We emailed some of our clients about delayed payment charges on non-cash collateral margin utilisation which led to some confusion, below is a clarification on the same.
The clearing corporation blocks margins in the proportion of 50:50 for all positions taken by clients, So if you have margins only in the form of collaterals by pledging stocks, the cash component required for such margins is blocked from the broker’s own funds. This applies for both intraday & overnight positions.
In other words, if there’s a shortfall in the 50:50 cash and collateral margins the broker will have to fund the cash component. So brokers charge an interest for such positions. This is a common practice across all brokers and banks.
The intent of this email was to notify you about the shortfall in the cash component of margins for your position so that you can ensure there’s sufficient cash components maintained at all times. You can choose to pledge any of the securities from this list that are considered part of the cash component.
While there are brokers who will limit the use of collateral margins to the extent of cash margins available in your account, at Zerodha, we impose no such restrictions. You are free to pledge securities worth any value and use them for trading purposes, since we’re adequately capitalized with our own funds.
While we currently have no immediate plans to charge interest charges for intraday positions, please ensure you have adequate margin in the right proportion at all times. This will help us prevent our capital from being blocked. We will notify you of any decision to charge interest on intraday positions in advance.
@MohammedFaisal Can you please share any NSE circular that stipulates 50% cash margin for intraday option selling? This will clear most of the queries. I personally trade intraday as we have expiry almost daily and try to make some additional returns on top of portfolio. If interest is charged for not having 50% margin by cash/cash equivalents for intraday positions, risk reward will no longer be in favour for the traders and will be forced to quit trading.
As far as the exchanges and clearing corporations are concerned, there’s no concept of “intraday”, “overnight”. Brokers have created these product codes for the sake of client’s convenience. Margins are charged similarly at a porfolio level immaterial of whether they’re intraday/overnight.
There will be no restriction on trading with collateral margin ever, you’re free to continue trading. If you think of it, when positions are taken, even for intraday without sufficient cash on part of the client, the broker’s working capital does get indeed get blocked . Some brokers are already charging interest for this.
Ya thanks for clarifying it.
Ya I know some brokers r charging for it / rejecting our order if there is no cash component even in MIS order. Thats why I closed all brokers account & kept only zerodha , & trusting it bcos of its transperancy.
I hope that day don’t come, wen u guys charge interest for intraday / MIS order.
Thanks.
I take an Overnight OTM fno sell position for today’s nifty expiry as an example, with total 30 Lakhs as margin needed. I have total cash collateral of 10 Lakhs and non cash collateral of 22 lakhs. In this case I have a cash component short fall of 5 Lakhs, and since we are considering today as the expiry day, are there any penalties ? As the position would be closed automatically today and I have sufficient margin from non cash component.
Same case as above but with tomorrow as the expiry day. So what will be percentage of interest levied, for a cash short fall of 5 Lakhs, but sufficient margin from non cash component.
. Some brokers are already charging interest for this.