SEBI in its recent circular has made changes to the margin reporting framework and has decided that the end-of-the-day margins will be calculated based on the beginning-of-the-day SPAN file. So even if there is any spike in volatility during the day, the margin requirements will remain the same as those were at the start of the day.
Currently, margins are calculated based on the beginning of the day margins for intraday peak margin utilization. While the end-of-day margins are calculated separately, which can on occasion lead to higher margins on the end of the basis if there is a spike in volatility during the day.
If you hold a short position in Nifty 17600 PE for which the margin requirement at the beginning of the day was Rs. 100,000. During the day if there is any spike in volatility and the margin increases to Rs. 110,000 at the end of the day.
Currently, as the margins are blocked on the basis of the end-of-the-day SPAN file, the margins will increase to Rs. 110,000. In this scenario, if there is any shortfall, there is a penalty on the broker.
Under the new framework, the margins will be calculated based on the beginning of the day SPAN file and will remain the same i.e. Rs. 100,000. In this scenario, there won’t be any shortfall in margins and no penalty will be applicable.
You hold a short position in Nifty 17600 PE and a long position in Nifty 17500 PE. As this is a hedged position, the margin requirement for this is substantially lower, around Rs. 21,500. In case the hedge is broken and you square-off the buy leg, the margin requirement for holding a naked short position will increase to Rs. 100,000.
In case there is any shortfall of margins, the penalty will now be applicable on the beginning of the day margins.
Both cases come under the upfront margin requirements and any shortfall in margin results in a penalty on the broker.
These changes are applicable across derivative segments including commodity derivatives and come into effect from May 1, 2023.
You can check the SEBI circular here:
You can learn more about margins in this post: