’t be a problem once we allow instant unpledge of cash collateral securities and you can keep all quantity pledged like you’ve mentioned.
Yes, this has been rolled out to all users from today (was available for a smaller set of users last week)
Now will be able to unpledge cash equivalent securities by directly selling them without needing to manually unpledge them first. But similar to stock collateral behaviour, first the quantities will reduce from pledged holding followed by the free holding due to the OMS vendor limitations.
Yes, 80% margin will be available instantly after selling the pledged holdings.
Just want to understand this better in view of FIFO (First In First Out) - which is the usual practice followed for STOCKs and in TAX calculations. I think the main point is not from where it is reduced but what is pledged in first place. For the sake of understanding the question - let’s give each stock share a serial number.
First of all, if I pledge 100 stocks today (2024-09-30) which serial numbers will get pledged?
Secondly, if I sell 100 stocks day after tomorrow, I understand from your comments that it will be from the pledged quantity. Does this break FIFO rule? What will be the LTCG/STCG considerations in that case and how will it be calculated?
Say I have 100 quantity of LiquidBees (pledged 90) and decide to sell 10 what happens does the free 10 quantity get’s sold?
Or pledged 10?And the margin reduces accordingly?
The pledged quantity is reduced first, followed by the free quantity. However, at the end of the day, any sale obligation will be fulfilled with the free quantity.
@blackswan I faced the same situation when this instant unpledging feature was rolled out. But since couple of days back, the behavior seems to have changed. I now see the pledged ones are kept intact and non-pledged quantities are sold when we have both. May be they might have implemented some workaround to by-pass the OMS/RMS limitation of FIFO. Or it might be a temporary glitch in my Kite app. How do this scenario behaves for you in these days?
I raised following ticket in this regard. For which Zerodha closed it saying, it will be enhanced in future.
