Can different brokers have different haircut as per their choice?

I see there is a difference in haircut between different brokers …
I thought exchange insist that it should be same across brokers?
I mean what ever clearing corporation provides to brokers …they should pass on to clients?

what it is different and if a broker charges more haircut …how does it help them unless they are using that funds for proprietary trading or something?

The way I understand haircut is that if you pledge your stocks to a broker with a market price of 100

Broker A might give you trading limit of 70
Broker B might give you trading limit of 60.

This is only the trading limit the broker is giving, there is no cash here which the broker can use it for their proprietary trading. Why brokers do this is because, in case the pledged market price of the stock is volatile they have adequate cushion in case of major market crash, Broker B will be in a better position as he can sell the pledged security and square the position in case of major crash.

With regard to your question on why two brokers gives two different haircut for the same stock - This I am not aware off.

Yes they give trading limit not cash but…lets say they pass on less trading limit to client …they can use that extra trading limit for their own FNO trades?

thats right !

brokers can determine the amount of haircut, but it cannot be lower than NSE prescribed one

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To my understanding lowest haircut for Govt sec is 10% correct ? I mean NSE or CCIL has made it mandatory 10%?

After the recent client-level requirements, you can’t divert margins like that.

Each individual client has to have their own Margin both for intraday and overnight.
Even intraday peak margin utilization is captured for each account, not pool or Broker level.

The broker can use the extra margin for himself. When we pledge shares, the broker actually pledges the shares with exchange (I guess) and gets margin. That margin is then passed on to us.

Please correct me if am wrong.
@ShubhS9 @Meher_Smaran

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From my personal experience zerodha has the lowest haircut % in the industry. The only drawback i saw was for few scrips the broker limit has hit.

5paisa also has a similar haircut like zerodha, for few ETFs (index etfs) the haircut is lower vs zerodha. But Gsecs are not pledgeable.

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Yes the shares are pledged - this is done so that the broker can sell it at any time and square the position. The trading limit is given by the broker.

See it this way.
Let’s say I need 1lakh margin to trade. I pledge liquid bees worth 1lakh. I get margin of 80k from it. So I get in additional 20k in cash. But actually broker got 90k margin with it and only 10k cash was used for my position. Now additional 10k cash can be used to generate float income for the broker.

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see my post above if it makes sense. Before all this manipulation was done, but now each account level margin reporting is being done.

Yes it does. But whats the logic behind having different haircut?

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Because the clientele are different, risks are different, charges are different, so haircut is different :thinking:

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In zerodha for liquidbees haircut is 8 percent. Some other broker has 10 percent. I do not see any good reason for the additional 2 percent haircut.

There must be a reason, something that is associated with their RMS :thinking:

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I believe this scenario exist with discount brokers where investable monies are maintained with them unlike Icici Direct, where the funds are in my bank account.

In the same example, you contributed 20K of which 10K was utilised for trading. Yes the remaining will be float and this is how discount brokers make their money. Cant you move the 10K to your bank account at end of day or on Friday evening after the market closes and transfer it back on monday. The bigger risk is if the broker just shuts down and take the float money with them. SEBI is coming out with more controls on this aspect as per the interview I saw with SEBI chairperson yesterday. For the first time, I saw the lady very angry when she was speaking about Karvy.

An intriguing question which the user asked was, can the broker use the balance margin limits for their proprietary trading. I personally feel this is not possible as the trading limit is allocated to a customer and if it is misused, customer will have an higher outstanding than what he did and this can lead to serious issues. It is like banks gives you an OD limit which remained unutilised and the Bank then draws from the unutilised OD limit and uses the funds for their own purpose. Until the broker is such low level, third rates scum, I do not think anyone would do this.

We had a case of karvy where they took the shares of clients which were dormant using the POA and gave it to banks as if the shares belonged to them and took loans from a bank.

I honestly do not know if they utilise the amount to generate some float income or not. I was just guessing. I don’t think they use it for trading because of multiple regulations. But float income is a possibility I think. I could be wrong.

In fact I tagged mods here to know how exactly it works only to not get any reply.

It won’t show that amount in my trading account since it’s used of margin. The collateral given to me is lower so that cash is utilised. It can’t be withdrawn.

Yes. This risk is there. I have my account with zerodha and one other discount broker. Only 10 percent is with other broker. For now I think I can take that risk. I don’t know why I always have that trust with Zerodha.
Anyways SEBI has come up with some new rules where the funds will lie in the bank account only. I am yet to read that. And I guess it happening in less than 3 months.
So that risk will be eliminated.

This is WORRYING. Why are they purposefully avoiding to reply such an important query? We need to get the official answer from zerodha on this.

Could you please share more information on this rule and the exact date from which it will be implemented? The risk as mentioned by @neha1101 is very much there with many brokers out there.

And please checkout this latest article published yesterday in Economic Times, I am sharing the link to the Cached Page, because otherwise you need premium access to read the full article -

According to the article - Almost Rs 50,000 crore of investor funds were held with brokers and clearing members as on 6 January 2023.

Clearly it is a big source of income for many brokers out there and therefor they are not openly talking about this.

“In its current form, the proposal would have a huge impact once cash goes out of the broker’s balance sheet. Most broking firms will have to change their business model since many large ones have substantial float income,” said Gurpreet Sidana, chief operating officer, Religare Broking.

“It’s a good move from the point of view of clients’ funds. But, upstreaming all funds to clearing corporations will hurt other income of broking firms. We will have to figure out how to maintain our revenue growth,” said Prabhakar Tiwari, chief growth officer, Angel One.

And if anyone here is aware regarding who is the Clearing Member for zerodha, then please share this information.

I think that if we want to avoid the risk of having our money lying unused at the broker end, then we should first invest it into some Debt Funds etc. and then should pledge them with the broker to get the margin. This will save us, even if the broker goes bankrupt for any xyz reasons of any type. If my current assumption is wrong, then please kindly correct me on this thing.

Thanks a lot

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A relative who is a broker once said - he sells out of the money call or put (with less than 3-5% probability to come become in the money) to make some extra income from client’s idle fund and extra margin.- at that time I did not understand what he meant …now I do