Bad experience: Selling non-pledged quantities of a security, which also has pledged quantities

[blackswan]

I’m referring to this: Why is the collateral margin reduced when the holdings are sold?

1. A client has 200 shares of Reliance, out of which 120 are pledged for collateral margin.
2. The client sells 80 shares of Reliance from the free holdings.
3. The collateral margin will reduce to the extent of 80 shares, as the pledged quantities are considered first when the stocks are sold.
4. Zerodha will debit 80 shares from the free holdings instead of the pledged holdings during the end-of-the-day process.
5. 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.

[cvs]

@blackswan

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)

Main purpose? Pledging?

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

This ETF can be a good choice to park between trades as helps transition between Equity and Cash within the same settlement. It can also be pledged once it is approved by the Clearing Corporation.

@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?

[MohammedFaisal]

Hi @blackswan and @cvs,

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.

@blackswan

• 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.

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.