There are different kinds of margin required for trading -
MIS Intraday margin
Upfront Margin for Delivery trades
F&O margin.
MTF margins.
Collateral Margin(aka Haircut)
Sebi has this master circular for risk management as on date -
This details different kinds of margin required.
For 2) The margin is Var+x*ELM+adhoc etc. This is given on NSE website for every scrip. I believe, 50:50 eq:cash rule applied in this margin too. However, under zerodha RMS policy, it asks for 100% upfront cash margin. Since brokers are allowed to ask for extra upfront.
3) F&O margins are defined by exchanges (again based upon var/elm etc) and it is adhered by all brokers.
For MTF positions, minimum is mandated as Var+(3 Or 5)*ELM. However brokers are given leeway to ask for extra margin based upon their own RMS policy.
For collateral haircut, for cash-equivalent , it is mandated as 0%, 2%,5%,10% (Page 2 and 5 of linked circular).
in Non-cash collateral, For Group I security, it is same as (VaR) . There is no leeway given to broker to ask for additional haircut.
Zerodha asks for haircut equal to Var+ELM+AdhocMargin. That was supposed to be for buying them not for haricutting already bought shares. It is clearly mentioned that applicable rate is (VaR) in SEBI document with no additional allowed haircut. How is zerodha and other brokers charging it ? They can take VaR from exchange Or CC, but how can they ask for more ?
Is it legally allowed even ?
I also have another question. For selling and buying (eg. in smallcase), 20% delivery margin is mandatorily blocked. However, for further buying in non-T2T shares, upfront margin required is less than 80%. Zerodha RMS asks for 100% upfront cash margin and this creates issue in smallcase rebalancing. Can’t zerodha ask for just 80% upfront cash for non-T2T shares ? Since rest of the money will anyway come on T+1 ?
That post gives good overview of F&O margin requirement evolution. Thanks for that.
However my question is for different margin. Transaction margin(cash or derivative) is different thing. Collateral Haircut is different thing.
For collateral margins, the haircuts are applied as prescribed by the Clearing Corporation and exchanges. When the Clearing Corporation publishes the list of approved securities, they also included the haircut values for those securities. You can download this list form the exchange website here (Revised list of Approved Securities and Approved Banks).
For buying shares for delivery we ask 100% margin as there is risk of overnight events. Also, as settlement happens on the next day itself, the broker is required to pay 100% of the purchase money to the stock exchange to receive the stocks.
Currently we do not allow MTF (Margin Trade Funding), which allows one to buy and hold stocks overnight with funding from the broker. This is on our list of things to do.
Thanks for linking that exchange website. For Nifty50 Equities, it says haircut is VaR.
For other allowed securities, it is VaR Or 20% whichever is higher.
If you see the daily haircut file given by CC, this rule is clearly being followed, so that’s settled already.
However, my question is about zerodha NOT following it. Zerodha is asking for VaR+ELM+AdHoc . Is zerodha mistaking buy margin with collateral margin ???
I have gone through that thread you linked. That is well known to me, but one thing caught my eyes – VenuMadhav claimed that as a broker “we are free to charge anything above the haircut”. Can you substantiate it using any SEBI circular ?
in the linked relevant circular is Section 1.1.2 .
Please tell me the section where Broker has been given leeway to charge higher haircut. As per my readings, higher margin is allowed only for Transactions and always written explicitly.
About, Buy margin - are you saying 80% margin do not cover overnight events, despite fully well knowing that 20% would come by next day ?? I am not saying 80% to be always, but only when you buy against sell, since 20% is blocked as per sebi rule. Otherwise 100% rule do not pose any problem.
Brokers collect VAR/ELM/Adhoc or any other additional margin as per Exchanges/CC since those margins gets blocked at CC level for brokers and in turn broker collects from clients. Otherwise it would be treated as funding which can only be under MTF and not for general shares as pledge (collateral). The above shared SEBI master circular covered this point.
Exchanges/CC can term the Special/additional or any margin as per their terminology like Adhoc margin, etc.
**Now its T+1.
I guess you had referred this thread on similar query on how brokers charge different haircuts, just linked again here if that helps.
It feels to me like zerodha is completely confused between transaction margin and collateral haircut.
You don’t “collect” haircut. You collect margin for transactions like Cash/Intraday/delivery/F&O . You need to report those margins to CC. Upfront margin needs to be collected before transaction and later it needs to be settled on T+1 as per regulation.
Margin can be given by way of Equity/Cash/MutualFunds/CashEquivalents. How to value these margins to be reported, has been prescribed by SEBI in section 1.1.2. You deduct haircut as prescribed and then sum them and report along with details. You are not ‘collecting’ haircut.
PLEASE, don’t confuse transaction margin with hairut.
