Can different brokers have different haircut as per their choice?

Brokers
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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 It can’t be withdrawn.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.

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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 -

https://webcache.googleusercontent.com/search?q=cache:_u3POT11nBYJ:https://economictimes.indiatimes.com/markets/stocks/news/pledge-repledge-model-mooted-for-brokers-investors/articleshow/99074727.cms&cd=1&hl=en&ct=clnk&gl=in

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

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Yes. This was happening before. And the margin required wasn’t a lot. So even if they sell OTM which are trading at 0.5 on expiry day they could make a lot of money. There was no restriction on leverage.
But now I do not think that’s possible.
But some small interest on idle funds is a possibility. Still waiting for mods to reply. If they had clarified then it would have been better. Otherwise we will keep assuming things which may not even be true.

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I think difference between margin i.e. difference between clearing corporation offered margin to broker and broker offered margin to client - can be used by broker for option selling for example…
how do you think totally zero brokerage brokers survive?
either float income or use of margin I explained above.

I believe its still happening …difference between margin of different brokers should give you a clue …
Mods or @Ananth can you clarify this…is it possible that brokers who charge haircut than NSCCL or NSE provided files - can use those extra margin for FNO trading?

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This is because there are 2 types of haircut files. One is from clearing corporations and other one is from exchanges. We use exchange EOD Var file (NSE) which has var % comparatively lesser than the NSCCL one. Also, clearing corporations haircut has minimum haircut % criteria.

NSCCL : https://archives.nseindia.com/content/equities/APPSEC_COLLVAL_05042023.csv

NSE’s EOD Var : https://www.nseindia.com/all-reports

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Ok to clarify -
You said NSE EOD var file - has var% less than NSCCL and you also said clearing corporation (NSCCL) has min. haircut …I am confused …which one has lower NSCCL or NSE (exchange)

This link you sent has both files …EOD nse var % …the eod nse var file is .dat file which is not opened with common software available.

Do you follow exchange haircut (in other words EOD % VAR) or NSCCL haircut?

Can brokers charge higher haircut to clients than either NSE or NSCCL provided haircut ?

25

@Ananth The exchange stipulated hair cut for liquidbees is 10% currently. I guess broker cannot go below what is stipulated by the exchange. Does zerodha charge 8% haircut on liquidbees now ?

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Yes they do. That’s why I wanted to know why my other broker has haircut of 10 percent.

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Brokers can charge more but never less than the haircut % stipulated by the exchange. Currently liquidbees haircut is 10% in exchange published file.

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I do not know who is right and who is wrong. If I am getting 2 percent extra margin obviously I would favour them. Zerodha is giving 92 percent. Last I pledged was yesterday.

Also I wanted to know why are they charging extra. Won’t the broker get 92 percent margin out of it. Only 90 is passed on to me. What happens to that 2 percent. The extra cash I maintain with my broker generates some income. I would have maintained lower cash if that 2 percent was passed on to me.

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We use exchange EOD Var file (NSE)

I said NSE var is comparatively less. It means few scrips NSE var will be higher than NSCCL. The clearing corporation has minimum haircut criteria like 10%, 20% etc. whereas there is no such criteria with NSE Var file.

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It should open in notepad.

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31

Exchange is charging 8% for Liquidbees and we follow the same.

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Thanks @Ananth. If we go here - https://www.nseindia.com/all-reports and look at the APPSEC_COLLVAL_06042023.csv the liquidbees hair cut is given as 10%. So which one takes precedence the VAR shown on the NSE page you shared or the haircut % given by the NSE csv file ?

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There are 2 separate haircut files i.e., one from NSE (Exchange) and other one from NSCCL (CC). We follow NSE one and Liquidbees for example is 8% in NSE and 10% in NSCCL.

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Thanks @Ananth

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35

There is another issue here. The equity upfront margin!
Zerodha has a rule of asking for upfront cash even for Group A security. However, settlement is T+1 and they don’t need to give money upfront!
Many other brokers only ask for margin and you can pay cash by T+1, failing which the security goes to CUSPA(according to SEBI rule).
So, why zerodha ask for upfront money ? The answer lies in float income. I don’t dislike it as long as they are honest about it. Every broker does some trickey to create profit. We need honest information to decide which one is more suitable compromise for our scenario!

About haircuts, I can understand different haircuts for Equity cash segment(for MTF, MIS, Or even Delivery for T-Day), since Risk lies with Brokers. If client defaults, Brokers has the risk.

About derivative segment, I really don’t understand why different haircuts ? The margin required is stipulated by Exchange and They decide the collateral haircut. The risk lies with either exchange or client. So, why brokers have got different margin haircut ?

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I understand that you follow NSE var file. However, as original question was regarding allowed haircut – Can a broker ask for higher haircut than prescribed haircut by Exchange/CC ? I read the SEBI documents regarding risk management and nowhere it is written than broker can have higher haircut than prescribed one.

I read latest master circular by sebi.